Small Business Commissioner (Scope and Scheme) Regulations 2017

Lord Mendelsohn Excerpts

Wednesday 6th December 2017 Grand Committee

[Lord Cope of Berkeley (Con)]

My Lords, I too welcome these regulations and the start of this operation. I also welcome Paul Uppal to his job and wish him the best of good fortune in carrying it out. As my noble friend Lady Neville-Rolfe said, the application of these regulations goes for quite a few pages, so I hope that the website will be a good deal clearer and shorter so that small businesses can understand them.

Prompt payment or the lack of it has been a stubborn problem over many years and successive Governments. All sorts of things have been done in the past to try to improve the situation, and this is one more. I hope that it works successfully. I hope also that the website will point out that these regulations concern only small businesses not being paid by larger businesses. There is a separate operation known as the Small Business Crown Representative whose job it is to make sure that small businesses are paid by government departments and agencies. I think that the website should cross-reference this point because, as we know from the past, these agencies can sometimes be a problem.

Lastly, I hope that the Explanatory Memorandum is wrong in one respect. It states on page 3:

“There is no impact on business”.


I hope that that is a sort of technical way of explaining that the actual laying down of the details will not have an impact, but that the new role will have a considerable impact on small businesses and indeed on charities and voluntary bodies, which are also covered.

[Lord Mendelsohn (Lab)]

My Lords, I am absolutely crestfallen that the noble Lord, Lord Cope, has found the thing that I was going to start my contribution with, which is the phrase in the notes that the regulations will not affect business. My fear is that this is not a statutory instrument that will do the job in the way we hope it will. I want to preface my remarks by saying how nice it is to see the noble Baroness, Lady Neville-Rolfe, in her place. During the passage of the relevant provisions for the Small Business Commissioner in the Bill, she said at one point that she might even consider the role herself. I am pleased that she is still in this House campaigning on many issues, and I have to say that she has been saved by the appointment of an excellent candidate. I welcome Paul Uppal to his role as the Small Business Commissioner. He will make an excellent commissioner because he has great attributes for the role, given his background and approach. I congratulate the Government on securing such a person.

My only fear is that this statutory instrument is an illustration of why the Government are humbling the role before it has a chance of success. No matter what the quality of the person, I see tremendous difficulties ahead in being able to make any meaningful change. Yet again we have gone for a system where we have decided to invent a wheel that has four sides. My concern is that this does not work in any established model or precedent. It does not have any behavioural testing or pilots to demonstrate that it can achieve any of the outcomes. I will go through some of the policy issues and then through the statutory instrument.

First, I was really impressed with the department for its policy background in the Explanatory Notes because this is a huge exercise. The department is to be given huge credit for finding the lowest possible estimation of late-payment debt available in this country. It is certainly true that the BACS survey has far and away the lowest estimates of it for small businesses, by saying that it is just over £14 billion. In fact the average of all the surveys which I found was the Zurich survey, which had £44 billion for SMEs. Why have the Government therefore chosen the veracity of the BACS report? Would the Minister like to tell me, for example, the survey size of that report? I happen to know the answer but I would be keen to hear it from him. Of all the 14 available surveys that I found of late payments, none had a figure as absurd as that. Where does the survey fit in on a sample size—is it at the top, the middle or the end? Can he also tell me for how many years BACS has conducted a survey and what was the methodological change this year to have come out with such a figure? Seeing this figure alone, my concern is that I do not feel that the Government are taking this problem seriously. This will also affect the estimates to come thereafter of what the Government think will be necessary to do this.

Secondly, yet again, I understand the Government’s desperate desire not to do too much and to believe that cultural change, in and of itself, will make a huge difference. I know they will say that the Prompt Payment Code is causing all sorts of wonderful cultural changes that are making a huge difference. We may have that code but I would like to ask a few questions. Can the Minister give me any evidential base whatever to suggest that the Prompt Payment Code has made any change, apart from a Minister who I have found saying, “I’ve spoken to some people and they say they like it”? Can he give me anything with any independent foundation for doing it? Can he demonstrate any example, among the many identified in government reports or in the press, where a company that is a problem late payer and a member of the Prompt Payment Code has been disciplined, chucked out or taken to task for anything that it has done? It is a pretty hard case to make but I would be interested to hear his reflections on that.

