Afghan Resettlement Update

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Thursday 30th March 2023 Lords Chamber

[Baroness Neville-Rolfe (Con)]

I think the easiest thing is for me to take the point away. There is a lot of scope for confusion between the different schemes and the asylum numbers. We are certainly trying to give noble Lords the right numbers. I have a table which I can probably share; it is all quite complicated. I am very grateful to the noble Baroness for intervening and seeking clarification. I think what I said was right, but of course I will look into it. I apologise for trying to repeat the points that were made in the Statement. I do not find it entirely satisfactory that we do not repeat the Statement a couple of days later, because some of the points that were made are agreed on across the House. We all want to go off on our Easter break, but we are debating important points. I will clarify the figures, and I thank the noble Baroness for raising the question.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I wonder if I could follow up on that, and indeed on the points made by the noble Lord, Lord Coaker, in his opening comments. When the dust settles and we have gone through and fulfilled our moral duty, what is the Home Office’s estimate of the number of people who will be here? I am not asking for a single figure, but the Home Office must have a range, probably in the Minister’s briefing documents, and if not there then certainly somewhere in the Home Office. When she comes to reply to the noble Baroness whose name—I am sorry—I have completely forgotten, could she also provide the range that the Home Office anticipates, after all these schemes and all our moral duty has played out?

[Baroness Neville-Rolfe (Con)]

My noble friend Lord Hodgson and I always agree on the need for numbers—and numbers of the right kind, relating to the right dates. I do have numbers for ARAP and ACRS, but I think he might be asking a broader question, so I suggest that I share the numbers I have, answer the question from the noble Baroness, Lady Taylor, and write to noble Lords. This evening we are talking about Afghanistan, and I am not clear whether the noble Lord is also interested in numbers from elsewhere.

[Lord Hodgson of Astley Abbotts (Con)]

I am interested in the overall number from Afghanistan. What is estimated? I understand that it is not going to be a point figure; it is going to be a range. Someone in the Home Office must have said, “We must anticipate from x to y”. What are the x and y figures? As part of clarifying the debate that has been going on, with all sorts of numbers being bandied around, it would be helpful for the House to have that number when my noble friend comes to write to all who participated in the debate today.

Business of the House

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Thursday 17th March 2022 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, before my noble friend replies, may I ask her to reflect on the fact that this is a self-regulating House, and a self-regulating House requires a degree of self-restraint—in the number of amendments tabled, the number degrouped, and the length of the speeches made in pursuit of them?

[Baroness Neville-Rolfe (Con)]

My Lords, I share the concern about issues of major importance being debated in the middle of the night. Last night the noble Baroness, Lady Sugg, moved a very important amendment. I was not able to speak, because there was not enough time, and we could not get answers about the implications of her proposal, because it was a late amendment. Where we have something fairly major like that, it is important that we do not just debate it in the middle of the night.

Common Fisheries Policy and Animals (Amendment etc.) (EU Exit) Regulations 2019

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 30th October 2019 Grand Committee

[Baroness Neville-Rolfe (Con)]

I thank my noble friend for his elegant and succinct summary of this long SI. I would like to ask a couple of questions. The first is about the enforcement of these fisheries rules. Page 14 has a reference to Article 23 and to projects involving “catches and discards” and so on. I remember from the time when I worked in the fisheries department, at what is now Defra, that enforcement of the rules is actually as important as the statutory framework itself. We are obviously moving from an EU-based system to a UK one, and in some cases to a devolved system. It may be beyond the reach of this SI, but can the Minister say anything reassuring about enforcement? Vessels will obviously come from other EU member states; they may not always be punctilious about discards and catches. Our own fishermen also need to be properly protected.

The second point is on the issue of errors, which we heard about in the previous debate and again here. Are any steps being taken, as part of the Brexit process and more generally, to minimise the amount of errors that there are in SIs? If an SI is wrong even in terms of one spelling mistake, my recollection is that you have to re-lay it. I found this to be a problem when I was in the business department, so I took steps to make sure that the SIs did not come through with errors in them. “Right first time” is obviously a good principle. Can anything be done in that area to help? I am sure that we will have a lot more SIs as work on Brexit continues into the more detailed areas.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I apologise to my noble friend Lord Gardiner and to the Committee for having missed the first 45 seconds of his elegant introduction. My noble friend Lady Chisholm dealt with her business faster than I anticipated, so I was caught in the corridor. I am the chairman of the Secondary Legislation Scrutiny Committee, which has looked at this instrument. Our report is in the papers for today’s meeting and our committee was obviously concerned about fishing, because fishing and fisheries policy is quite a hot topic on two grounds. One is that the “take back control” argument rides quite high in fishing; the other is the increased focus today on marine conservation, preservation, resources and so on. The committee also saw that this is a “made affirmative” instrument, and therefore has speedy passage under the European Union (Withdrawal) Act. One is always concerned about how and why it had to be done at this last minute, and so quickly, and whether it meets the requirements laid down in that Act for going through the “made affirmative” procedure.

I heard my noble friend say that this is about tidying up the statute book. Part 2 of the annex to the Explanatory Memorandum indicates that the Minister is required to make an “Appropriateness statement”, and Mr George Eustice has made a statement saying that in his view the SI,

“does no more than is appropriate”.

If we are tidying up the statute book, we do not need to think about that as part of our consideration here. This is nothing to do with tidying up the statute book.

Those are the technical issues. My real concern is the fact that we are moving from two layers of supervision to one. We are coming out of the EU; I understand all that. Up to now, each individual member state has put positions to the EU. The EU has made decisions and those have been passed back to the individual member states. That is clearly not appropriate, it does not work under the new structure, but we now have a situation where Defra is marking is own homework. Nobody is checking and saying whether it is a good decision or a bad decision; Defra is deciding it.

I know that the Government have in mind—we refer to this in our report—to introduce a stand-alone supervisory body to ensure that Defra does not mark its own homework for longer than is strictly necessary. It would be helpful as part of the consideration of this SI if the Minister could update the Committee on where we are with the creation of this new body, when it is going to arrive—I imagine as part of the Environment Bill—and how it is going to develop. Can he also generally reassure the Committee that we have in mind to ensure a proper a balance of powers, and that the Government, in the shape of Defra, will not have all the cards for longer than is necessary?

Employment: Remuneration

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Thursday 8th September 2016 Lords Chamber

[Baroness Neville-Rolfe]

The noble Baroness is right that there is a place for comparisons, although, as somebody who sat on a number of boards, I actually think that one needs to look at the overall position and in relation to the wider workforce. That is something that we will certainly look at as part of the consultation that we will publish, because some of this stuff is complicated and we need to make sure that we talk to people on the detail.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, my noble friend referred to the importance of increasing shareholder power. Is she aware that individual shareholders in particular are increasingly under pressure to hold their shares through nominees? The nominee holder is not required to send on information to the individual shareholder about the company in which he or she has a holding. They are therefore disenfranchised. Would it not be a good idea to make a simple legal change which would require nominee companies to enfranchise and inform the people who actually hold the shares?

[Baroness Neville-Rolfe]

My noble friend, as always, brings unusual insights to the debate. It sounds as though this is a point that he and I should discuss further, because clearly we want to make sure that shareholders are exercising the oversight that we all want.

Intellectual Property (Unjustified Threats) Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 15th June 2016 Grand Committee

[Baroness Neville-Rolfe]

My Lords, I am very glad to hear such a welcome for the provisions in the Bill. It is based on careful and detailed recommendations from the Law Commission, which worked very closely with stakeholders to develop the proposed approach and the Bill itself. However, as I said in my opening remarks, this is a very complex area—“highly specialised”, in words of the noble and learned Lord, Lord Hope of Craighead. I therefore welcome the expertise in the Room and the experts we have in this discussion. That will be helpful when we come to Committee. I am especially grateful to the noble Baroness, Lady Bowles of Berkhamsted, for bringing her enormous experience to this area and for illustrating her comments with telling examples, which I am sure we will come back to when we come to the next stage of proceedings.

I also agree with the noble and learned Lord, Lord Hope, and my noble friend Lord Hodgson of Astley Abbotts, that we should thank and congratulate the Law Commission for and on its work. The debate shows what tough and specialist judgments it has to make all the time in the work it does. I agree with the noble and learned Lord that the Law Commission gives us ample reasons for supporting this reform—it seems to be of the right kind. I am obviously very aware of Sir Robin Jacob’s views, which do not, as he said, tally with those of most stakeholders, and I was glad to hear from the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and was pleased that he was struck by the quality of the Law Commission report. I also take this opportunity to thank my noble friend Lord Hodgson for the work he has done with the Law Commission, which I know it values. On his comments on the dissemination of better information on the Law Commission’s wider work, we will see how we can progress that, and if it would be helpful I will write to noble Lords.

[Lord Hodgson of Astley Abbotts]

It is not so much the dissemination of the Law Commission’s work but the question of where the individual reports have got to. It is not that nobody knows it is happening—its electoral law report is excellent—but it needs to be followed through, and if it is not, we need to be told why. Frankly, asking about this was a way to put pressure on the Government to make sure that this very good work is not dissipated. I understand that what the commission does may not always be acceptable—that is fine—but let us make sure that we either bring it forward and use it or kill it off and say that we do not want it. That is why I hope that the Minister will be able to tell us—not now; I quite understood that she could not do that, but perhaps she could write to those of us who have interests in this—the situation with regard to the tremendous work that the Law Commission has been doing on individual projects, not just this one.

Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 2nd March 2016 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)]

My Lords, for the convenience of noble Lords, it will be helpful to consider the Register of People with Significant Control Regulations 2016 together with the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016. These regulations set out how the register of people with significant control will work and apply the register to limited liability partnerships.

In 2013, the Prime Minister set out the ambition for the UK to improve corporate transparency and tackle criminal abuse of UK corporate entities. I am therefore pleased that we are today debating regulations underpinning the detail of the register of people with significant control, which bring that ambition one step closer to reality. The register of people with significant control is the foundation of the UK’s ambition to increase the transparency of UK corporate entities.

The benefits of the increased transparency provided by the register have the potential to be far reaching. For law enforcement, the Metropolitan police force estimates that, in cases where hidden beneficial ownership is an issue, 30% to 50% of an investigation can be spent in identifying the beneficial owners through a chain of ownership layers. For business, increased transparency will ensure that companies know who owns and controls their suppliers and customers. Investors will also know who controls companies they are investing in. For civil society, increased transparency will allow people to hold businesses to account, and citizens will know who controls companies when they purchase goods or services.

The register of people with significant control—the PSC register—will record the details of people who own or control UK companies. There are five separate conditions for being a PSC, which are set out in Part 1 of Schedule 1A to the Companies Act 2006: first, that an individual holds, directly or indirectly, more than 25% of the shares in a company; secondly, that an individual holds, directly or indirectly, more than 25% of the voting rights in a company; thirdly, that an individual holds the right, directly or indirectly, to appoint the majority of the board of directors; fourthly, that an individual has the right to exercise, or actually exercises, significant influence or control over a company, the definition of which is set out in statutory guidance, and would include individuals with significant veto rights over the operation of the company. I shall paraphrase what the fifth condition is for the benefit of noble Lords. The fifth condition is where a trust or a firm controls a company through one of the other conditions and there is a person who has the right to exercise, or actually exercises, significant influence or control over that trust or firm. Again, the definition of significant influence or control in these circumstances is set out in the statutory guidance.

Where a PSC meets one of the first three conditions, the company does not need to identify on its PSC register whether that person also meets the fourth condition—I remember discussing that during the passage of the Bill. In summary, the company regulations set out the detailed requirements for the PSC register. They are: the scope of the register; the fees a company can charge for providing copies of its own register; the information to be included on the register; the contents of warning and restriction notices; and how the protection regime will work for PSCs at risk of harm by their information being made public. The limited liability partnership regulations—the LLP regulations—apply the provisions of both the primary and secondary legislation on the PSC register to LLPs, with appropriate modifications.

The full costs of the register of people with significant control are set out in the three impact assessments. First, the enactment impact assessment sets out the broad policy costs, including the costs of the provisions in the Act and many of the provisions in the regulations, which are calculated to have a net cost to business of £85.9 million per year. Secondly, the protection regime impact assessment sets out the costs and benefits of companies applying to the protection regime. This is calculated to have a net cost to business of £4.7 million per year. Thirdly, the impact assessment on the costs and benefits of making a company’s own PSC register publicly available calculates the net cost to business of companies giving access on request to the company’s own register. This is calculated to have a net cost to business of £10.9 million per year. A very important point, given the scale of these costs, is that they are spread over a very substantial population of some 3.4 million companies, including 59,000 LLPs. The average cost per company is estimated to be £25 per annum. As I explained earlier, this is an important policy and the benefits of the register have the potential to far outweigh the costs.

