Construction Sector: Roadmap to Zero Retentions

Lord Aberdare Excerpts

Wednesday 15th December 2021 Lords Chamber

Asked by

[Lord Aberdare]

To ask Her Majesty’s Government what steps they plan to take to support the implementation of Build UK’s Roadmap to Zero Retentions, seeking to eliminate cash retentions in the construction sector by 2025, further to its endorsement by the Construction Leadership Council on 9 December 2019.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the Government are working in conjunction with the Construction Leadership Council to support the implementation of the Roadmap to Zero Retentions. Work is being undertaken by the business model workstream of the council. This includes building on the work of the Get It Right Initiative, to drive improvements in quality and reduce the need for retentions through the construction industry and exploring alternatives to cash retentions.

[Lord Aberdare (CB)]

My Lords, the Build UK roadmap and its endorsement by the Construction Leadership Council demonstrate a welcome degree of consensus across the sector that action is urgently needed to eliminate the pernicious practice of retentions, as well as outlining a route to doing so. The Minister’s response indicated a sort of waiting game that retentions might die out of their own accord. There is a general feeling that legislation is needed to bring an end to retentions, so I ask him: what is the plan to reach the 2025 target date, and when will legislation be introduced to achieve it?

[Lord Callanan (Con)]

I understand that the noble Lord has strong feelings on this issue; indeed, we met to discuss this a few months ago and he has previously asked Questions on it, so I know his passion on the subject. The problem is that there is no general feeling that legislation is required. Some people passionately believe in the need for primary legislation, but obviously there is some opposition as well. We continue to believe that the best way forward is for an approach that all sides can agree on to be taken forward by the Construction Leadership Council.

--- Later in debate ---

[Lord Callanan (Con)]

As I said in response to a previous question, I agree with my noble friend that we need to try to drive some action in this area. But a statutory ban is a very blunt instrument, and it would be difficult without some alternative form of surety being put in place, so we are working with the industry to try to develop those models. My noble friend will know the issue very well from the work that she did.

[Lord Aberdare (CB)]

My Lords, the Minister mentioned the lack of consensus in this area. There is never going to be a complete consensus between one party which is withholding funds and the other party which is having them withheld. This is why action is needed by government to address the issue. I accept that the complete banning of retentions is a major step but that is why action is needed now to devise a path towards that eventual goal.

[Lord Callanan (Con)]

The noble Lord is partly right and there will always be some who will oppose it, but the Build UK Roadmap to Zero Retentions has been developed and is supported by its many clients. The construction firms and trade associations within the membership of Build UK, the Construction Products Association and the Civil Engineering Contractors Association, are supporting this initiative. There are some hopeful signs of consensus going forward.

Small Business Commissioner: Late Payments

Lord Aberdare Excerpts

Tuesday 7th December 2021 Lords Chamber

[Lord Callanan (Con)]

That is a very good suggestion. I certainly will do that.

[Lord Aberdare (CB)]

My Lords, the Small Business Commissioner’s role is limited in relation to construction companies. For example, she can deal with complaints from small construction firms about payment disputes only with larger firms which are signatories to the prompt payment code. Why then can she not deal with the same complaints when the bigger firm is not a code signatory? Will the Minister look at extending the commissioner’s role to provide full support to small construction businesses?

[Lord Callanan (Con)]

I have had this discussion with the noble Lord before. The construction industry is different; there are adjudication processes already set up for it and we are also looking at the issue of payment retention, as the noble Lord knows well. It is a complicated issue. The legislation already precludes the application to the construction industry, because there is an adjudication code process already there.

European Union Touring Visas

Lord Aberdare Excerpts

Tuesday 14th September 2021 Lords Chamber

Asked by

[Lord Aberdare]

To ask Her Majesty’s Government, further to their announcement on 4 August that United Kingdom musicians and performers will not need visas or work permits for short-term tours in 19 European Union countries, what plans they have to seek similar arrangements for (1) mountain guiding professionals, and (2) other service providers whose livelihood depends on touring in European Union countries.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

The Government are committed to supporting individuals and businesses to adjust to our new relationship with the European Union. The types of activity that UK service providers can undertake without visas or work permits vary by country. We have published detailed guidance on GOV.UK to help business travellers navigate these rules. We engage regularly with our embassies and welcome the opportunity to speak with member states to improve mutual understanding of our respective systems.