It is a shame that the public sector is not included in this provision. I understand that there is a different commissioner and that the argument has always been that because there are definable terms of 30 days, it is not necessary because there is a different mechanism. But I think the overall success of the Small Business Commissioner will be through its ability to get underneath the issues that lie behind problems of late payments. That includes issues around the public sector and its suppliers, where there is a supply chain. It should be able to make the right sort of assessments of that sector. Taking the sector away humbles the Small Business Commissioner’s capacity to take an overall view of late payments. Those are all significant concerns.

I return to the issue about size because it is relevant. I think it is anticipated that the Small Business Commissioner will have establishment costs of £1.1 million and is meant to have a running cost of £1.4 million. I would be grateful to have a breakdown of the staff who comprise that £1.4 million and therefore how many hours of investigative time we think we will have. I also understand that the Government—on the basis of an utterly ridiculous figure of £14.4 billion, but that is another matter—say that the estimate is that 70,000 companies will be referring just under 400,000 disputes, of which 500 will result in full-blown complaints. While I am tempted to ask the Minister what percentage of the overall disputes will therefore result in a full-blown complaint, I can tell him for the benefit of time that it is 0.125%. Can he explain how the Government match that level of complaint to the staffing and what they are required to carry out through the statutory instrument? I have tried on the back of an envelope—in fact, multiple envelopes because it took so long to do the maths—to see how you can spend the amount of money involved in the establishment of it and end up with that number, and I just cannot do it. I would be very grateful if the Minister, on the basis of the bogus number, will tell us how this is meant to operate, how much time is allocated to each dispute, and how that will work. That would be very helpful indeed.

Unfortunately, I have some other issues with the actual drafting of the statutory instrument. I agree with the noble Baroness, Lady Neville-Rolfe, that brevity and simplicity are wonderful. There is nothing like brevity and simplicity and this statutory instrument is nothing like brevity and simplicity. I am tempted to say that I worry when a Government overregulate. This is an example of overregulation, when better regulation would be much more judicious.

The biggest problem I have with the statutory instrument is that fundamentally it regulates the size, not the activity. I talked this through with a lawyer and said, “If I am a big company, how do I change this? I just move the dispute that I have to a small company and I am no longer on the hook for it”. The ability to drive a coach and horses through this and to avoid any form of dispute or mediation or any cost by changing the structure or who holds the debt or who holds the activity is easy within these terms. Which lawyers reviewed this? Which scenarios did they plan for? Did they understand the opportunity to game it? This is important. As we have seen with the application of the role of the Pubs Code Adjudicator, a coach and horses has been driven through that one and absolutely nothing has happened. I would rather the Government were realistic at the very beginning about what was likely to happen.

As we all know, there is always the law of unintended consequences in these matters. In relation to the size, does the Minister think there will be any unintended consequences of setting a number? Will that exclude certain disputes that should be part of it? Should there be provision for the Small Business Commissioner to be able to apply discretion in certain circumstances, rather than it being as prescriptive as it is?

Then we move to the issue in Regulation 3, which is titled, “Requirements before presenting a complaint to the Commissioner”. It says that in order to pursue a complaint,

“the person making the complaint must … communicate the substance of the complaint to the person against whom the complaint is made; and … give that person a reasonable opportunity to deal with it”.