The PSC regime contains robust penalties to promote compliance with the requirements. These measures support law enforcement and the tax authorities’ existing powers and investigations. The most serious offences, when a company fails to investigate its ownership or when a person or body fails to respond to a request for information from the investigating company, carry a maximum sentence of two years’ imprisonment on indictment or a fine, or both. We will take strong action where companies and individuals break the rules.

Noble Lords will recall from the debates on the Small Business, Enterprise and Employment Bill last year that we put in place a protection regime because this Government believe it is important, where an individual is at serious risk of violence or intimidation, to protect a PSC’s identity from the public register. The PSC’s information will of course still be available to law enforcement, and the individual will still have to fulfil their PSC obligations. Through these regulations, we have set a high bar for the protection regime, so it cannot be abused or damage the utility of the public register. We have tightly drawn the grounds for protection where the risk of violence or intimidation is a result of the company’s activities or where the risk comes from the association of the PSC with that company.

Parts 6 and 7 set out who can apply for protection, what types of PSC information can be protected and how they can apply. Noble Lords will see that Part 6 follows the successful existing company law for directors, whereby a PSC’s usual residential address can be protected. I know I have benefited from that company provision in the past. Part 7 is novel and allows the protection of all of an individual’s PSC information from the public register. This is because we recognise that the nature of a PSC differs from that of a company director. As part of the broader package of changes to company filing requirements made by the Small Business, Enterprise and Employment Act, the date of birth—2 January in my case—will be suppressed on the public register at Companies House in the details of both PSCs and directors, so that dates of birth are not so freely available.

I will also set out the key differences in how the limited liability partnership regulations apply compared to the company provisions. The LLP regulations adapt two of the conditions mentioned earlier, so that they apply more appropriately to LLPs. The first condition is adapted to take account of the fact that LLPs do not have share capital. The revised condition is that an individual has the right to more than 25% of the surplus assets of an LLP on winding up. The third condition, which is adapted to reflect the fact that LLPs do not have directors, is that an individual holds the right to appoint or remove the majority of persons entitled to take part in the management of the LLP.

I will bring the other parts of the PSC register provisions to your Lordships’ attention. An important part of the PSC register conditions is the term, “significant influence and control” in the fourth and fifth conditions. During the passage of the Bill I explained that the meaning of this term would be set out in statutory guidance. The draft statutory guidance for companies was laid in the House Library alongside these regulations. I am very grateful to the company law experts and civil society organisations that helped develop this guidance throughout last year. I am also grateful to the businesses and individuals who commented on the guidance when it was published for final comments in December.

The draft statutory guidance for LLPs has also been prepared and is currently published on GOV.UK. This statutory guidance can be laid in Parliament only once the LLP regulations we are debating today have been made. My department has also developed, with the help of a working group of legal experts, business representatives and civil society organisations, non-statutory guidance for companies and LLPs to guide them through the requirements step by step. The guidance was published at the beginning of February and has been well received by businesses so far.

Before I conclude, I will give the Committee an update on international progress, and highlight how the Government are building on the foundation of the PSC register and leading by example on the global stage by putting the register in place. In the EU, the fourth anti-money laundering directive was adopted in May 2015, which means that by early 2017 all member states must hold beneficial ownership information through a central register. I welcome the close working with my honourable friend Harriett Baldwin, the Economic Secretary to the Treasury in the other House, to transpose this directive.

The UK is taking the lead on extractives transparency. We were the first member state to implement reporting requirements for all large and listed companies, and we expect the first reports for UK companies detailing the payments they have made to Governments across the world to be made available later this year. In a similar vein, in October 2014 the UK was successfully admitted as a candidate country for the extractives industry transparency initiative. This in effect puts more information into the public domain and allows the Government to be held to account for our policies on the extractive industries in the UK. We continue to work with other countries, through the G7 and G20 fora, to implement international corporate transparency standards, which are of course very important. I commend these regulations to the Committee.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I want to intervene briefly. My noble friend makes a powerful case for the regulations and I appreciate the changes which have been made, particularly as regards the protection regime to allow confidentiality where people may be vulnerable to intimidation or attack. However, I want to sound a cautionary word about how we can pile further regulation in with the best of intentions but which may have consequences that we do not really appreciate and do not want. It is the balance to be struck between transparency on the one hand and privacy on the other; that is to say, my right to confidentiality about my personal and private affairs and the right of the wider public to know about situations where my actions may affect them.

The regulatory balance that we are trying to strike must be to have a regulatory structure that is sufficiently robust and imposes sufficiently strong standards to attract people, because they have confidence in the way the markets are being policed, but not such high standards that the bureaucratic burden of doing business becomes too heavy and people therefore seek alternative ways of carrying out their businesses in markets in other parts of the world. We also need a structure that is risk-focused so that it looks at the points of vulnerability and worry. My noble friend was unwise enough to mention the money laundering directive in her remarks, which gives me a chance to say that this is a classic example of blanket regulation which achieves very little indeed. It makes wonderful work for compliance officers filling in forms. The accountants love it because they have to verify that it has all been done, and the thousands of our fellow citizens who are wandering around the country with certified copies of their passports and a utility bill under their arm beggars belief.

The Government have resisted and resisted a de minimis number, which would mean that when you wish to open a bank account for your godson that you can put £10 into on his birthday, you would not go through the ridiculous performance that we are going through now. I think that the situation has reached a level of fear among the regulated community that is hard to believe. Last week I happened to have a money laundering inquiry. When I left Oxford, I went to work in the United States. I had an inquiry saying, “We see that you worked in the United States in the 1960s. What were you paid?”. That was 50 years ago and I cannot remember. That sort of thing brings the regulatory system into disrepute.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Stevenson, for his support for these regulations and for his kind words about the Explanatory Memorandum. I will make sure they are passed on to those who worked on it. It always helps to thank people when things are good because that leads to yet further good performance. Let us hope that the regulatory structure works. As the noble Lord said, it is a big change, but this is an important new regime for companies and it is critical that the detailed requirements are correct and fit for purpose. Increased transparency about who owns and controls UK companies is important in maintaining the UK’s higher standards of corporate trust. As we have discussed in relation to many different issues recently, having the sunlight of transparency can be an extremely powerful policy weapon, and we as a Government seek to use it in a number of areas.

We have committed to a review: I think that both sets of regulations require the Government to review the costs to business within five years. I note the points that the noble Lord made, in particular in relation to the LLP regulations, and will make sure that we keep an eye on that. I also repeat the hope that other countries will move ahead as we have done with the PSC, because this only works, as in so many areas, if other countries do this as well.

It was a delight to see my noble friend Lord Hodgson returning to the debate. I am grateful for his cautionary warning about perverse effects, which one could write into many areas of regulatory life. As he says, we need the right balance between transparency and privacy. We focus on risk, and the National Crime Agency is fully on board to be involved in the protection assessment process. As an expert in risk assessment, the NCA is well placed to ensure that assessments are consistently applied and protection applications robustly interrogated.

I share my noble friend’s concerns about the operation of the money laundering directive, which I used to speak about when I was on the Back Benches. I am glad to say that the business department and the Treasury are doing work on its application as part of a deregulation review. I very much welcome the chance to have a discussion with him so that his examples can be fed into that work.

[Lord Hodgson of Astley Abbotts]

I have sent something in.

[Baroness Neville-Rolfe]

I thank my noble friend for that and will make sure that it is seen by the relevant reviewers. My husband has already provided some examples. He has to look after an elderly aunt—not an obvious money launderer—and has run into the same sorts of difficulties that I am hearing from my noble friend. We need to try to improve things in these areas, which is partly why the work we are doing on the deregulation initiative continues to be very important. The Treasury is in the lead of course on the transposition of the directive, but BIS has responsibility for article 30. The important thing is that the two departments are working together to try to make sure that this is done in a proportionate and sensible way.

My noble friend Lord Hodgson asked a very good question about the accuracy of data at Companies House and whether we receive complaints about that. Companies House will follow up on all complaints about company information being incorrect or incomplete. My noble friend may be right that there are not that many complaints but it will follow them up. In 80% of cases where there appears to be a breach of the Companies Act, companies correct the information straightaway. Most companies are trustworthy and want to provide the correct data, although there are occasionally errors. Where appropriate, investigations are passed to other enforcement agencies, and the changes we are making here will improve our chances of catching the bad guys.

Finally, the noble Lord, Lord Stevenson, asked about capital. My officials considered whether using rights over profit and capital should be part of the approach to identifying the PSCs of the LLPs but, in consultation, business and others told us that this could be difficult conceptually and operationally. As I explained in my opening remarks, the regulations therefore operate on the basis of the closest analogy to owning a share of the company’s capital for LLPs, which would be the right to a share in the LLP’s capital if it were wound up. We will have to see how that goes, as we discussed, and we have the review provision, as I have already explained.

[Lord Hodgson of Astley Abbotts]

I am not asking my noble friend to reply now but can she give us the Government’s considered view as to whether 10 quid gives you the right of access to a limited liability company? Will she also comment on the citizens’ registration service that apparently—I may be completely wrong—enables you to go online and get a company registered with no money-laundering checks at all? It must be a hole in the dam if you set up this elaborate structure but people say, “If you do it this way, you can have no money-laundering checks at all”. I am not asking for a response now but it would be helpful if she could comment on that at some length.

[Baroness Neville-Rolfe]

My Lords, I should like to reflect and write to my noble friend. Obviously, we want to make it easy for people to set up companies. We have had a record level of company creation in this country, and that has been part of the Government’s success over the past few years. I will certainly write to my noble friend and look forward to engaging further with him on this important topic.

Enterprise Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 4th November 2015 Grand Committee

[Baroness Neville-Rolfe]

My Lords, this amendment is designed to protect small businesses from cyberattacks. I was really pleased to hear about the knowledge of the noble Lord, Lord Mendelsohn, on this issue. I wish I had been at the conference which he described and I agree with his objective of amplifying the issue, especially in relation to small business. I also agree with him about the role of the City of London Police.

When I worked in business, an attack on personal data held by the company was one of my top risks and concerns. Recent events demonstrate that businesses need to take action on cybersecurity and can benefit from external advice and guidance. I think it is fair to say that the Government are doing a great deal in partnership with industry on cybersecurity. We have a strong strategic programme in place, which is right. There is a five-year plan for an £860-million national cybersecurity programme to provide a range of advice and guidance to businesses of all sizes, including a specific guide, Small Businesses: What you need to know about Cyber Security. I have copies of that guide.

We have stepped up this activity recently by relaunching the “Cyber Streetwise” campaign, which offers small businesses clear and simple advice on how to protect themselves. There is information in the press and the Committee may have seen advertising at train stations or on the tube. In addition, the Government’s “Cyber Essentials” scheme shows small businesses how to protect themselves against common cyberthreats. Since October 2014 the Government have required their suppliers to hold a Cyber Essentials certificate if they are handling personal data or sensitive information. That is all increasing awareness by amplification. There are more than 1,000 Cyber Essentials certificates, which have been issued to big organisations such as Vodafone, JCB, Barclays, the Royal Mail and BAE, as well as to colleges, universities and so on. We are working to get thousands of companies and their supply chains to adopt the scheme.

Our approach is to work with a range of law enforcement and other bodies to build partnerships with businesses, representatives and trade bodies, and to use these to increase awareness. We do not believe that the suggested amendment, which I think is mainly probing, goes beyond the existing approach in ambition or effectiveness. Putting guidance into legislation could result in a tick-box approach where guidance is merely published without the associated awareness-raising, partnership-building and behaviour change that is completely essential in this area.

We want to avoid unnecessary regulation. The amendment would create uncertainty as to what businesses were legally required to do and what was best practice, possibly even giving rise to litigation. It could also reduce our flexibility in dealing with what is, frankly, a very fast-moving issue. I think we were all astonished by the Sony leak and by recent events in the UK. We are not convinced that legislating in this Bill is the right thing to do. Following the information leak at TalkTalk, though, a committee of the National Security Council is now looking at this. Cyber Ministers are looking as a group at what further changes are needed. In addition the Digital Economy Minister, Ed Vaizey, promised last week that we would meet the Information Commissioner.

[Lord Hodgson of Astley Abbotts]

As my noble friend is talking about the broad range of plans that the Government have, could they address something with the European Commission? As the noble Lord, Lord Mendelsohn, pointed out, cybercrime is no respecter of boundaries. The Commission has located a cybersecurity centre in Heraklion in Crete, a place that you cannot fly to in winter because you have to go via Athens. In this very fast-moving area, it would be sensible to find a way of placing the centre more centrally where people would be prepared to work and operate. I mention that in passing because it is something that needs to be looked at. I underline absolutely what the Minister says—the Government are doing a very great deal here—but this is something that just does not fit with our plans, because the European convention is so important.

