Small Business, Enterprise and Employment Bill

Lord Cotter Excerpts

Wednesday 7th January 2015 Grand Committee

[Lord Flight (Con)]

My Lords, I first declare an interest as chairman of the Enterprise Investment Scheme Association. This issue falls under the Treasury rather than the BIS, so it often gets ignored in terms of its crucial importance in raising equity capital for small businesses. Once you have the equity capital, you can gear up with borrowing. EIS, under Governments of both main parties, has raised more than £12 billion since it started; over the past three years, the amount raised has doubled in each of those years and is now well in excess of £2 billion for the current year. When the present Government came into power, one of the constructive things that they did was to go back to negotiate with the EU to widen the parameters of the EIS, which had been unhelpfully narrowed during the previous Labour Government. Equity finance for small business is almost more precious than debt finance, and there is a wider range of providers of debt finance now increasingly available. I want to register the point on a BIS Bill in a BIS debate today that the Treasury and the EIS is crucially important for small business.

[Lord Cotter (LD)]

Before we move on, I thank the Minister for her response so far. Within the Bill there is this talk about the annual report and the need for the Government to address the issues in that sort of way. On behalf of the small business sector, I feel that we need to continue to look at issues in the Bill—but also particular issues, to one of which I shall refer the Minister. With the annual report, there is a very serious issue with the small business sector and finance, with regard to late payment to them from big businesses. There is a significant issue there, with 50% of big businesses not paying small businesses on time. I hope that monitoring and reporting back on such issues will be something that is ongoing throughout this Bill.

For example, there is a prompt payment code, which is voluntary—or it has been a voluntary code in the past. I very much hope that as part of the annual report Ministers will agree to look at the code and consider whether it is strong enough and whether it has been implemented enough by the businesses involved and by the Government themselves. Late payment is a serious issue when it comes to finance for small businesses; they should have that money available to invest and employ people in the local area.

[Lord Mitchell]

I must thank everybody, particularly the Minister, for her reply. Of course, this is a probing amendment—and I think that we have managed to probe and get quite a lot out of it that is beneficial. I thank the noble Lord, Lord Flight, too. I absolutely agree that there is a huge issue with equity for small businesses. Since I started studying economics a long time ago, there has always been that equity gap that needs to be plugged. In some ways, I am not sure that a huge amount of progress has been made on it.

I suppose that it depends on how you look at these things. If you go to visit some of the banks, as I do—and I hear what the Minister says in that regard—you could think that after five years it is a golden period for small businesses and that it is all absolutely rosy. You hear stories, such as were mentioned by the noble Baroness, of 71% of all applications being approved. However, it depends what you mean by an application. Many applications fall at earlier levels before they get to the formal point.

All I can say—I shall be speaking a little later about my own experiences with a small business—is that it is incredibly tough for small businesses that have been going for two or three years to raise the money necessary for them to expand, and I am talking about successful companies. Therefore, I suppose that I take a far more pessimistic view than the noble Baroness. More needs to be done to encourage these businesses. Nevertheless, I am somewhat reassured by what she said, and of course I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord O’Neill of Clackmannan]

My Lords, I should declare an interest as president of the Specialist Engineering Contractors’ Group, which is an umbrella trade association in the construction industry. Something like 95% of the businesses in construction employ fewer than 10 people. They are often the weathervane of the British economy, you might say, in so far as they are the first to lay off people and often among the last to get started again.

In a supply chain, small businesses are extremely vulnerable to the problems of payment. In some respects, they are probably not that concerned about the bureaucratic burdens that the people who are not paying them money are going to have to face as a consequence of the amendments that the noble Lord, Lord Mendelsohn, has so eloquently spoken in favour of. I start with that premise, but I make the additional point that regulation is a pain in the neck for the people who undertake bad practice. The rest of the people have nothing to fear from it; the other businesses do not have problems with it. We know that there are always examples of unintended consequence, but if that were the reason why we did not do something, we would never do anything in this House or the other place. I think that it is necessary to have some form of discipline to bring people into line.