The definition of “a reasonable opportunity” is quite difficult. In truth, it is a payment that is late. We say that we have a condition for late payment, rather similar to that in the public sector, of days on which you can apply interest, and we then specify a reasonable opportunity to deal with it. If it is late, it is late. Again, we have created a huge opportunity for a sense in which a complaint can now be a reasonable complaint and you can probably delay to the average number of days. Whether you believe the bogus BACS survey which said it was 72 days, I think, or the other average that most others identify, which is 90 days, you can still extend much further on the basis of what is a definably reasonable opportunity to deal with it.

Then we have the wonderful paragraph (2). This is always the issue. The Minister correctly identified the problem of a company which may face adverse commercial consequences from raising the issue. It says here:

“The specified circumstances are where the Commissioner considers for this particular complaint, there is sufficient information to suggest that communicating it to the person against whom it is made would have a significant detrimental effect on the commercial interests of the person making it”.


Will the Minister please define for me in detail what this “sufficient information to suggest” is? I think that is a remarkable thing to put down and, again, it fetters the Small Business Commissioner’s scope.

I could go on but I will cut out a few comments because the point is being made. I could go on about the time limit for presenting a complaint. For example, when you are dealing with a company such as Amazon, which many of our small businesses do, it has a procedure which takes a year in the first place. Are we out of scope from the time you make a complaint to when it is defined? Again, it fetters the Small Business Commissioner in a much more serious way. In particular, Regulation 5(4) says:

“Where the complaint or part of the complaint is not made within the time limit set out in paragraph (1), the Commissioner must not entertain the complaint”.


By the way, in this context I am absolutely shocked to see—having had many a debate with the noble Baroness, Lady Neville-Rolfe, on this matter, with huge arguments over “may” or “must”—the remarkable number of times “must” appears in relation to the Small Business Commissioner. Again, he,

“must not entertain the complaint”.

That is also a huge mistake.

On the power of the commissioner to fix time limits, again, we have here perhaps the best powers given to the Small Business Commissioner, which are discretionary. I would like to see an awful lot more of those. On the power of the commissioner to dismiss a complaint, again a charter is given for people to be able to suggest that the complaint can be reasonably dismissed, and there are now eight headings that qualify the decision of the Small Business Commissioner on whether to dismiss a complaint. I spent time with my lawyer, and as a big company you could pull a case together on pretty much half of these anyway, on almost any circumstance. Therefore the Government have now given an ability to argue the case and to create a legal obstacle for the Small Business Commissioner to take up the issue in the first place.

These are huge mistakes. I could go on about the notifications and how overly problematic they are. My basic point is that we will have to pass these things—that is the natural course of things in this place—because we need the Small Business Commissioner up and running. But they are deeply flawed, as they were from the time we tried to raise these issues during the passage of the Act up to now, when they are being put forward in a statutory instrument. The only assurance we can get, apart from some reasonable answers to not unreasonable questions, is on what the mechanisms will be to review it early—not late, as we faced with the Pubs Code Adjudicator, where problems are now faced because we have a restrictive three years for review—more seriously, quickly and appropriately, to ensure that we can adjust the scope and role of the Small Business Commissioner to adequately deal with these issues. I hope that that may mean that there is a new role for the noble Baroness, Lady Neville-Rolfe.

[Lord Henley]

The noble Lord throws a bit of a dampener on the proceedings, which were going quite well before that stage. I will comment on what other noble Lords had to say before I deal with some of his complaints. I am not sure that I will deal with all of them; I will probably write to him in greater detail afterwards. Since he accepted that these regulations will go through, that the Small Business Commissioner has a role and that we have to get him on the move, the sooner we can do that, the better. I will go back to those noble Lords who at least welcomed the regulations—I think he did, but he then took them to pieces and, as I said, threw something of a dampener on the proceedings.

I will start off with the noble Lord’s friend, the noble Lord, Lord Jones, who, as I said, was much politer and kinder about the regulations. I am grateful for that, and I give him an assurance that we have now appointed Mr Paul Uppal—the announcement was made a few days ago—who is a former Member of another place. The post was advertised in the usual way and will be salaried. I am afraid that if my noble friend Lady Neville-Rolfe was looking to get that job, she will have to wait a little while before it is vacant again. As I said, it was advertised in the usual way. I cannot specify exactly why he was chosen as opposed to any others, as that would be invidious and not right, but he was selected after due process and we are grateful to him.