Enterprise Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Monday 2nd November 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)]

My Lords, I am grateful to the noble Lord, Lord Stevenson, for his clarity and succinctness, and for the other comments that have been made in this debate. If I do not answer all the points exactly, I hope to do so during the course of a series of amendments that we have; for example, I shall have some more to say on quality a little further on. I shall try to look at these amendments in the round.

Amendment 50 seeks to remove part of the definition of the term “public body” from the clause, which relates to bodies that are not public authorities but have functions of a public nature and are funded wholly or partly from public funds. The definition gives an overview of the types of bodies that might be covered by the duty. The Government think it right in principle—and I think that there is agreement—that public authorities and other bodies performing public functions should be capable of being subjected to targets. However, this is only a power to prescribe; it does not oblige all those that fall within the other public bodies category to be subject to a target. Therefore, a particular body will be subject to targets only when the Secretary of State makes secondary legislation—just to be clear. Our intention is that bodies with a workforce in England of more than 250 employees will be subject to the duty.

My noble friend Lord Hodgson is absolutely right that bodies are entitled to clarification as to which bodies are in and which are out, and we will set out the full list of public bodies affected in a consultation at that we intend to publish during the passage of the Bill. That will be an opportunity for those affected to respond to the consultation. I am sure that it is not yet available, but this Bill starts in this House, and there is an interplay between what we are doing here, which is perhaps relatively narrow, and the emerging policy on apprenticeships, which coincides with it. The list of bodies will be set out in regulations, and we will bring those forward for debate in both Houses, following the passage of the Bill.

[Lord Hodgson of Astley Abbotts]

So it is going to be a very long list of a series of charities and voluntary groups, and it will not be available until after the Bill has passed. Is that what the Minister just said, because that is not terribly satisfactory?

[Baroness Neville-Rolfe]

I shall try to answer on the specifics, to give a feel for bodies that will be in and those that will be out. A key concern was that, for example, bodies as small as Kids Company could be caught, but the receipt of the grant that it used to have, should it still exist, would not suffice to bring the body into scope. That is my understanding.

To respond to a point made by the noble Baroness, Lady Sharp, we are going to use the ONS definitions as a starting point for considering which bodies should be in scope. However, as I have said, we will be consulting. We appreciate that a body may feel that it has good reasons for not being in scope. For example, I know that the noble Baroness, Lady Warwick, is concerned about smaller housing associations. Following the ONS’s announcement on Friday, the Government have confirmed that they will,

“bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible”.

That would take them out of the scope of this duty, and we will take account of that when preparing our consultation. It is a fast-moving area, so I appreciate the complications, but I am happy to engage with people to give them as much clarity as we can. The scope will be set out for consultation, and the limit of 250 employees will help to some extent to make people less concerned about bodies that might be brought in.

[Lord Hodgson of Astley Abbotts]

One area causing particular concern is that of the larger charities providing overseas aid, and distributing it for DfID, which come above the 250-person ceiling or floor and are operating not in the United Kingdom but overseas. It would help if officials or the Minister could let us know whether they as a category will be included in the need for apprenticeships.

Enterprise Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 28th October 2015 Grand Committee

[Lord Hodgson of Astley Abbotts]

My Lords, I just want to say a word about Amendment 30, to which the noble Lord, Lord Mendelsohn, has just spoken. On Monday, at our first meeting in Committee, I said that I thought that the SBC role had been drawn in a way that is a bit too focused, but I say to the noble Lord that Amendment 30 would take that role well beyond the bounds of what the Small Business Commissioner should be doing. The comments that I made on Monday about payday loans apply equally here. This is not part of his competence. Hundreds of bodies and people make recommendations about how to improve finances for small and medium-sized companies. That is a serious issue, but it is not part of what he should be doing. He is focused on a different part of the field. I am sure that my noble friend will not accept the amendment, as plenty of bodies are looking into the provision of finance to small business and this would be a distraction from the commissioner’s central task, albeit that I still think that the central task is a little too narrowly drawn.

[Baroness Neville-Rolfe]

My Lords, I thank all noble Lords for their comments and the noble Lord, Lord O’Neill, for his humour and for his lessons in how to amend Bills, which will be useful when I return to the Back Benches.

We believe that the commissioner will be able to achieve maximum impact by publishing reports on complaints only if he or she has the discretion when to use this power in a targeted way. Amendment 25 would require the commissioner to publish a report on every complaint that he or she considers. We believe that that is unnecessary. The commissioner may, for example, consider a series of very similar complaints and may find that there is little value in compiling a report for each separate complaint when the activity could be captured instead in the aggregate annual report. In other cases, the complaint might have arisen from very particular circumstances, meaning that the determination had no wider application and was of little public interest. We believe that the commissioner should have the freedom to decide. This is a matter of his independence.

I turn to Amendments 26 and 27. A blanket approach of publishing the names of respondents, as set out in Amendment 26, has the potential to be unfair—for example, when a complaint is not upheld. It could indeed encourage mischievous complaints. Under this proposal, anyone who was complained about would be the subject of publicity. Giving the commissioner the discretion to choose whether to name the respondent will be a real incentive for businesses to work constructively with the commissioner, to pick up on the last discussion. We will see a real change in behaviour being encouraged.

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[Baroness Neville-Rolfe]

My Lords, I thank noble Lords for their amendments and their constructive contribution to the Bill. I am delighted that the noble Baroness, Lady Hayter, and the noble Lord, Lord Low, have joined the debate.

As has been said, the amendments would ensure that the EHRC could not be subject to, or required to report on, three key regulatory policies: the business impact target, the growth duty and the Regulators’ Code. Extending the business impact target to statutory regulators is a key part of Government’s aim to ensure that regulators across the board continue to achieve high standards of regulation in order to drive growth and ensure a strong economy. I think we have agreement on that broad principle.

However, although we are asking regulators to be transparent in reporting the impact of their decisions on business, the Bill will give us no powers to interfere in the decisions they take. There is a clear distinction to be drawn. The fact that a regulator may not be aimed at business does not mean that the regulator does not affect business or the voluntary sector. To my mind, there is nothing wrong with having an incentive to look at the impact of the way you design measures to ensure that, for example, they are constructed in a sensible way for small businesses. Regulatory independence of course underpins business confidence, and is vital to all regulators—it is not only true, as has been said, for the EHRC.

We have seen the EHRC’s briefing note on these issues, which says that it produces approximately 30 pieces of guidance a year and operates across the whole economy. So the range of business making use of the guidance is very substantial. For all those businesses to keep track of that guidance is a cost to business. Sometimes it can outweigh the cost to the commission of assessing the impact as and when it issues new guidance.

I know from experience that the EHRC issues very valuable guidance—for example, the religion or belief guidance for employers issued in 2013. I remember when I worked in the retail sector talking to the EHRC about what it might do to address concerns it had among big employers. So there is an interaction. It is important work, but obviously there is a need to ensure that the guidance is appropriately prepared for business and minimises the burden of any such directions. I hope that the EHRC will look carefully at its relationship with business and ensure that it reflects on the cost which it is imposing. This is what inclusion in the business impact target would achieve and why we have proposed it.

The EHRC—I am not sure people are aware of this—is already within the scope of the Regulator’s Code and is also covered by its predecessor, which was introduced in 2008, by the then Labour Administration. I understand that the EHRC already complies with the code and is transparent about its activities reporting annually. That transparency is just what Clause 14 is aiming to achieve. In practical terms, it will make little difference to what the EHRC currently does, which is why I am not convinced of Amendment 48F.

Amendment 49C prevents the reporting requirements for those in scope of the growth duty from applying to the EHRC. We had the debate less than a year ago when considering the growth duty. The Government’s initial view was that the duty should apply. However, in the light of debate and representations from your Lordships, we undertook that the EHRC would be excluded. I am happy to repeat that the Government will not seek to apply the growth duty to the EHRC. I want to be completely clear about that. The assurances were sufficient for your Lordships in the last Parliament and I hope they will be sufficient again.

The key reason given for excluding EHRC from these three policies, as far as I can see, is that it might prejudice their international A status as a human rights body, which is obviously incredibly important. However, there is not a risk with the growth duty, as it does not apply to the EHRC nor does the EHRC have a small business champion for the reasons that we discussed last time and on which the noble Lord quoted me. We know it is not the case with the code, because it has applied successfully to the EHRC for years, and it has been accredited internationally while it has been in place.

The business impact target is a transparency measure. It does not fetter the independence of the regulator to make its own decisions in relation to the changes it introduces. Inclusion in the target would require EHRC to measure and report its impact on business, and have the figures validated by the RPC. The RPC is not government, as we discussed, it is a body of independent experts and looks only at the evidence and analysis.

The noble Baroness, Lady Hayter, talked about the Charities Commission. The point has been made that it does not affect business. However, the business impact target covers the impact on both the private sector and the Third Sector. The Charity Commission certainly affects the third sector. We will consult in the new year on the list of regulators and welcome the views of Peers and regulators. We are trying to reduce red tape in life; reduce red tape for small business. I believe that a lot of charities—the noble Baroness may play this back at me on another occasion—have quite a lot in common with small businesses.

How does the inclusion of the Charity Commission help those who donate? In her inimitable way, the noble Baroness, Lady Hayter, talked about the consumer. Including the Charity Commission would encourage it to minimise burdens on charities ensuring, I would say, that more of donors’ money benefits good causes rather than being tied up in meeting the commission’s requirements.

There was also a point in Amendments 56 and 57 on retrospectivity. The focus of concern is the potential to change the legal effect of actions already taken.

[Lord Hodgson of Astley Abbotts]

The Minister might like to look at the statutory objectives laid down in the Charities Act on the Charity Commission and its effective operation. We may get into duplication here. Five statutory requirements have to be complied with, one of which certainly overlaps. Unfortunately, I do not have the Act with me and I cannot remember the precise wording, but it might be worthwhile looking at it, otherwise, we may get a degree of duplication. Perhaps the Committee can come back to that.

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[Baroness Neville-Rolfe]

I thank my noble friend for tabling this amendment, which seeks to include in the Bill a specific reporting requirement for regulators subject to the code to provide details of the activities, including costs, of any organisation employed to undertake work on their behalf. At the heart of the amendment lies a concern about the hidden costs to business. The example that he gave was that financial service regulators may seek to discharge their regulatory functions by using their powers to commission reviews by “skilled persons” and charging the businesses concerned for the cost of that work. As I understand it, that is at the heart of the problem that my noble friend has identified.

My noble friend is right to seek transparency and accountability about how these powers are used and I think that we have made some progress in this area. Both the FSA and the PRA now routinely publish information on their Section 166 Financial Services and Markets Act 2000 activity. This includes quarterly reporting on the number of skilled persons reports that they have commissioned and annual reporting on the aggregate costs of these reports. As my noble friend probably knows, this information is available online. It seems to me that the disclosure that he seeks is being addressed and I am not sure that there is harm elsewhere that justifies creating new regulation in this area. In the interests of brevity, I do not see a case to amend the Bill and ask him to withdraw the amendment.

[Lord Hodgson of Astley Abbotts]

I am grateful to my noble friend for that full response. One of the questions is, of course, that I just happen to know about the financial services area, where there are lots of regulators that we are considering as part of this section of the Bill. It would be helpful if we could try to ascertain whether other regulators are engaged in the same process because it enables them to add to the regulatory burden very considerably. I am grateful for the comments and the further research that the Bill team have done on this matter and I beg leave to withdraw the amendment.

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[Lord Hodgson of Astley Abbotts]

I cannot resist, although I know that the Committee is like a horse heading for the stable, therefore I shall be very brief indeed. On the comments made by the noble Lord, Lord Mendelsohn, on money laundering, this area has a life of its own, and the impact on smaller businesses is stupendous and without any real evidence of any efficacy whatever. This area is still growing, and the tentacles of bureaucracy are widening all the time, therefore the burden will be greater. I therefore very much support the idea that we take any steps to make sure that it is effective—not that we should not do it, but that it is effective. That is the thrust of the noble Lord’s Amendment 49B and trying to make sure that we try to prevent the further spread of this. I have today received a request about money laundering from my clearing bank. When I left university in 1964 I went to work in America. The bank has written to me saying, “We see you worked in America in the 1960s; tell us what you were paid as part of our money laundering investigation”. What that can possibly add to its knowledge of me 50 years ago I cannot possibly imagine. If you use the term “money laundering” everyone says it must be a good idea. It will require a big effort to make sure that we are effective. The question is: are we stopping people doing these terrible things, not just spraying information around and ticking boxes? Therefore, all power to the Minister.