[Lord Aberdare (CB)]

My Lords, many UK providers of specialist services across European borders—in sport, travel, events, cultural and creative industries and numerous other sectors—are deeply concerned at the risk of losing their businesses because of the omission of such services from the trade and co-operation agreement, and feel a growing sense of abandonment by Her Majesty’s Government. Many, such as mountain guides, hold advanced UK qualifications. What are the Government doing to accelerate the process for achieving the mutual recognition of such qualifications? What practical, immediate support will they offer to those service providers who can no longer operate under the terms of the TCA or within the multiplicity of different requirements for working in individual member states—including those under which the Government claim that visa-free and permit-free touring are possible?

[Lord Callanan (Con)]

The noble Lord asks a number of questions. This is a complicated area. Of course, the requirements differ by member state, and different qualifications and regimes are applicable in each member state. We are engaging with all member states through our embassies and contacts in the EU to try to improve the situation and provide advice, encouragement and support for them to liberalise their regimes and provide the service providers mentioned by the noble Lord with the appropriate support.

Post Brexit: Small Service Businesses

Lord Aberdare Excerpts

Monday 24th May 2021 Lords Chamber

Asked by

[Lord Aberdare]

To ask Her Majesty’s Government what assessment they have made of the impact of the United Kingdom’s departure from the European Union on small service businesses dependent on mobility between the United Kingdom and the European Union; and what support they have offered to such businesses to preserve their incomes and jobs.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the Government are committed to supporting SME owners from all parts of the UK. My colleague, Minister Scully, recently formed an SME action group, which meets regularly to discuss key issues. The EU-UK Trade and Cooperation Agreement supports small services businesses, ensuring that many business visitors can stay in the EU for 90 days of any six-month period without requiring a work permit. BEIS is currently expanding GOV.UK guidance on member states’ immigration systems.

[Lord Aberdare (CB)]

My Lords, numerous small UK providers of cross-border services, based in the EU, EFTA and the UK, have found their businesses under existential threat following Brexit, including IT consultants, translators, exhibition organisers, tradespeople, sailing-holiday providers, ski instructors, journalists, artists and, of course, musicians, to name just a few. They find it hard to get clarity on the rules now governing their activities or on where to get help to resolve issues. What guidance can the Minister offer to such service providers to help them find ways of saving their businesses and their livelihoods, and will the Government consider setting up something similar to the EU’s Your Europe Advice and SOLVIT services to support them?

[Lord Callanan (Con)]

The noble Lord makes a good point. This is a complicated area. We are upgrading existing GOV.UK guidance on the immigration systems of EU and EFTA member states to help businesses adjust to the new requirements. The first tranche of these guides is available now, and from 1 January 2021, for short stays of up to 90 days in any 180-day period, UK nationals will not need a visa when travelling to and within the Schengen area to undertake a limited range of activities.

Industrial Strategy: Local Growth

Lord Aberdare Excerpts

Monday 26th April 2021 Lords Chamber

[Lord Callanan (Con)]

In the new plan for growth that the noble Lord refers to, we have decided that the Industrial Strategy Council in its current form will no longer be needed to monitor and evaluate the impact of the industrial strategy. The Prime Minister and the Chancellor have convened a build back better business council to act as a sounding board and to provide help, advice and support on the way forward.

[Lord Aberdare (CB)]

My Lords, the ISC report urges the Government to develop a comprehensive and ambitious labour market strategy, co-ordinated across government, employers and the education sector. What plans do the Government have for such an overarching strategy and for overseeing how their various skills-related initiatives mesh together to deliver a skilled and resilient workforce across the UK as needed by the plan for growth, and to close the future skills gap highlighted by the ISC?

[Lord Callanan (Con)]

The noble Lord is right that skills are one of our key priorities for investment, along with infrastructure and innovation. The Prime Minister and the Cabinet Secretary have asked Sir Michael Barber to conduct a rapid review of government delivery, including in the skills system, to ensure that it remains focused, effective and efficient and to suggest how it could be strengthened.

Construction Industry: Retention Payments

Lord Aberdare Excerpts

Thursday 14th January 2021 Lords Chamber

Asked by

[Lord Aberdare]

To ask Her Majesty’s Government what steps they have taken since the publication on 26 February 2020 of the responses to their consultation on retention payments in the construction industry.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

The Government, in conjunction with the Construction Leadership Council, are working to develop a sustainable strategy on retentions for the whole sector. During the current pandemic we have also provided guidance to the industry on responsible and fair contractual behaviour, including in relation to retentions. We are committed to improving payment practices and working with the construction industry to take this important matter forward.