My noble friend Lady Neville-Rolfe also regrets the length of this regulation; it is always difficult to get these matters right. On many other occasions I have moved that various orders be agreed and people have complained that there is not the detail in them. Unfortunately, the point behind regulations of this sort is that one can get into the details that one cannot get in the parent legislation. My noble friend is aware of the parent legislation; she took it through this House, and the noble Lord, Lord Mendelsohn, dealt with it from the Opposition Benches. They know full well that it is not right and proper to get that sort of detail into the original primary legislation, and the point behind these regulations is to get the detail in. I hope that we normally get it about right, but my noble friend Lord Cope teased me over the fact that the Explanatory Memorandum—which I stress is not, I think, part of the regulations, although I can never quite remember what its status is—states that the regulations will have no effect on business. We would obviously all like to make sure that it has an effect on business—and a beneficial effect.

I turn to the comments of the noble Baroness, Lady Golding. I am grateful for her welcome, but one cannot think of passing the Enterprise Act and creating a commissioner as a magic wand that will solve all problems. This is also the general remark I would make to the noble Lord, Lord Mendelsohn, in relation to his various comments, one or two of which I will deal with in greater detail. I can think of very few occasions when legislation can solve problems overnight. There was one Bill with which I had some involvement, the Scrap Metal Dealers Bill, which did quite a lot of what it was targeted to do in the area of metal theft.

In the main, legislation can only do so much. We hope that the Enterprise Act and these regulations will make a big difference. As with so many of these things, however, it is a matter of changing people’s behaviour and the culture of the bigger businesses so that they realise what damage they are doing to others. Legislation can do a certain amount and we have provided the appropriate resources for the commissioner; at least, I think they are appropriate. The figures I have—I think these are the figures that the noble Lord, Lord Mendelsohn, asked to be confirmed—are that the set-up costs are in the order of £1 million and the annual running costs will be roughly £1.4 million, most of that going on staff costs. These must be guesses but it is estimated that there may be 390,000 enquiries and 500 complaints. We think that is adequate for the commissioner at the moment but there is scope for the Secretary of State to increase the resources available to the commissioner if appropriate. He will obviously take advice from the commissioner about what he does and try to make sure he gets it right.

I make one more remark on the commissioner and the work he has already done. My noble friend Lord Cope commented on the website, suggesting that it was not clear enough and should do more, including cross-referencing with other bodies. I am sure that the commissioner will be grateful for my noble friend’s suggestion and that it will be looked at in due course. It is always difficult to get your website exactly right; some are better than others. One can take advice, and I am sure that the advice of my noble friends will be listened to by the commissioner in due course.

[Lord Henley]

I can give my noble friend an assurance that I was not about to sit down—unless others are desperate to get on to the other instruments—because I still had a certain amount to deal with from the noble Lord, Lord Mendelsohn, who would probably be upset if I left him at this early stage. I can, however, assure my noble friend that we will keep this under review. As I made clear, we are thinking of about £1.4 million as the budget being given to the commissioner for the annual running costs. My right honourable friend can keep that, and the size of it, under review. It is not just about money but about how they are getting on. The department will continue to keep these matters under review.

The noble Lord, Lord Mendelsohn, started off his throwing-a-dampener-on-it speech by questioning why we would use the BACS survey and saying that we should have used another survey that gave a higher figure. I will not go into details about which survey will be the best and which had the largest number of people involved in it to get the right figure. I do not know whether there is necessarily a right figure. All we can agree on is that £14.2 billion is a very high figure. The figures that the noble Lord quoted from other surveys are equally high and worrying. The important point is that something ought to be done to assist small businesses to ensure they do this properly. It is clear that the Government are taking this issue seriously from the fact that we sought parliamentary approval for the Enterprise Act and that, under that Act, we are now doing various things, of which the Small Business Commissioner and his staff are one small part. I do not think the noble Lord can accuse the Government of not taking this seriously. The important point is: we have put some resources in; we have appointed a good person to be that commissioner; and he will continue to pursue the appropriate measures available to him.