[Baroness Neville-Rolfe]

My Lords, I share the sentiment behind Amendment 49B to ensure that regulators have regard to the needs of business when dealing with money laundering requirements. As I used to say when I was on the Back Benches, the regime was excessively burdensome and some businesses feel confused by overlapping or restrictive guidance. However, these concerns cannot be addressed by simply looking at how regulators deal with small business. There may be examples of requirements that are particularly difficult for certain entities, but it is the interactions between different types of business and with the banks that is at the heart of the problem. So small companies with innovative business models or ways of complying with requirements, to know their customers, may find it difficult to maintain business relationships with large banks which do not understand how a particular model works. The bank may simply decide not to do business, rather than expose itself to the risk that the small company is being used for money laundering.

Difficulties can be caused by the guidance that is produced by the various regulators and supervisors. That is why we are looking at the regime in the round. We are now running a Cutting Red Tape review of money laundering controls. It is important that companies that are genuinely confused about what they need to do have this confusion addressed. Our call for evidence is open until 6 November—my husband is planning to send sacks of stuff—and we are keen to speak to all NGOs, businesses and trade associations with an interest, particularly SMEs.

We want to examine more seriously the potential to improve compliance and efficiency, by identifying aspects of the good supervisory regime that appears to businesses in the regulated sector to be unclear, cumbersome, conflicting or confusing. We are already speaking to a broad range of sectors and we would be very pleased to have examples from your Lordships. The Government understand that the regime can be improved. We published the first national risk assessment for money laundering and terrorist finance risks on 15 October and one of the findings was that the supervisory regime was inconsistent. We accept that this needs to be addressed.

The evidence being gathered by the BRE will help to inform work under the Government’s action plan to reform the regime and to ensure that it is consistent; treats large and small businesses sensibly and proportionately; and follows a truly risk-based approach allowing resources to be targeted at the areas that are at greatest risk of money laundering and terrorist financing. These are also important policy objectives which must not be forgotten in today’s discussions.

I hope that gives some reassurance. I have a good deal of excellent detail on Amendment 49D in relation to investment fraud, but given the lateness of the hour, I wonder if the Committee would like me to write about that. I think it means that we do not need to amend the Bill, but a lot of good work is being done by the FCA which I would like to share with noble Lords and give more publicity to in order to get after the scammers. I hope that the noble Lord will feel able to withdraw his amendment.

Enterprise Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Monday 26th October 2015 Grand Committee

[Baroness Neville-Rolfe]

My Lords, the proposal before the House is set out in the Bill. I think we have all agreed that this is quite a challenging office to set up. We want to get off on the right footing, and for today’s purposes the focus is on where this imbalance of power is.

[Lord Hodgson of Astley Abbotts]

Before the noble Lord, Lord Stoneham, finally withdraws this amendment, I hope that, if he is to persist in this at a later stage of the Bill, he will reflect on how one distinguishes payment from monitoring and contract. If you accept a payment-by-results contract, you are committed to it long before you get to the payment stage. If you change the monitoring methods in the middle of the contract, the payment flows from that because it is then paid a different way. The yardsticks, the key performance indicators, will be different. While it is very neat for the Government to say this is about payment, it washes back up the chain to what was done before. I understand what my noble friend Lord Cope and the Minister said, but these are not discrete silos. They are all interlinked.

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[Lord Hodgson of Astley Abbotts]

Amendment 35 just says,

“including details of any visits to the different regions of the United Kingdom”.

It does not say that the commissioner has to make them. If they do not say anything, we will assume that they have not gone. Without constricting or constraining the Small Business Commissioner’s judgment of the best way of executing the task, there is, nevertheless, an inherent idea that a certain number of visits should take place.

[Baroness Neville-Rolfe]

I thank my noble friend for that clarification. This is an eminently sensible approach: we need to make sure that the interests of regions are taken into account. Although we try not to be, some of us tend to be a bit M25-focused. I think my noble friend is saying that there is a wider wealth of opportunity on payment issues right across our great nation.

I have tried to respond to the various questions which have been raised and I hope that, in the circumstances, my noble friend and the noble Lords will feel able to withdraw their amendments.

[Baroness Neville-Rolfe]

My Lords, that would be excluded in the approach we have adopted in the Bill.

[Lord Hodgson of Astley Abbotts]

I am grateful to the noble Lords, Lord Mendelsohn and Lord Stoneham, for their supportive remarks. I am also grateful to my noble friend for giving a degree of assurance that we are not expecting the individual to be stuck within the M25 but to get out and about. I will, obviously, read carefully what she has said. I am interested in how we are going to have equality of arms with regulators. My noble friend made some interesting comments on that which I will reflect on. In the mean time, I beg leave to withdraw the amendment.

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[Lord Mendelsohn]

Briefly, I support this amendment, which dovetails quite nicely with an issue that we will raise later on the powers of the Small Business Commissioner. There are many difficult cases, on which many people receive letters, where the ability to use legal processes works massively to the detriment of small businesses, and it is exceptionally difficult to be able to extend those procedures. I think that the noble Lord, Lord Hodgson, made the point that it is not about getting involved in the legal case in and of itself but about using the convening power and sense of the Small Business Commissioner to help to get these processes streamlined to make sure that small businesses are not affected by that asymmetry. This is a very sensible and proportionate amendment and we support it.

[Baroness Neville-Rolfe]

I thank my noble friend Lord Hodgson for his amendment and for his examples, including the IP examples—an area that he knows is close to my heart. I like the Scylla and Charybdis parallel, which one could use more broadly in public policy. I did Latin A-level, being in an era when they did not teach women science.

Clause 3 provides for publication of general advice and information relevant to small businesses and their supply relations, and to resolving disputes. Under existing drafting, obviously this could include information about the timings of and risks of delays within legal proceedings. However, I think that the intention of my noble friend is much broader than the provision of advice and information to small business. As I see it, he intends that the commissioner should shine a light on where delays in legal processes and litigation tactics are used in a manner that is detrimental to small business as they frustrate efforts to resolve a dispute, as he said in examples that he raised.

Clause 9 requires the commissioner to publish an annual report on its activities. This must include a summary of the matters raised with the commissioner by small businesses that the commissioner considers are the most significant. It can of course include any recommendations that the commissioner may have in relation to such matters. Therefore, if issues related to delays in legal processes are brought to the commissioner’s attention and she or he considers them significant, he or she may include them in the annual report.

It is difficult to develop this further without impeding the right of business to have access to the courts. However, obviously, as the noble Lord, Lord Mendelsohn, says, the commissioner has a certain convening power. I do not think that my noble friend Lord Hodgson was trying to get him involved in individual cases, and that convening power will be able to be used to survey what is happening in these areas—as I said, to shine a light on them. I therefore agree with the spirit of the amendment, which is to shine a light on delays, on aspects of the courts system or on the exchange of legal letters that are preventing or deterring small businesses from resolving disputes. However, the Small Business Commissioner has sufficient powers in this respect and I am not persuaded that we should go any further in this area.

[Lord Hodgson of Astley Abbotts]

My Lords, I am again grateful to the noble Lord, Lord Mendelsohn, for his support on this set of amendments.

I am slightly disappointed by my noble friend’s response. The reason is this. Lawyers are extremely jealous of their territory. When the Small Business Commissioner decides to say something critical of the law without having specific powers built into the Act, he will come under considerable criticism. There will be a danger that he will flunk the issue. These are tricky, difficult issues; they are not easy. There are always two sides to the argument, but we need someone who has the responsibility to speak out on specific issues, and the legal issue is one where a specific duty is important. Otherwise, I can see it being shuffled to the side and put into the pile of complaints that are too difficult to deal with. The commissioner will say, “Let us leave that, because we shall only have trouble. We will only have the lawyers getting after us for interfering with due process”—my noble friend even referred to the question of due process in her response.

I shall reflect a bit further on this but of course, in the mean time, for this afternoon, I beg leave to withdraw the amendment.

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[Baroness Neville-Rolfe]

I certainly agree that the convening power is one of the key strengths of setting up a new Small Business Commissioner, joining the dots and noticing perhaps that there are a number of cases in an area and putting that into the annual report, or drawing attention to it. It may be that we are not as far apart as I had thought. We are reluctant to make amendments or change the role of the Small Business Commissioner in this area. In the light of the discussion that we have had, I hope that the noble Lord will feel able to withdraw the amendment.

[Lord Hodgson of Astley Abbotts]

We have heard a lot about navigation and the website, and how that will work. Will the Small Business Commissioner have his or her website, or will it be part of the government website? In that connection there has been a lot of criticism about navigation through the government website. The Charity Commission has now had to move into the government website and accessibility has dropped dramatically. There have been many complaints. If we were going to put the Small Business Commissioner website into the government website we would want to make sure that accessibility is better than that currently experienced. I am not asking for an answer to that question now. Perhaps the Minister can write to me about it in due course.

[Baroness Neville-Rolfe]

Of course, I am very happy to write to my noble friend. I have to say that I was a GOV.UK sceptic to start with, which is perhaps the point that he is making. I have found that there have been transitional problems, particularly with those organisations that have been unfortunate enough to have to, as it were, migrate from their website to the new website, but actually it has a lot of strengths. I think we are talking here about a new website—the Small Business Commissioner’s website. I think it would be rather odd not to have it on GOV.UK because that is where small businesses go. Obviously, it has to be a special website and suitably promoted. However, if I have any further thoughts I will certainly write or we can talk about it because we need to get this right. It is very similar to the Consumer Rights Act, where we spent a lot of time discussing how the new rules would be described to business and passed on to consumers.

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Tuesday 17th March 2015 Lords Chamber

[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord, Lord Mendelsohn, for his very kind remarks and for giving me the opportunity to return briefly to the matter of pubs. As he said, I sent a letter to the noble Lord, Lord Stevenson, yesterday and I have, for the convenience of the House, placed a copy in the Library.

Noble Lords expressed concern on Report about protections that would be available to a tied tenant whose pub is sold. Let me clarify the position: when a tied pub, owned by a company covered by the statutory code, is sold to another code company, the rights of the tenant under the code will be unaltered and will continue seamlessly. A tenant in this situation will retain the right to exercise the market rent only option after sale if any of the MRO triggers are activated. Where a tied pub is sold by a code company to a company outside the scope of the statutory code—for example, to a family brewer—the tenant will retain all the protections of the code except for MRO until the end of the lease or until completion of the next rent review, whichever comes first. In this scenario, if the purchasing company offers the tenant an agreement on different terms from their existing agreement, the tenant will have the right to a rent review.

If the tenant considers that the rent review breaches the code then he or she will be able to refer the matter to the adjudicator for arbitration. The adjudicator will not have powers to investigate non-code companies because the investigation powers are designed to address suspected systemic abuses of the code across many tenants. It would not be right to include in scope companies which are covered by the code only by virtue of the historic ownership of some of their pubs and in respect only of those particular pubs.

I turn briefly to the matter of investment. I have been clear that the Government want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. Pubs are at the heart of our communities and our heritage. They are important to the old and the young. We want pubs to thrive. I therefore announced on Report that the Government would set out in secondary legislation how tenants and pub companies can agree a waiver of two MRO triggers in exchange for significant future investment in a pub. I would like to make it clear that the waiver will apply only to the renewal and scheduled rent review triggers for MRO. All other code protections will remain in place during the waiver period. This means that the two exceptional triggers for MRO will remain; namely, a significant price increase and an economic event which impacts on the tenant’s ability to trade. The Government will set out safeguards in the code to ensure the tenant is protected from attempts to abuse a waiver. Any attempt to avoid these safeguards could be referred to the adjudicator for arbitration and redress.

[Lord Hodgson of Astley Abbotts (Con)]

I am grateful to my noble friend. I hoped to get through this afternoon without having to discuss pubs yet again. When a pub is sold by one of the companies covered by the code to a company that is not covered by it—a family brewer was the example she used—who enforces the rights of the tenant against the pub company that is outside the code? At that point, as my noble friend said, it is not part of the code so how does the adjudicator make that work?

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Monday 9th March 2015 Lords Chamber

[Baroness Wheatcroft]

I thank my noble friend Lord Hodgson and I support him in his amendment because it finds the balance between being overly prescriptive and legislating to give some comfort to pub owners, thus persuading them that it is safe for them to invest. I cannot support the noble Lord, Lord Mendelsohn, in his amendment. It seems to be far too prescriptive for the Bill, as others have said, and somewhat contradictory. The Bill already states that a trigger event for an MRO will be something that was unforeseen. An investment agreement, by its very nature, will have to be something that is negotiated.

Surely there are pub owners and pub landlords who are capable of negotiating an investment agreement that suits both sides. I do not subscribe to the view that all pub owners are out to do the dirty on their tenants or that all tenants are weaklings. Indeed, the Pub Landlord, that character who is so well known to television viewers, is standing up to Nigel Farage in South Thanet, although it has to be said that that particular pub landlord has not been seen there very often.