[Lord Aberdare (CB)]

My Lords, it is three years since the Government’s consultation on retentions ended and, as we have been reminded today, three years since the collapse of Carillion, which led to small construction firms losing hundreds of millions of pounds in retentions. Retentions limit their ability to invest, grow, train staff, take on apprentices and, all too often, survive. The actions mentioned by the Minister are better than nothing but do not go nearly far enough. I have two questions. What are the Government doing now to prevent small construction firms, already under pressure from the pandemic, being crippled because funds properly belonging to them are being used by larger clients to prop up their own cash flows? When will the Government introduce the legislation reform that is recognised as the only way of bringing proper ongoing relief to these small firms?

[Lord Callanan (Con)]

I know that the noble Lord has been active for many years on this important issue. This has been a slower process than we might have liked, in part due to the complexity of the issues associated with the practice of cash retentions and the wide range of interested parties. While most in the construction industry favour or could accept change, unfortunately no consensus on a preferred solution has emerged from industry to date.

Brexit: Competition and State Aid (EUC Report)

Lord Aberdare Excerpts

Thursday 24th May 2018 Lords Chamber

[Lord Aberdare (CB)]

My Lords, it is a pleasure to serve on the EU Internal Market sub-committee. This report, pace the noble Baroness, Lady Noakes, seems to be a good example of the committee inquiry process working as it should. The committee has a membership of all the talents, with an outstanding chair in the person of the noble Lord, Lord Whitty, and first-rate staff support. It has been supported by a splendid special adviser, Professor Erika Szyszczak, who gets no mention at all in the report, perhaps because the spellchecker could not cope with a name that includes three Zs. The topic is relevant and important. We had input from a range of knowledgeable witnesses and produced what I believe is a constructive and helpful contribution on the issue. We even received a timely and generally positive response from the Government, followed—again within a reasonable timescale—by this debate.

There was broad consensus that the current EU competition system for anti-trust and mergers, with responsibilities divided between the Commission at EU level and national competition authorities in each member state, works pretty well. The UK regime is seen as robust and effective and the CMA is well respected. The transition deal reached by the Government since the report’s publication addresses some of the concerns expressed in the report—for example, over the need to give businesses greater clarity and certainty, and to ensure that they would have to make only one set of adaptations to their systems and procedures. Other issues remain unresolved, such as how competition cases that are live at the point of exit will be dealt with.

I will comment, I hope briefly, on three areas: first, what potential opportunities or improvements might arise from the UK taking back control of its competition policy; secondly, issues relating to state aid; and, thirdly, broad questions relating to the future framework for competition policy across the UK.

Criticisms of the current system for anti-trust and mergers relate largely to delays and bureaucracy, as well as concern about insufficient attention being paid to the concerns of consumers who are, after all, meant to be the ultimate beneficiaries. Several suggestions were made about how to improve the processes of investigation and enforcement after we leave the EU: for example, greater use of interim enforcement measures; setting time limits for parts of the process; focusing more on the actual effects of corporate behaviour than its specific form, as the Commission tends to do; expanding the public interest criteria for assessing mergers; or revising thresholds for triggering action on them. Some of these ideas were also proposed in the sub-committee’s earlier report on online platforms, and could be particularly useful to address fast-moving digital markets and issues posed by dominant online platforms, which have been so prominent recently.

Of course, any such changes may need to be balanced against the constraints of seeking to negotiate a comprehensive competition agreement with the EU, which might well include binding commitments limiting the scope for change, so any divergence from EU rules may be relatively small, at least initially, and take place only gradually. There may also be some drawbacks of our leaving, such as businesses having to make dual notifications of mergers, or some reduction of private damages actions based on breaches of competition law, for which, as we have heard, the UK has established itself as Europe’s foremost jurisdiction.

What opportunities does the Minister envisage to enhance the effectiveness of our competition regime after Brexit, what may they mean for the arrangements we make for continued co-operation with the EU regulatory regime and the European competition network, and how far and how fast may we begin to divert from the EU regime?

State aid presents a different challenge. It is currently regulated entirely at EU level, with no existing UK regulatory structure. Provisions on state aid are likely to be a required element of any deal with the EU. As the Prime Minister herself said, it would be a serious mistake to try to beat other countries’ industries by unfairly subsidising one’s own. At the same time, any new structure for managing state aid in the UK must take account of the needs of the UK’s own single internal market, extending across the devolved nations, regions and local authority areas and addressing their particular needs and priorities, while avoiding the risk of subsidy races between different parts of the UK, all of which have up to now had to follow common EU rules.