The noble Lord made the usual complaints people do about the drafting. He said it was too detailed and then that there was not enough—I was rather lost on that. The drafting went through the usual process. We consulted on it as we should. Generally, other than from the noble Lord, we have had a fairly favourable response to the drafting. I am sorry if he finds it overly legalistic. That is just the way things are drafted.

The noble Lord then asked me a rather extraordinary question: what are the unintended consequences of these regulations? If I knew what any unintended consequences were and that they would be detrimental to one or other person, or to the small business sector as a whole, I would not be moving them. I am afraid the noble Lord will have to accept that I do not have the wisdom of prophecy that he seems to think Ministers should have. I will try to improve. If I knew what the unintended consequences were, I would do something about them. We feel that the regulations will have a good effect and be one small step in helping small businesses. They will try to improve their lot and cut down the very large figure of £14.2 billion, or whatever larger figure the noble Lord would like to have.

Turning to another matter that I suppose is faintly relevant to what we are dealing with, the noble Lord asked about the evidence of the impact of the Prompt Payment Code. I can tell him that we actively monitor and enforce it. It has been successful in assisting business to recover debt, but also in highlighting best practice. That again is important as part of the necessity for the change of culture.

I appreciate that the noble Lord had other questions and that he would like further details on why we wanted BACS—

[Lord Mendelsohn]

I will now try to give the Minister some sense of why I invested in him the powers of prophecy, as well as suggesting that rather than my being a complete dampener on this, he should look to scale the heights to deal with this issue. My question about unintended consequences comes down to this simple point. If there are 500 cases, you are talking about dealing with £35 million-worth of disputes, tops. Does he believe that the figure is £14.2 billion? The sample size was 304, which is below the statistical level on which we are meant to judge any survey with any certainty; in any serious form, no one would ever consider anything under 500. This is good enough for a press release, but why the Government suddenly believe that it is worth putting in a policy framework is another matter. From surveys that are robust, £44 billion is the SME number. Does he think that trying to tackle disputes relating to £35 million is sufficient to create cultural change? The unintended consequence of this statutory instrument is that late payments will get higher if you do not have the resource to challenge the right level and number of disputes. When I said “unintended consequence” it was all about that.

With his hand on his heart, is the Minister able to say that he feels that this statutory instrument has sufficient scale to make a meaningful difference in culture or any other practice? That is the key.

[Lord Henley]

Genuinely, hand on my heart, in every possible way I honestly think this will make a difference. Changing that culture is the most important part of what we need to do. A commissioner himself can by his actions do a certain amount, by dealing with those 500 complaints a year, or however many there are; as I said, that is just an estimate, and we can increase resources if we need more. However, it is the existence of a commissioner—of the website and everything else —that can make the biggest change. That is why I gave assurances to my noble friend Lord Cope about getting the website and the advice right, which is so important.

Hand on heart, I believe that we can make a difference. I hope that that will be the case and that, in a year’s time—perhaps privately outside somewhere, or in debate on some other matter—the noble Lord, Lord Mendelsohn, will be kind enough to join his noble friends and say how well we are doing on this. We occasionally get praise from him, and I look forward to that. An unintended consequence of this debate would be his coming back to me with a degree of thanks.

Industrial Strategy

Lord Mendelsohn Excerpts

Monday 27th November 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I draw attention to my interests as listed in the register.

I thank the Minister for repeating the Statement and I give a warm welcome to much of the industrial strategy White Paper, the warmest welcome being for its existence. There is much in it to be applauded and many important aspects. It is, like the Green Paper, quite a compendium of what we are familiar with and what we have already heard, but there are some very useful illustrations of collaboration across government, business, trade unions and science. The test is whether, joined together, it has the capacity to make a powerful difference.