We need to offer landlords some protection so that, if owners invest in their pubs, they will not immediately be forced into an MRO. The trigger, as cited in the amendment tabled by the noble Lord, Lord Mendelsohn, would have that option. What sensible landlord is going to put money into his pub if the recipient could instantly trigger an MRO? There needs to be some scope for negotiation. My noble friend the Minister has shown that she is open to negotiation and consultation, and the amendment tabled by my noble friend Lord Hodgson would be the best way forward. However, perhaps the Minister could reassure us that she sees the need for investment to be encouraged and that she will find a way of giving pub owners and landlords the protection they need in order to invest in their estate.

[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord, Lord Mendelsohn, and my noble friend Lord Hodgson for their amendments and for providing us with an opportunity to debate further the very important question of continued investment by pub-owning companies in tied pubs. That is especially the case because, as my noble friend Lord Hodgson has just said, pubs are having to reinvent themselves in the 21st century. As we have heard, these two amendments approach the issue in rather different ways, and I understand the motivations behind both. I can reassure the noble Lord and my noble friend that the Government absolutely want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. We want to see pubs thriving and the new arrangements to work.

I think we all accept that the possibility of pubs exercising the market rent only option will create some uncertainty for pub companies, and it is possible that there might be more uncertainty than they can live with if they are thinking of making a substantial investment in a pub. It is equally clear that there is some nervousness around asking tenants to defer some of their MRO rights in return for investment and that serious consideration needs to be given to how this would work in practice and the safeguards that need to be in place. As I said earlier in our debate, we have been considering how best to address this and strike the right balance. I can reassure my noble friend Lord Hodgson that the Bill as drafted does not prevent pub companies issuing the tenant with a new lease alongside an offer of investment, and no amendment to the Bill is necessary to enable companies to do so.

As my noble friend pointed out, a new agreement may attract costs for tenants, including legal costs and stamp duty.

The situation means that the MRO triggers on rent review or renewal would not be available to the tenant for a period of five years, as that is the maximum interval that the code will currently allow between rent assessments. It would, however, provide the pub company with some certainty. We recognise that there will be occasions where a larger investment—

[Lord Hodgson of Astley Abbotts]

I am not quite clear whether my noble friend said that there was or was not a problem with stamp duty. My understanding is that there are repeat stamp duty obligations; in other words, you write off the stamp duty of the lease that is running and have to start again every time you have a new agreement, and for five years that is another £5,000, plus whatever you have written off before, plus the legal costs. I am not clear whether she said that was a problem. If this is too difficult and technical, I am happy for her to write to me.

[Baroness Neville-Rolfe]

My noble friend is right: a new agreement would appear to attract costs for tenants, which would include legal costs and stamp duty.

As I was saying, we recognise that there will be occasions where a larger investment requires a longer return-on-investment period. After careful consideration and discussion with stakeholders, the Government have decided to address this issue, but to do so via secondary legislation, using the powers in Clause 42. I can reassure the noble Lord and my noble friend that the Government are committed to using these powers to set out in the code different rent assessment periods for different amounts of substantial capital investment offered. We will consult on what constitutes substantial capital investment and what the waiver period should be for different amounts. But we are clear that this could extend the rent assessment interval beyond the usual five years where it is appropriate to do so. This would mean that MRO cannot be exercised during the waiver period unless one of the triggers of a change of circumstances beyond the tenant’s control, or a significant price increase, is met.

In our discussions with stakeholders, we have heard varying calls for the length of waiver period that would be required to enable a pub company to see a return on its investment. These calls have varied between the five years suggested by the amendment moved by the noble Lord, Lord Mendelsohn, and 10 years. Clearly, individual circumstances will differ and we need to understand the details through consultation before we set this out in secondary legislation. The code will set out the safeguards that must be met to ensure that the tenant is protected from attempts to abuse a waiver. Again, it is vital that we consult on these to get them right.

I was glad that the noble Lord, Lord Mendelsohn, welcomed the idea of providing for investment. He set out a number of understandable concerns and potential safeguards where I think there is a lot of agreement but where we will need to work out the detail; for example, ensuring that the investment is substantial, that the tenant must take independent advice before agreeing to the deal, and that it is a genuine investment and not running repairs. He also mentioned that the pub company should not be able to require that a waiver agreement involves opting out of the Landlord and Tenant Act. I can reassure him that, using existing powers, we could restrict a pub company from requiring an opt-out of the Landlord and Tenant Act protections as a condition of investment.

My noble friend Lord Hodgson set out two areas of protection in his amendment: “significant investment” and “specified period”. Again, I think we all agree that these are important, and the secondary legislation I am proposing will set them out in detail. To meet the concerns of my noble friend Lord Younger, it will indeed be by affirmative resolution, which will enable us to have a debate.

There are other potential safeguards which will really benefit from consultation. The noble Lord, Lord Mendelsohn, asked whether the tenant can buy out of their agreement at a later date or source the finance from elsewhere. We will want to consider safeguards around ensuring that a pub company delivers the investment it promises, including when the deferral period should start. The adjudicator will have the power to intervene and arbitrate disputes where the landlord has breached the relevant provisions of the code. Remedies under the Arbitration Act are wide-ranging and the adjudicator can order redress which includes the payment of money in appropriate circumstances. I agree with the noble Lord, Lord Mendelsohn, that we need to take account of the fact that different sums of investment are significant for different types of pub—I think that he talked about urban and rural pubs, but it is probably even more complex than that. This is again a matter for secondary legislation and consultation.

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[Baroness Neville-Rolfe]

My Lords, I thank my noble friend Lord Hodgson for championing the industry. I agree about the importance of investment. There has been some investment in the industry, and I hope there will be more if we get these important reforms right. I also agree about the importance of franchising as a new potential avenue of prosperity for the sector. I thank the noble Lord, Lord Mendelsohn, for his amendment, which I will come to.

Amendment 33Y seeks to provide that the market rent-only option does not apply to franchise agreements. My noble friend defines them as,

“agreements whereby no rent is paid by the”,

tenant,

“and their share of the profit is unaffected by the price paid for tied products”.

The Government recognise that there are turnover-based pub agreements on the market where the tenant’s interests are arguably more aligned with the pub company because both rely on a fixed proportion of turnover. The tenant does not face the combination of wet and dry rent, as with traditional agreements. The benefits of a franchise are that you are buying a proven business concept that has been tested by the franchiser. That should mean that your risk as a franchisee is reduced. Alongside the turnover share element, this would seem an important part of what constitutes a genuine franchise.

However, pub franchises also retain some characteristics of a traditional tied agreement that mean the tenant is still at risk. For example, the tenant is locked into the agreement for at least five years with no means to change the terms. The pub company remains in a stronger negotiating position, as we understand that the relative turnover share figure is fixed and generally non-negotiable, and a franchisee is unable to shop around for a better deal on some or all of his products and services.

However, after much consideration, I am pleased to confirm to my noble friend that the Government have listened to concerns expressed and agree that genuine franchises should be exempted from the MRO provisions. Given the differences between traditional tied pubs and genuine franchise agreements, we consider this a reasonable exemption, but we are clear that the remaining code protections should still apply.

We will exempt only genuine franchise agreements, and I shall make a few comments about our thoughts here. My noble friend put forward in his amendment two sensible criteria that are fundamental to defining a genuine franchise, but there are likely to be others. Therefore, it would be wise to consult further before we specify exactly what we mean by a pub franchise, and to take this forward in secondary legislation. It is our intention to provide for the exemption using the existing Clause 71.

In relation to Harry Ramsden’s, the code will regulate the alcohol tie in pubs. Harry Ramsden’s fish and chip shop clearly is not a pub, and Clause 71 enables the Government to exempt Harry Ramsden’s from the regime. Similar examples will be considered on a case-by-case basis. We will look at the points made today about Harry Ramsden’s and Starbucks in developing the code.

My noble friend Lord Hodgson was concerned about potential unintended consequences and asked for more to be done in the Bill. This is a difficult one. The best way to reduce the risks of unintended consequences is to allow for flexibility through secondary legislation because it is then possible to tweak arrangements should unintended consequences arise. If we fix these matters in primary legislation, any unintended consequences would be much harder to remedy.

On Amendment 33AZ from the noble Lord, Lord Mendelsohn, I am pleased to reassure him that the regulations we will make under Clause 71 will be subject to affirmative procedure, so we will be able to have a proper debate. However, we believe that subordinate legislation is the right way ahead. I am making it clear in Hansard that that is the Government’s intention, and my Bill team will be working away on franchise and other aspects of the subordinate legislation as soon as the Bill receives Royal Assent.

I hope that my noble friend will feel reassured by my response and will agree to withdraw the amendment.

[Lord Hodgson of Astley Abbotts]

My Lords, I thought for one wonderful moment that my noble friend was going to agree to put something in the Bill, but it will be secondary legislation again, with all the disadvantages and uncertainties that that implies.

Of course the noble Lord, Lord Mendelsohn, has a family familiarity with franchising, in the sense that his uncle was the moving spirit of the British Franchise Association, which of course would help set the standards that would decide what a pub franchise looks like, because it has a lot of experience in that area—so this will come back to haunt him yet.

My concern about the Minister’s reply is that we find ourselves unable to move the structure of the pub trade forward. We need to find new and better models. There will always be concerns that any new corporate structure we invent carries the risk of it being used for a loophole. That is not the case, because the amendment brings every single aspect of the franchise within the Pubs Code and the Pubs Code Adjudicator’s power except the single issue that you cannot ask for a market rent option because you are not paying any rent.

I accept my noble friend’s assurances that the Government intend to make sure that this is properly dealt with in consultation, but they are making a mistake because there is a danger of slip ’twixt cup and lip. My concern is that the trade finds itself locked into a structure with which neither side is entirely satisfied, and that we may therefore perpetuate enmity, suspicion and difficulty. I had hoped to find a way out of that by getting something in the Bill. I am sorry that the Government will not do that, but I see no point in taking it any further on this occasion. I therefore beg leave to withdraw the amendment.

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[Lord Hodgson of Astley Abbotts]

My Lords, it will not surprise the noble Lord, Lord Whitty, that I urge the Government not to accept the amendment. The issue of the change in the MRO and its introduction is about tenants: that is to say, self-employed business men and women and the imbalance of bargaining power between the individual tenant and the brewery, in particular because of the issue of the rent charged and the charge for products and services supplied. That is the heart of the problem.

Managed pubs—the other big category—are run by people who are employed by the brewery, who run it like a branch office. The noble Lord, Lord Snape, referred earlier to how Wetherspoon runs its pubs. It has managers in every pub who are employees. They are paid a salary and a bonus, with all the other aspects that go with corporate existence. To include those in a Pubs Code would be wrong, first because there is no rent to pay and no question of any aspect of the Pubs Code applying to pubs like that. These are completely different vehicles and corporate structures, and the application of the Pubs Code can have focus and effect only where you are dealing with independent businessmen, whether they are tied, franchised, or whatever.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Whitty, for his amendment, and for his engagement on these provisions in advance of Report. As the noble Lord explained, these amendments would change the definition of a pub-owning business for the purposes of the Pubs Code to one with 500 or more pubs of any kind rather than 500 or more tied pubs.

The noble Lord asked about franchises. They will indeed be included for the purposes of the 500, as I think my noble friend Lord Hodgson helpfully explained when we were discussing it earlier. The definition focuses on the alcohol tie, because that is where we have evidence of problems, as colourfully explained in four Business Select Committee reports, all of which focused on the tie.

I understand the noble Lord’s view that companies with more than 500 pubs of any kind are companies of sufficient size that they can cope with complying with the code. However, the amendments would lead to some striking anomalies. A pub-owning company with 499 pubs, all of which are tied, would not be covered by the code, but a pub-owning company with 500 managed or free-of-tie pubs and just one tied pub would be covered for that one tied pub.

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 28th January 2015 Grand Committee

[Baroness Neville-Rolfe]

The noble Lord makes a good point. The Secretary of State and Jo Swinson have been intimately involved in all this. I have now taken over the yoke in this House. The next thing I was going to say is that I held an open-door session yesterday. Noble Lords were invited. I was surprised that more noble Lords were not able to come, but that might have been a timing issue. I am keen to get to know all the views of the Committee on this important issue. I joined the House of Lords because it is an important revising Chamber. We have to look at these things and get them right. Our door will be open between now and Report.

Clearly this group of amendments is very large, but I have already said that I would like to listen to what is being said by noble Lords on their amendments before I respond and comment on what we should do with our amendments. We are being very constructive; we are trying to seek a balance and to do the right thing. If we could get on and get into the detail we may find that we can narrow down some of our differences.