One of the great disasters of this Government has been the Green Deal. Noble Lords may recall that this was going to be the mechanism whereby houses would be insulated and new central heating would be made available, and it would all be paid for out of the energy savings, which would then be deducted from households’ energy bills—it would pay for itself. One reason why that did not get off the ground was that among the promoters were to be a number of supermarkets, whose record in late payment was such that the people in the Specialist Engineering Contractors’ Group said, “We wouldn’t touch that with a barge pole. If their payment terms are of the order of 100 days, we don’t want to have anything to do with them”. This early example of a government-led scheme foundering was down to a lack of trust on the part of those small business men—people such as the electrical contractors, the small plumbers, the lads who do the central heating—who were not prepared to enter into agreements with those companies that had a dreadful record of slow payment. The Government have to look at the reasons for some of their own disappointments—I will not put it any more strongly than that.

On supply chains, I credit the Government for following on from what Peter Mandelson started when he was in BIS in trying to ensure that government contracts were paid within 30 days. Part of the problem was, of course, that the main contractor got paid but the money never trickled down the supply chain. That was one of the difficulties and it still exists—which is why the Federation of Small Businesses and other groups are extremely distrustful of the blandishments of Governments of any complexion, because in so many instances they have not been properly thought through.

If we are to have a more transparent and more effective means of securing payment in a prompt way, I cannot see that that is a problem. It may be embarrassing when big companies are named and shamed, but I do not necessarily think that that is a bad thing. We have seen this with those companies which we now know do not pay their taxes in the United Kingdom. Many of us are no longer consumers of Starbucks products. What they do is legitimate—it is just that the law is not very satisfactory here—but we have a choice as consumers, and we choose not to go there.

A lot of people would find it quite embarrassing if the companies that they regard as being good suppliers and trustworthy companies are found to be squeezing these small, vulnerable businesses. When we talk about cash flow in respect of these businesses, we are talking about perhaps somewhere between £5,000 and £25,000—about two or three weeks’ work. It is that kind of thing. We talk about support for small businesses, but they are not philanthropic institutions. They exist in order to do a job of work for which they will be promptly paid, so that they can then pass on that money to their employees.

This is an important set of amendments. It does not matter if, at the end of the day, the Minister says that the wording is wrong. That is the standard reply to any debate at Committee stage: “We like the principle but we don’t like the wording”. The Minister has a plethora of civil servants there who can give the wording and draftspeople who can do the business. Therefore, I do not think, at this stage, that that is a satisfactory response, if I can anticipate what the Minister will say.

I will finish on one last point. I have been at this game a wee while now, and the default for opposition draftsmen of amendments is that wherever you find a “may”, you make it into a “shall”. After May of this year, the tables will be reversed and a number of noble Lords will be learning the ropes of opposition. I have to say that it is not a particularly pleasant job—I had 18 years of it and it was pretty hellish. The point I am really getting at here is that it is a sign of intent. If the Government are serious about one of the fundamentals of the assistance to small business, it is making sure that these small businesses get paid by the larger businesses for which they have undertaken to do work at a fixed price within a reasonable time. They are entitled to no less than that. That is what this suite of amendments from this side of the House, in my view, is designed to do.

There are imperfections in these amendments, but their intention is quite clear. I would like to think that we are not that far away from the Government on this issue. This has to be a consensual matter if we are going to have a continuous industrial strategy that we can all sign up to.

[Lord Cotter]

Before the Minister replies, I will just follow on from what the noble Lord, Lord O’Neill, said. From his experience, the down-the-line payment is a very important point indeed. It is increasingly incumbent upon government, when it gives contracts to the big contractors, to ensure in some way or other—although we do not want to bring too much regulation in—that these large contractors are monitored in terms of their payment record when it comes to subcontractors. The smaller businesses supplying or helping the main contractor frequently, as the noble Lord, Lord O’Neill, said from his experience, suffer badly because they do not get the payment. The large contractor in that case should not be given contracts in the future if it does not have some form of checking or commitment to ensure that it pays small businesses in the proper manner that is required.