The Government stated view is that,

“the UK should be prepared to establish a full, UK-wide subsidy control framework, with a single UK body for enforcement and supervision, at the point this is required”.

They have also concluded that the CMA would be best placed to take on this role. This raises a number of questions, including how the CMA’s independence will be assured and whether there is any risk of conflict between its new state aid role and its existing competition function. Above all, how will the interests of the devolved nations and other regional and local bodies be taken into account in defining the new rules and by the CMA in enforcing them? In its evidence, the Welsh Government stated that,

“a UK internal State aid framework needs to be drawn up cooperatively and consensually between the UK Government and the Devolved Administrations as equal partner”,

and that:

“The Welsh Government would expect to be involved in the appointment of the board or panel members of any future UK-wide State aid authority, as well as agreeing the terms of reference, ongoing remit and priorities”.


Some of those aspirations were taken up in the committee’s recommendations. How does the Minister believe that the Government and the CMA should respond to those aspirations?

That leads me to my third topic. It seems unlikely that Brexit will bring major changes, at least in the short term, to the way that competition policy operates in the UK. Looking to the longer term, what form of regime would best meet the needs of the UK’s internal market, and what institutional arrangements most effectively deliver it?

The sub-committee recommended that a first step towards addressing these questions should be for the Government to undertake a wide-ranging consultation exercise, gathering views and ideas from the devolved Administrations, regions and local authorities, as well as from businesses and consumers in general. Indeed, as the noble Baroness, Lady Donaghy, mentioned, the LGA in its evidence set out some ideas on how a future UK state aid regime could provide greater simplicity and flexibility for councils to deliver public benefits.

I conclude by asking the Minister what plans there are, if not for a consultation, at least to pursue other ways of identifying opportunities to maximise the potential benefits of a competition regime free of the constraints of the current EU system.

Prompt Payment Code

Lord Aberdare Excerpts

Thursday 10th May 2018 Lords Chamber

[Lord Aberdare (CB)]

My Lords, small businesses play a vital part in our national prosperity and well-being in terms of growth, employment, innovation, entrepreneurship, productivity, exports, apprenticeships and so many of the subjects that concern us in this House, not forgetting Brexit. However, they will not fulfil their potential if they have to spend a large part of their time and energy chasing payments they are owed. According to the Federation of Small Businesses, about a third of payments to SMEs are late and the UK has,

“the worst late payment culture in Europe”.

Having run small businesses myself, I know about the perennial challenge of managing cash flow and the difficulty of coping with late payments and ensuring that salaries get paid; sometimes it requires negotiation of emergency loans or overdrafts, or owners forgoing their salaries or having to make loans. In the worst cases, the business may have to close down, as some 50,000 SMEs do each year.

I congratulate the noble Baroness, Lady Burt, on obtaining this debate and introducing it so powerfully. I also thank the Specialist Engineering Contractors’ Group for the helpful briefing it provided. At the same time, adding some criticism to my congratulations, I apologise to the House for the fact that many of my points have already been made, if not by the noble Baroness then by the noble Lord, Lord Mendelsohn. I will briefly comment on three issues, trying to skate over points that have already been made.

First, the Prompt Payment Code is a laudable attempt to improve SMEs’ chances of being paid within a reasonable timescale, but it does not seem to be working, as we have heard. In 2017, the Government announced that 32 of their biggest suppliers had voluntarily committed to pay 95% of invoices within 60 days and work towards adopting 30 days as the norm. That fact that one of those companies was Carillion, which issued its first profit warning four days later and had payment periods always well over 60 days, rather undermines that commitment. Carillion is by no means the only example of a larger company using funds that in effect belong to its smaller suppliers to meet its own cash needs. Last year, the Government set up the Small Business Commissioner to tackle the problem of late payments. He has made a promising start, but has so far received only 42 complaints, relating to 14 companies, and has commenced full consideration of only two. The message is that a voluntary code will not work, as we have heard. Given the understandable reluctance of SMEs to complain about the larger clients on which they depend, will the Minister consider ways to enable the commissioner to be more proactive in seeking out poor practice and giving him more teeth to enforce his findings—for example, through fines, which I believe the Minister has indicated he would welcome?