[Lord Hodgson of Astley Abbotts]

My Lords, when I was interrupted a minute or two ago I was explaining that I had some amendments here and that we had some doubts still, despite my noble friend’s assurances about the workability of what is now proposed. I should say to the noble Lord, Lord Whitty, who I think asked the question, that I do not propose to move my amendments today; I propose to have them discussed. I suspect that that is what he expected me to say, but then I suspect that he was not putting his question to me.

At this point I remind the Committee, as I did the House at Second Reading, that until a year ago I was a non-executive director of one of the six companies covered by the proposed code. The group of which I was a non-executive director had five breweries, two large ones and three small, stretching from Cumbria to Ringwood in the New Forest. It owns some 2,000 pubs, of which about 500 were managed, and the balance were tenanted in various forms.

This is a bit of housekeeping. The Captain of the Gentlemen-at-Arms has told me that it has been suggested that I did not declare this interest at Second Reading. For the record, I draw the attention of the Committee, and indeed the House, to col. 1289 of Hansard on 2 December, the date of the Second Reading of this Bill, in which I declared in terms the interest that I just declared. It was further suggested by someone that I did not declare my interest at the beginning of my speech. That is perfectly true; I did not. I think that the Companion does not require you to make your declaration at the beginning of the speech. The beginning of my speech was not about pubs; it was about pre-pack administrations and about the Government’s procurement policies as they affect small companies, in which I had no interest to declare. When we came to the pubs, I made the declaration that I have described, so I hope that we can draw a line under that question.

I thank my noble friend and her team of officials for the time they have given to discussing some of the operational problems that it is feared may occur. I thank the Government, having listened to some of the arguments that my noble friend has just briefly outlined for the Committee, which include a complete rewriting of Clause 42, which, as we realise, is the essential heart of the new regime. The amendments, as we have heard, were tabled last Thursday night, and it is fair to say that, given only three complete working days since, all parties are struggling to understand the full implications of what is now proposed. My noble friend Lord Cope of Berkeley had a sensible suggestion to achieve some permanence that we can then discuss and amend on Report if necessary. I do not suppose that CAMRA will agree with much of what I say but it may be persuaded by some of the arguments, and I suspect it would agree that we are struggling slightly with the flow of information that has come so late in the day.

I have tabled a number of amendments to Clause 42, which form part of a strategic whole. Before discussing the amendments in detail, I shall take a few minutes to discuss the shape of the pub industry and how those amendments would be to its long-term advantage. I begin by making three things clear. First, these amendments do not—I repeat, not—seek to overturn the House of Commons decision to introduce a market rent only option, the MRO. I think that that is probably a mistake; time will tell, but it may accelerate pub closures. However, the Government have decided to accept the decision, so I want to move on from that point.

Secondly, the amendments are designed to help to keep pubs open. The sector is under pressure from a wide range of adverse tides. There seems to be a view that somehow pubcos want pubs to close. A landlord needs a tenant as much as a tenant needs a landlord. That is particularly true of the company with which I was involved, which brewed its own beer in integrated premises, and it is through its own pub estate that a large proportion, 25% to 35%, of the product is sold. A closed pub is of no use in this regard, and closure even for a short period can be disastrous. If I may use the noble Lord, Lord Stevenson, as an example, if he is in the habit of having a pint on the way home from work and his normal hostelry is the Crown but it closes for refurbishment, he will not cease having his pint but will go to the King’s Head, elsewhere in the high street. It may be that as a result of the Crown having closed for a bit, his permanent patronage will be shifted to the King’s Head. In the company in which I was involved, when we undertook refurbishment we wanted it to be as quick and painless as possible to avoid upsetting our regular clientele.

Thirdly, these amendments are designed to iron out some of the idiosyncrasies and unevenness that, if not changed, will seriously affect future investment in the sector and its longer-term health. I am afraid that it is not realistic to believe that individual free house operators will have access to the sums of capital that large companies have at their disposal.

I turn to the industry. As I have said, the Bill affects only six companies, unless the Government accept Amendment 69A, tabled by the noble Lord, Lord Berkeley. It is not surprising that the issue of hybridity has raised its head and has had to be addressed in Clause 70(3). The six companies fall into two categories: two of them brew beer as well as owning pubs, which they sell in part through their own estate. They also sell in supermarkets, through independent pubs, free houses, off-licences and so on. I will refer to these as the integrated model. The other companies are pubcos. They do not brew beer; they very often buy their beer in from breweries operated by their rivals. They are clearly more focused on the rental levels available in their pubs.

As I explained at Second Reading, this rather counterintuitive structure of pure pubcos came about because of a parliamentary decision on the beer orders in the 1980s, which prevented breweries from owning more than 2,000 pubs. The disinvestment programmes forced on them resulted in what have become known as pubcos. They resulted from a parliamentary decision, which many argue had a completely unexpected and unintended consequence. We need to make sure that we do not set out today on a journey that has similar unintended consequences. By the way, some argue that the way in which this weakened the brewers weakened the whole of British beer on the pub market and led to the rise of foreign lagers, which are sold in every pub in the country. If your Lordships go into a pub you will be faced with Stella Artois, which is originally Belgian, Fosters and Castlemaine from Australia, Grolsch from Holland, Kronenbourg and, more recently, Peroni. Most, although not Peroni, are brewed here under licence but not owned in Britain at all.

Those two types of companies have differently aligned interests and objectives, but I would like the Committee to remember a further differentiation between managed and tied pubs. Managed pubs, as the title implies, are run by employees of the company who are paid a salary with a bonus and other fringe benefits. They are quite different from tied tenants, who are essentially self-employed small businessmen. All the issues about beer pricing and other conditions of the tie are of no interest to the manager, who is in effect running a branch office. I am very grateful to my noble friend for having made it clear in moving her amendment that managed houses have no place in the provisions of Part 4.

As I said at Second Reading, people feel strongly about pubs; even if they do not want to go to them, they like them to be there. Their disappearance is resented for removing an essential part of what people see as a community. Just how strongly people feel about pubs, though, even I underestimated. It is not often, working away as a humble Back-Bencher in the decent obscurity of your Lordships’ House, that a single sentence in a 13-minute speech can get one simultaneously on to the front pages of the Daily Mail and the Daily Telegraph and described as an Islamophobe to boot. For the record, let me set my sentence in context.

I said that the pub trade in all its forms—tied, untied and free—faces very adverse tides, which are resulting in pub closures. The adverse tides, in which I fear that the tie plays only a marginal part, include cheap alcohol in the supermarket, with an average price of £1.13 per pint compared to about £3 in the pub, so that people drink at home; the rise in the consumption of other beverages not normally associated with the pub, such as wine; the rise in regulation including drink-driving, the smoking ban and new licensing laws; rises in costs, including council tax; and deep-seated socioeconomic changes, including the deindustrialisation of parts of Britain—I used the example of the carpet trade in Kidderminster at Second Reading—and the arrival of people whose faith forbids the drinking of alcohol. That last point is not in any way and was never meant to be a criticism, as I am a great believer in religious tolerance in every direction. However, it means that such people are, quite understandably, unlikely to be persistent frequenters of premises which, under Clause 65(3), are defined as ones in which,

“one of the main activities carried on at the premises is the retail sale of alcohol to members of the public for consumption on the premises”.

As a result of these trends, in which sectors of the pub trade are closures now taking place? From the publicity being given, it would appear that the conclusion is that nearly all the closures are taking place in the tied sector. The truth, I am afraid, is rather different. Mr Doug Jack, an analyst at Numis, the City investment house, says in a paper that the closure rate in the free-of-tie sector is more than double the closure rate in the tied, tenanted, leased sector. There is a multitude of reasons for this, all connected to the fact that tied pubs also tie the pub company into the pub’s success or failure. As part of the rent is paid through the beer, the pub company is motivated to drive up beer volumes, which is why pub companies invest substantial amounts in capital expenditure, tenant support and rent concessions when good licensees are struggling.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I thank all noble Lords who have spoken in a helpful discussion. When we saw the grouping we knew that it would be a marathon. I hope that noble Lords will forgive me if I make a lengthy 10,000 metre reply, so that the various questions that have been raised are answered.

I shall respond first to the noble Lord, Lord Berkeley, on timing, and secondly, to the noble Lord, Lord Mendelsohn, on his suggestion. I want to reassure the noble Lord that Clause 41 places a clear duty on the Secretary of State to introduce the Pubs Code within 12 months of Royal Assent. As government Amendment 89A sets out, this must include the MRO provision. The Government are completely committed to getting on with things and to swift implementation. I am also completely committed to open discussion in this House between now and Report. I will try to answer the points in this debate, but if I fail I would urge noble Lords to talk to me before Report, and I am sure that there will be further collective discussions.

I enjoyed the intervention of the noble Lord, Lord Mendelsohn, because he put today’s discussion into the context of small business policy where there is much consensus. I sense that he is trying to make progress. I agree that we should try to get the framework right today, if noble Lords agree, once they have listened to me, by agreeing the government amendments. Then we should discuss the issues and possible changes ahead of Report, including whether we have the right balance between the core Bill and the subordinate legislation, as he mentioned. We have thought about that quite a lot. I do not want to lose this important Bill, which would be a very serious unintended consequence, and timing is tight.

Before turning to the individual amendments, I thank my noble friend Lord Hodgson, who took the Floor for a long time, for bringing his knowledge of the industry to this important debate. He spoke of the impact of social change on pubs, which is an opportunity and a concern, and described a nuclear option, which is exactly what we want to avoid.

I now turn to Amendments 69ZC, 74ZB, 87A, 87B, 87C, 89ZA and 102B. I start by thanking the noble Lord, Lord Whitty, for his comments. We have certainly tried to listen to the other place and come up with provisions that achieve the objectives agreed, and to ensure that there is no avoidance in the system of the kind he described. These amendments set out the detailed definition of the market rent only option in the Bill. One effect is that the MRO will come into force on Royal Assent, before the Pubs Code Adjudicator existed. Market rent only and the protections it brings can work properly only if it is introduced with the code and with the adjudicator.

Clause 42, introduced in the other place, says:

“The Pubs Code shall include a Market Rent Only Option”,

so it would still require secondary legislation. The code must be introduced within a year, and under our Amendment 89A it must include MRO.

Secondly, and importantly, the amendment would not allow us to consult on the MRO process. As I have already said, given that it was introduced into the Bill only at a relatively late stage, it is incomplete in its design and it is important that we have some public consultation to ensure that the process works as intended. Following consultation, we will introduce the code by secondary legislation through the affirmative procedure.

Much of the detail of the triggers for MRO is more appropriate for secondary legislation. Clause 42 as drafted provides no detail on the terms of the new commercial tenancy and what an MRO-compliant tenancy would be. We wish to consult to get a stronger sense of what this constitutes and, similarly, what constitutes a “significant” increase in price and,

“an event outside of the tenant’s control … that impacts significantly on the tenant’s ability to trade”.

Companies and tenants affected by market rent only need the opportunity to comment on the process, not just the authors of Clause 42. The Government are committed to ensuring that MRO is robust and workable.

Turning to Amendments 75 to 78, 82A and 83 to 88, I am not convinced that these amendments are necessary. To respond first to the point made by the noble Lord, Lord Borwick, the market rent only clause introduced into the Bill in the other place outlines some of the process involved in obtaining a market rent only assessment and taking up the offer, but it does not set out a complete process of the kind he is seeking. The Government will consult on the detail of the process and set this out in secondary legislation. I have explained that there is a drop-dead date for the whole process.

Our intention is to follow the outline process in the Mulholland clause. So after the tenant requests a market rent only option, the first step will be for the pub-owning company to offer a market rent, which the tenant will accept or which will provide the basis for negotiation between the two sides. If the tenant and pub-owning company cannot agree a market rent only agreement within a certain period of time, the tenant and pub-owning company will jointly appoint and jointly pay for an independent assessor to determine the market rent for the pub.

Our amendments allow the code to stipulate that the existing agreement between the pub-owning company and tenant will prevail until the market rent only procedure concludes. To answer my noble friend Lord Hodgson, there is a power in government Amendment 89B to set out in the code that existing contractual arrangements remain in force until such time as the procedure comes to an end and the new market rent only contract starts.

If in the end the tenant opts for a market rent only agreement, this will constitute a new agreement between the tenant and pub-owning company. The terms of the agreement will need to be clear to the tenant before he accepts the offer. To be clear, at this point the pub-owning company can remove from the MRO agreement any special commercial or financial advantages—SCORFA—that the tenant was entitled to under the tied agreement. As I said earlier, we intend to consult publicly to ensure that the process works as intended.

On my noble friend Lord Hodgson’s Amendment 88 in particular, the only requirements for a lease to be MRO-compliant are set out in Clause 43(4). Other than this, it is up to the pub company to decide what the MRO lease or licence looks like. The pub company will be free to offer a new lease or tenancy without it being considered to be discriminatory.

Turning to Amendments 79, 81 and 89, in addition to consulting on the detailed process for MRO, we will consult on the detailed definitions of the trigger points for an MRO assessment. These will be set out in the statutory code, which is subject to affirmative resolution. Under our amendments the tenant would be entitled to the MRO option: at rent review; if the tenant renews their lease; when there is a significant price increase for tied products which was not reasonably foreseeable; and if an event occurs that is beyond the tenant’s control and meets the descriptors set out in the Pubs Code. The headlines would rightly be in the Bill but we need to set out the details in secondary legislation.

I confirm that the MRO trigger at the point of renewal applies to tenancy agreements that are protected by the Landlord and Tenant Act or which have a specific right of renewal clause in their tenancy agreement. Those tenants who are contracted out of the Landlord and Tenant Act will have the protection of the parallel rent assessment in any negotiations on a new lease at their existing pub. The trigger if there is a significant price increase which was not reasonably foreseeable at the beginning of the tenancy or at the point of a rent assessment would not include circumstances when a pre-agreed discount period ends.

By contrast, Amendments 79 and 89, tabled by my noble friend Lord Hodgson—

[Lord Hodgson of Astley Abbotts]

Can we therefore take it that the trigger points will not include the sale of a pub, provided the tenant’s position is protected, or a pubco going into administration?

[Baroness Neville-Rolfe]

My Lords, that is the proposal set out in the Government’s amendments.

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[Lord Hodgson of Astley Abbotts]

Again, I apologise for interrupting my noble friend, and I am grateful for the detailed response that she is giving. The example that she is giving about investment does not deal with the fact that beer is being sold. The beer companies want to sell their beer—25% to 30% of their beer is sold through their tied houses, their estate. If the legislation does not allow that, it knocks away a reason for investing. It is not sufficient to get a return on the capital—that is, the rent—it is also selling a product that they produce elsewhere in the group. That is, provided—to meet the point of the noble Lord, Lord Snape—that the tenant is free to buy it anywhere if he can buy it cheaper.

[Baroness Neville-Rolfe]

I thank the noble Lord for raising that point. There is a link to the stocking requirement, which I shall come on to talk about, as he suggests. I am not suggesting that investment is the easiest thing to deal with, because we all want investment in this important industry.

Perhaps I can mention a couple of final points before I move on from investment. One is my noble friend Lord Younger’s point about cash flow, which is a good point. If a tied tenant expresses an interest in choosing MRO, the pub company can make the argument about the benefits of the tie—for example, in managing tenant cash flow. That freedom will still exist. At that point, the tenant can choose to remain in a tied agreement. I am grateful to the noble Lord, Lord Mendelsohn, for entering the fray on this issue and suggesting a way forward on the question of securing pub company investment in pubs. I am happy to look at that further.

Further, enabling tenants to forgo the MRO in exchange for a promise of investment may risk intimidation of a pub in difficulty. That will probably not occur often, but it was a concern that we considered in trying to balance these things.

I turn to Amendment 89AA. I believe that it is designed to help to define a significant price increase in relation to a price increase that would trigger an MRO. It is important to get that definition right. It needs to be fair to pub companies and tenants alike. That is why the Government propose to consult on the definition and set the detail out in secondary legislation. I confirm that reference to wholesale price lists will be used in our consultation proposals for that definition.

Amendments 89AB and 89AC amend the MRO trigger for circumstances outside the tenant’s control that affect trade. The noble Lords opposite wish to confirm that all four of the conditions set out in subsection (9) of the proposed new clause in government Amendment 89A must be met for this trigger to be engaged. I can confirm that the current drafting of the clause delivers this effect.

Amendment 89AD relates to the same change of circumstances trigger and proposes to replace,

“an impact on the level of trade”,

with,

“an impact on the level of profitability”,

as the measure for that trigger. We consider that a focus on the tenant’s ability to trade addresses the key issues that affect the fair balance of risk and reward between pub company and tenant. The government amendments ensure that where changes in local economic circumstances affect tenant income, the protection of the MRO trigger will apply. To focus instead on profit would bring in issues such as rates, energy prices, wages and salaries. These issues could further impact on the income of the tenant but there is likely to be minimal impact. The amendments also introduce more complexity in terms of definition and measurement of a significant impact.

I believe that through Amendment 89AE, the noble Lords opposite are seeking to confirm that on the sale of a pub the other triggers for MRO would still apply. Where the new owner of the pub is covered by the code, then this is the case. Where the pub company purchasing the pub is below the threshold, the tenant will not have the MRO option but will have the protection of the voluntary industry code. This is consistent with the Government’s acceptance of the will of the other place to remove family brewers from the scope of our measures.

Amendment 89AF would introduce a power for the Secretary of State to provide an MRO trigger on transfer of title or administration in two specific circumstances. The first is if avoidance of MRO was the “sole or significant” reason for transfer of title or administration. The second is where,

“fewer than 500 pubs … are part of a group or have similar ownership to other companies”,

which own more than 500. I will deal later with the detail of the Government’s reasons for removing the transfer of title and administration trigger, but first I will focus on the specifics of the Opposition’s amendment.

We think it is extremely unlikely that the serious step of administration would be used to avoid MRO. No company considers insolvency lightly. Where a company is in financial difficulty, it will seek professional advice from an insolvency practitioner. It may be advised to restructure the business, which could involve selling off some parts of it. However, entering administration to avoid MRO would not achieve the objectives of administration, which is to rescue the business. For this reason, an insolvency practitioner would not recommend administration. It is also hard to imagine that pub companies would sell off high numbers of pubs purely to take themselves outside the scope of MRO and the code. Most of the pub companies in scope have over 1,000 pubs, so that would be a drastic step. I reassure noble Lords that where a tied pub is sold to another company covered by the code, MRO protections would continue to apply.

The amendment tabled would also provide a power to bring companies with fewer than 500 pubs into the scope of the code where they were part of a group or had similar ownership to other companies that cumulatively own more than 500 pubs. We share the noble Lords’ concern about the potential for gaming—for example, through the break-up of a pub company to avoid the threshold—but I confirm again that the Government have provided this protection in Clause 69(2). I am afraid that we are not clear whether there are companies with fewer than 500 pubs that have similar ownership to companies with more than 500. Nor, if there were, is there evidence that they should be brought into scope with reference to a concept of similar ownership.

Amendment 80, tabled by my noble friend Lord Hodgson, seeks to remove two of the trigger points in the MRO clause so that tenants will not have the right to MRO if their pub is sold or the pub-owning company goes into administration. The Government’s amendments should address my noble friend’s concern. In the case of the transfer of title trigger, the Government consider that other, more proportionate protections exist for tenants when their pub is sold to another owner, as any new owner would be bound by the tenant’s existing contractual rights. If the sale makes little difference to the pub, there is no problem. If it makes a significant difference to the trading position, another MRO trigger is already available—the trigger for circumstances outside the tenant’s control. The inclusion of the transfer of title trigger would have the unintended consequence of making the sale of pubs as going concerns less appealing to potential buyers, leading to fewer pubs and fewer pub tenancies. For these reasons, the Government wish to remove this trigger from the Bill.

The Government’s amended clauses also remove the trigger when a pub-owning company goes into administration. During administration, the company in administration may continue to operate. Tenants will continue to have their existing obligations towards the company in administration, and the company will continue to have its existing obligations to the tenants, acting through the administrator. If any of the other triggers for MRO are met during this period, such as if the company brings in a significant price increase, the tenant will still have the right to MRO. The primary aim of administration is to rescue the company, and this preserves jobs as well as value. Giving all the pub-owning company’s tenants the right to MRO at this critical point would be likely to reduce the value of the pub company’s estate. Pub-owning companies below the threshold are unlikely to buy the company’s pubs if the tenant could opt for the MRO option during the course of the sale. This would reduce the chances of rescuing the pub-owning company and could ultimately push the company into liquidation. Clearly, this would not be in the interests of the tied tenants, employees and suppliers of the former business and the creditors.

I want to clear up something which was raised by the noble Lord, Lord Snape. He expressed concern that the Government are trying to deny existing tenants the right to MRO. This is not the case. We have merely sought to remove two of the triggers to avoid unintended consequences that are detrimental to tenants. I should be happy to discuss this further with the noble Lord, as we are in the same place on objectives.

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[Baroness Neville-Rolfe]

My Lords, I hope that I can reassure my noble friend that the Pubs Code will be the subject of further formal consultation following Royal Assent. Furthermore, it will be a statutory instrument made under the affirmative procedure, and any future changes to the code will also be subject to that procedure. On Amendment 92, I reassure my noble friend that any change to the threshold for pub companies to be covered by the code must also be made by affirmative resolution, and must follow a review and full consultation.

On Amendment 96A, Clause 63 provides that the adjudicator can be abolished if, following a review, the Secretary of State is satisfied that the role of the adjudicator is no longer deemed necessary. It is only in the event of the Pubs Code having already been revoked and not replaced by the affirmative resolution procedure, as I have said, that the adjudicator would be abolished by the negative procedure. In those circumstances, the removal of the adjudicator is of course consequential on the abolition of the code, which would have been debated in both Houses. The adjudicator’s role is to enforce the Pubs Code; if Parliament has debated and agreed the decision to revoke the code, it seems entirely reasonable to abolish the adjudicator by negative procedure. I hope that this reassures my noble friend that he can withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

I thank the Minister. I accept her explanation of all three amendments, and I beg leave to withdraw the amendment.

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[Lord Snape]

My Lords, I enter the debate with some trepidation after the way that it was introduced. I, too, will be very brief. I am grateful to the noble Lord, Lord Hodgson, for making my speech for me. He underlined the dangers of the amendment. Tenancies at will are where part of the problem lies. I go back to my daughter and son-in-law’s experience. They think that it must be wonderful to have a tenancy on a country pub with ivy round the door, great customers and all the rest of it. Of course, they will be treated very well by the pubcos. They will be looked after; their delivery will come on the proper day; lots of things will be done on their behalf. After a year, once they sign up, they will find out the reality of the situation. It is at that stage that many problems arise, despite the blandishments of the noble Lord, Lord Hodgson, so I hope that despite his honeyed words, the Minister will resist the temptation. I say to him: nice try but it will not wash, I am afraid.

[Baroness Neville-Rolfe]

My Lords, I thank my noble friend Lord Hodgson for his amendment on tenancies at will. I was very glad also to hear from the noble Lord, Lord Snape, given his great experience in the industry.

I agree with my noble friend that tenancy at will agreements are important in enabling pub companies to cover short-term gaps, to keep pubs trading in between tenants. They also allow the company time to complete due diligence on a new longer-term tenant. Temporary agreements can be useful to a prospective tenant as a trial run, prior to committing to a longer-term agreement. I have known ex-senior civil servants who have taken on pubs and found them quite a challenge.

In the other place, my honourable friend Jo Swinson committed to consider calls to exempt genuinely short-term agreements from the Pubs Code. These calls came from pub companies and some tenant groups. I can announce today that the Government will use the power in Clause 68 to exclude from the code tenancies at will and temporary agreements that do not extend beyond a certain limited period. This is to ensure that agreements that are meant to be temporary do not run on for long periods of time as a way of avoiding the code. This does not require an amendment to the Bill but, as part of the consultation on secondary legislation, we will consult on the length of agreements that should be exempted.

We have heard different views from stakeholders as to the length—including 12 months, as proposed by my noble friend—but we have also heard calls for six and nine months. Therefore, we will consult more widely on the length of any exemption period before bringing forward regulations. I hope my noble friend will feel able to withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

I am very grateful to my noble friend for that commitment. I am not stuck on 12 months. All I think we should be trying to provide is a means for people to test out the possibility of becoming a tenant and, therefore, a reasonable period of time. It could be six or nine months; I am quite content about that. The important thing is we should have a regulatory-light opportunity for people to try it out and then if they decide that they want to make it their career, they get the full protections anticipated under the code. In those circumstances, I am happy to withdraw the amendment.

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Wednesday 14th January 2015 Grand Committee

[Lord Hodgson of Astley Abbotts]

My Lords, I share the wish of the noble Lord, Lord Young, to encourage vocational education. It is exceptionally important as a means of improving youth employment. However, I am slightly concerned about the route for apprenticeships, He knows far more about this than I do, but when I take part in the Lord Speaker’s outreach programmes and we talk about apprenticeships to sixth formers, too often they feel—and I think they are probably right—that the apprenticeship is a time-based qualification, not a performance-based qualification. That is to say that you have to spend a certain amount of time doing a job before you can get a qualification.