Secondly, public sector bodies are covered by the Public Contracts Regulations 2015, under which they have a statutory duty to ensure that all sub-contracts contain 30-day payment clauses. Again, there is no effective enforcement mechanism and most suppliers will not use the mystery shopper scheme. Therefore, these regulations also need beefing up, by requiring monitoring of compliance, mandating the use of project bank accounts—as suggested by the noble Baroness, Lady Burt—or instituting rewards and penalties based on performance in payment practice.

My final issue relates specifically to small firms in the construction sector, which suffer the additional burden of retentions: cash held back from the sums due to them on completing a contract, ostensibly so that the client can ensure that the work has been done properly. There are no codes or regulations that stipulate time limits for the release of these retention moneys; the average time they are held is thought to be about two years but it can be much longer. If the client becomes insolvent, the SME supplier loses the money owed to it completely. Some £700 million of funds has been lost like this over the past three years and the collapse of Carillion alone may have resulted in a similar scale of losses. Because of the uncertainty about when or whether the funds will be paid, the business to which they rightfully belong cannot borrow against them or use them to fund new investment, training or extra employment, thereby contributing to the economy.

This is not just unfair but plain wrong. The Government seem to recognise this but their response so far has been shockingly slow, going back many years. The latest study of the issue, commissioned in 2015, eventually reported last year. A consultation process ended in January and last month’s deadline for a government response has now passed. I echo the noble Baroness’s request for the Minister to indicate when that response will come. Apparently, the Government are seeking an approach with broad support and wish to avoid any potential negative economic consequences, but there is never likely to be much consensus between businesses whose funds are being withheld and those that are withholding them. The actual negative consequences for businesses deprived of funds that they have earned are plain to see.

The long-term solution may be a complete ban on retentions, but that will involve a major change of long-standing culture and behaviour in the construction sector and will take time. Something much more immediate is needed to ensure that funds owed to small businesses are properly protected, and soon. There is no shortage of possible approaches. We have heard about the tenancy deposit scheme in the rental housing sector. Others include the insurance-backed scheme in the lift industry—which has worked well for 17 years—or a guarantee-based scheme. Potential providers have indicated their willingness to offer or run such schemes. I also echo the support for the Private Member’s Bill introduced in the other place, the Construction (Retention Deposit Schemes) Bill, which has its Second Reading next month. That would require all cash retentions to be ring-fenced. The Minister made mildly encouraging noises about possible government support for this when he answered an Oral Question from me about retentions in February.

I end, therefore, by asking the Minister some further questions. What plans does he have to protect from loss retention money owed to small firms? How soon does he aim to have this protection in place, given the urgency of the need? Finally, will the Minister consider using the Aldous Bill as a vehicle to bring about the changes needed in the timescale needed?

Denying small firms funds that they have earned is not just unfair: it is a disgrace that is damaging to the positive impact they can make for the UK. The Government seem to recognise the problem. Other countries have already tackled it. It is high time that we did the same.

Small Businesses: Retention

Lord Aberdare Excerpts

Wednesday 21st February 2018 Lords Chamber

Asked by

[Lord Aberdare]

To ask Her Majesty’s Government, in the light of the loss of retention monies by small firms following the insolvency of Carillion, what steps they are taking to provide protection against such losses in the future.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the Government are committed to improving payment practices. Our consultation on the contractual practice of cash retention, alongside a parallel consultation on the effectiveness of the 2011 changes to the Construction Act 1996, closed on 19 January. We are now considering the responses.

--- Later in debate ---

[Lord Aberdare (CB)]

My Lords, retentions as currently practised mean that not only do small construction firms have to wait to be paid for work that they have done, often for several years, but that when a client company becomes insolvent they never get paid at all. Carillion alone held some £700 million of retentions, which its suppliers have now lost. Can the Minister assure us that immediate steps will now be taken to protect small firms from the loss of funds they are owed—for example, by ring-fencing retention funds in secure trust accounts? Will he look at the 10-minute rule Bill recently introduced in the other place by Peter Aldous MP, with widespread cross-party and industry support, as a possible approach to achieving this? When will something happen after all the promises we have had over the years?

[Lord Henley]

My Lords, I agree with some of the noble Lord’s analysis about problems related to retention, a practice that is common within the construction industry but which has negative impacts. That is why we had the consultation, as I think he knows. We obviously want to consider the results of that consultation and in doing so we will look, as he has suggested, at Peter Aldous’s Bill and see whether it is appropriate that we can take further steps. But the consultation having been completed, we need to consider it first.