That puts off sixth-formers, who think that even if they are good they cannot move through the apprenticeship scheme at the speed at which they acquire the skills. That is something I have often referred to. I would be nervous about trying to put too much weight on apprenticeships. I am keen on youth employment, but apprenticeships are potentially too narrow, particularly given the comments made to me by sixth-formers, which may or may not be entirely accurate.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord for his amendments. I am delighted to see him joining us in the Committee and giving us this opportunity to debate apprenticeships, about which both he and I feel a great passion. I will try not to let that get in the way of objectivity. Apprenticeships are also at the heart of the Government’s drive to equip people with the skills that employers need to grow and compete. It is great to have so much support for apprenticeships in the Committee today. It was interesting to hear about the experience of the noble Lord, Lord Cotter. We need as big a body of support for apprenticeships as we can get, and one needs to encourage people one knows in business and where there are public procurement opportunities to think about apprentices more.

We have already delivered 2 million apprenticeship starts in this Parliament, and there are 20,000 apprentice vacancies around England at any one time. However, I share the noble Lord’s concern about getting enough young apprenticeships. That is one of the reasons why the Government are trialling a new approach to apprenticeships in 2014-15 and 2015-16. He and I have talked about that, and I am involved in work with the electronics industry and the professional services to try to bring forward new thoughts and new numbers. The Government have made the apprenticeship grant available for employers—£1,500 targeted on smaller businesses taking on young apprentices. That ticks two boxes at once.

I also agree with the comments that the noble Lord, Lord Young, made on Crossrail. The work that it has done on apprenticeships has been a model. Like him, I have been under Fenchurch Street station and have seen what it is doing there. It has also been very good about trying to employ smaller suppliers both directly and through subcontractors—and small suppliers outside London.

We want it to become the norm for young people to choose between an apprenticeship and university as alternative routes to a career—an experience that I am familiar with in Germany—and this Government’s reforms lay the groundwork for that. I pay tribute to all that my noble friend Lord Young of Graffham has done.

On Amendment 35L, I have sympathy for the noble Lord’s intentions that a contracting authority should require an appropriate number of apprenticeship opportunities. However, as I am sure he is aware, not every procurement will be an opportunity. Contracting authorities are entitled to deliver legitimate policies through their high-value procurements but, under EU law, these must be linked to the subject matter of the contract and the procurement must meet principles such as equal treatment, fairness and transparency. It would, therefore, not be possible to require that every procurement delivered an apprenticeship.

There would also be a danger that requiring the provision of apprenticeships by contracting authorities could pass on costs to bidders and actually deter smaller businesses. If so, this would undermine the purpose of Clause 38, which is to open up procurement opportunities to smaller businesses and remove barriers to their participation. If contacting authorities must require an appropriate number of apprenticeships, assuming that that could be determined—it sounds quite difficult—would that stop smaller suppliers bidding, as they might not have resources available to allow them to meet the expectations and duties of the contracting authority in this regard? I know that that is not a perverse effect that anyone wants but it is one reason why the Government are concerned about that amendment.

On Amendment 35M, I agree with the noble Lord, Lord Stoneham, that there is a huge scope for local enterprise partnerships and schools to work with SMEs to deliver more training and apprenticeships when these organisations bid for public contracts. The new Contracts Finder—to look at this amendment in the light of the previous one—will be helpful in spreading knowledge of opportunities, with details of contracts on the website. However, as with Amendment 35L, we must be careful that any provision for delivering apprenticeships through procurement does not have the unintended consequence of adding to the cost of public procurement for contracting authorities and bidders. We encourage schools, LEPs and other public bodies to work with SMEs on apprenticeships, but we are not convinced that they should be under a legal duty to do so.

Finally, Amendments 35N and 35W relate to assessing and reporting on the extent to which apprenticeships form part of public procurement. Again, I have sympathy with the noble Lord’s intention, but I fear that these amendments could again risk passing a burden down the supply chain to smaller businesses. Only by asking them to report on this could we determine the number of apprenticeships and recruitment practices involved. It is precisely that sort of red tape that we seek to cut in this Bill. While I agree that transparency, reporting and reviews are helpful in this sphere of apprenticeships, we need to be careful to balance that with the reporting burdens that it would place on small businesses. Again, I am sure that that is not the noble Lord’s intention, but it could be a perverse effect of legislating in the way proposed.

I hope that the noble Lord feels reassured, understands that we share a similar objective on apprenticeships, and will understand why we feel that we cannot accept the amendments. I ask him to withdraw Amendment 35L.

Consumer Rights Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Monday 24th November 2014 Lords Chamber

[Baroness Neville-Rolfe]

My Lords, I am delighted to see my noble friend Lord Hodgson back with us. We missed him on the day when the amendments were finally reached, but my noble friend Lady Noakes introduced his amendments with great clarity and verve. We had a good debate and we now have several different amendments, some of which we will be discussing in a minute. I am grateful for the efforts that my noble friends Lord Hodgson and Lord Eccles have made to explain their thinking to me in person. We have tried hard to meet their concerns. Having talked to my colleagues in the Government, I am now able to respond positively.

Although this amendment would require a review of the schedule, I believe that its driving force is to examine the effect of opt-out collective actions. I should say that the Government are happy with our proposals and believe that the existing opt-in regime is prohibitive, with only one collective case in 10 years involving 130 claimants. Therefore, the changes in the Bill are important. I do not share the pessimistic view about US-style claims, mainly because of the safeguards that we have written into the Bill, which we will no doubt come on to on the next amendment. However, I wanted to say that we have had a very good discussion, we have listened and we are happy to agree to a review after five years which covers the ground set out in the amendment. Following a further discussion that I had with my noble friend this morning, we will also commit to a ministerial Statement on the review here in Parliament. I am afraid that we cannot put the review in the Bill, as that would have ramifications for other possible reviews elsewhere in the Bill, but I can commit to a review, and I know that the Confederation of British Industry, which I met on Thursday because of its concerns about this part of the Bill, is content with that.

Of course, Schedule 8 does not just introduce an opt-out collective actions regime. It reforms the entire private actions regime for the benefit of both businesses and consumers. I think we are all agreed that consumers come first here. Therefore, the Government believe that it would be appropriate for the review of the impact of Schedule 8 to examine the whole range of reforms. The review would take into account both opt-in and opt-out collective actions, the fast track regime, the number of cases under the CMA redress power, collective settlement cases and, of course, the provisions outlined by my noble friend in his amendment. In those circumstances, I hope that my noble friend will feel able to withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

My Lords, I am extremely grateful to my noble friend for her response. Of course I would like the provision in the Bill, because that gives it real permanence, but I spot two-thirds, three-quarters or, perhaps, only 5% of a loaf, and I will certainly grab it. In the circumstances, I beg leave to withdraw my amendment.

Community Interest Company (Amendment) Regulations 2014

Debate between Lord Hodgson of Astley Abbotts and Baroness Neville-Rolfe

Monday 21st July 2014 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, the Government believe that it is important to encourage the growth of what, for brevity, I will call CICs limited by shares. We want to attract social entrepreneurs who seek a vehicle for social enterprise but also require some return on their investment. CICs limited by shares are the way to do that and are one of this country’s most successful forms of social enterprise. The existing regulations contain unnecessary restrictions that limit dividend payment. At the moment, a director with a single share with a par value of £1 will receive a maximum of only 20p dividend payment, regardless of the level of profit made, or if the actual value of the shares has risen to £100. It is our intention, with these amendment regulations, to make it easier for investors to share in the success of a CIC.

The purpose of these regulations is to remove the share dividend cap—a statutory restriction on the amount of dividend that the directors of a community interest company may pay investors. CICs were introduced by statute in 2005, creating a new type of company for social purpose. The CIC is increasingly the model of choice for many social entrepreneurs, and since the legislation came into force, more than 9,300 social entrepreneurs or social enterprises have chosen to register as community interest companies, and numbers continue to grow year on year.

The CIC is a unique form of company. A CIC must be set up to benefit a particular community, and cannot be used solely to make a profit. CICs carry out a wide range of activities, but they take in sectors such as health and social care, including NHS spin-out social enterprises, environmental business support, addressing cultural needs and running community cafes and centres. At the core of every CIC is its community benefit.

One of the key characteristics of a CIC is its asset lock. The asset lock applies to all CIC models and requires the company to use its assets to achieve its objectives in the interests of the community. Two forms of CIC predominate: there is the company limited by guarantee, where there is no private gain; and the company limited by shares, where there are limits on the amount of profit that can be distributed in share dividends to shareholders. These limits are one aspect of the asset lock.

In 2010, changes were made to the legislation to simplify the application of the asset lock with regard to share dividend caps. These measures simplified the process of applying and managing the caps, but in 2012 a review of these changes by the CIC Association, an independent support organisation for CICs, together with the regulator of community interest companies, revealed that further action was needed, as the caps remained a barrier to investment and to taking up the share model.

There are currently two separate caps on the amount of dividend that the directors of the CIC can declare. The first limit is the share dividend cap, which prevents directors from declaring more than 20% of the paid-up value of a share. The second limit is the aggregate dividend cap, which prevents directors from declaring more than 35% of the profits of a CIC as dividends in any financial year.

These regulations today remove the share dividend cap completely, while retaining the aggregate share dividend cap. This change will make it simpler for CICs to declare dividend, encouraging investment in, and ultimately the growth of, CICs.

The changes we are making today have been fully consulted on and are supported. Last year a consultation was carried out jointly by the CIC regulator with HM Treasury, which was consulting on tax relief for social investment, where CICs are one of the specified models for investment. The joint consultation was a good example of collaboration between departments, and in both cases resulted in introducing new measures that would benefit CICs. The consultation showed that CICs found the so-called double cap confusing, difficult to work with and, frankly, unnecessary.

There is also evidence that the existence of the double cap put off founders of CICs from using a share model at all, instead creating a company limited by guarantee. This choice naturally inhibits the ability of a CIC to seek investment and to bring in share capital.

I hope to reassure noble Lords that the asset lock, which is a key feature of the CIC model, will not be compromised by these measures for the following reasons. First, CICs will still be able to distribute only 35% of their profits in share dividends, and the peg to the paid-up value of the shares will be retained in relation to redeeming or buying back shares by the company.

Secondly, the cap on performance-related interest will remain, although the regulator intends to increase this from 10% to 20% to encourage investment further, which can be done under her own powers.

Thirdly, CICs will continue to be required to report annually to the regulator on their activities and on the distribution of dividends.

The measure in these regulations, together with the changes to the performance interest rate being made by the CIC regulator, will, we hope, encourage growth in CICs. This is particularly desirable in light of the announcement by HM Treasury to introduce social investment tax relief in December 2013. These changes combined are expected to have a very positive impact on existing CICs, as well as encouraging social entrepreneurs to use this company form in new ventures.

These regulations will make it simpler for CICs to operate, and make them more accessible and attractive to investors while retaining the important elements of the asset lock and serving the needs of the community for which the CIC was established. I commend them to the committee.

[Lord Hodgson of Astley Abbotts (Con)]

I begin by adding my congratulations to my noble friend on her new role, and congratulate her on having so far descended the crest unscathed. Her officials certainly gave her—or parliamentary procedure gave her—a good mixture to begin with, starting off with IP, proceeding to employment regulations and now to company law.

I declare my long interests in the charitable world. As my noble friend Lord Wallace of Saltaire knows, I conducted the Government’s review of the Charities Act, and I have an interest in how CICs and the charitable sector work together. I do not oppose these regulations, but I would like just to draw attention to a potential danger. Then I have one specific question to which I would appreciate clarity from my noble friend.

We have a broad spectrum of organisations. We start at one end with limited companies, commercial companies, with which we are all familiar, and at the other end we have charities, which are severely and properly legally restricted. Everything has to be done by them for the public benefit. To fail to do so is breaking the law and opens the trustees to the full force of that law. Between those two extremes—limited companies at one end and charities at the other—there is an increasing number of corporate forms, one of which is the CIC. There are also community benefit societies—bencoms, as they are called—we had better have some new regulations for them; industrial provident societies; social enterprises that are not CICs; companies limited by guarantee that are not CICs; mutuals; charitable incorporated organisations; and CICs themselves.

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[Baroness Neville-Rolfe]

Perhaps this is the question that the noble Lord kindly repeated for me, twice. I fear that I still found—

[Lord Hodgson of Astley Abbotts]

Perhaps I may be of assistance to the Minister. There is a limit of 35% on the amount of total profits that can be distributed; therefore, how they are distributed among the shares does not matter. Presently, the individual share dividend cap is linked to par value. The par value of shares can vary enormously—you can have a pound par or a penny par. Therefore, 10% of that is an irrelevant figure. What is important is that they should not be able to pay out more than 35%. How it is paid out among the shares does not matter. The important thing is to make sure that not all the profits will be paid out. If the officials have not got that wrong, I will shut up.