The White Paper encompasses the old, the current and the new. The old—that is, what is already established—has been addressed through the sector deals. What is most welcome is that much, although not all, of what has been drifting now has a process to come to a conclusion. The present is in the grand challenges, but we also have to address the more chronic problems of regional imbalances, low wage growth, service sector imbalances and weakness in skills, as well as competition, markets and finance. The ONS statistics published last week show a stinging decline in capital stock, which shows that businesses are relying on cheap labour rather than investing in system upgrades to improve efficiency.

I had noticed that the Green Paper was 132 pages long, whereas the White Paper weighs in at 254. It is so much larger that it has already started to be part of the growth story of the industrial strategy. However, given that the font size is up by around 25%, with more pictures, tables and illustrations than the Green Paper, that is in and of itself a good way to start evaluating whether it is more productive.

Reading the previous Government’s press release launching the effort to help to reposition the UK’s independent capability in the post-Brexit world, the word “productivity” did not even get a mention. However, it got a mention from one trade body, which said that it hoped that the strategy could help with productivity in its sector.

Today, the White Paper is all about productivity. This is different from the post-Brexit world and, I think, weaker for it; nevertheless, it is essential that we address it. Performance over the last decade has been the worst for any decade since the 19th century. In fact, since the predecessor document on the productivity plan was launched in 2015, we have seen the worst quarter performance recorded in the last 200 years. So this may not equip us over the horizon that we originally looked at but, as the OBR report illustrated, this is a pressing target now.

There are now five drivers of productivity and four grand challenges—nine items, not 10. By my reckoning, the last 10 pillars could probably fall into the first five and the challenges have been elevated to grand challenges. To my mind, these are more matters of presentation, so I would like to ask some questions on three major areas which I think are fundamental.

The first concerns institutions. The report announces the establishment of the industrial strategy council. This is to be welcomed and it comes in a section which has my favourite phrase of the entire report. It says that the strategy,

“needs to combine agility with patience”,

and that the industrial strategy council will be there to help consistency and adaptability. However, we will be concerned if it becomes the same as the OBR. Will the Minister confirm that its make-up will demonstrate independence and what that might be? What independent powers will it have? Will it be able to talk to departments outside the Treasury? Will it have to take the political assumptions of Ministers and departments for its measurements? Will it publish independently of ministerial and departmental input, especially the Budget? Will it be accountable to Parliament, and will its head have to go through a confirmation process? Without those assurances, it may not have the necessary long-term cross-party support that this sort of strategy needs in order to succeed.

The White Paper adds some extra institutions and has a welcome review of SME productivity, but it does not address institutions such as NESTA which look like they are in need of a refresh, or even the newly established Small Business Commissioner, who, if he could unlock the problem of late payments, would create the recycling and velocity of cash that makes a measurable and meaningful difference to output per worker.

We do not address the weaknesses of our venture capital sector, which is much more reliant—despite our tax arrangements for VC through the SEIS and the British Business Bank—on the European Investment Fund than we are prepared to face up to. So is there a wider review of all the agencies and current arrangements, and will they too be considered over time within the context of the industrial strategy report?

Secondly, there is the crucial question of funding. The White Paper indicates that we are going to try to do more with less. I am a great fan of efficiency but surely additional investment is required. Why is Germany streets ahead of us in preparation for the so-called fourth Industrial Revolution? It is because it has a €40 billion agency. Why did a small country such as Israel steal a march on us in the volume of VC tech and cybersecurity investment? It was because it established a well-funded agency called Yozma and dedicated 8% of all government IT departments’ expenditure to it.

So will the Minister please tell us how much new—not previously announced—money there is in here or in the sector deals? Of the money that has already been announced, such as the Industrial Strategy Challenge Fund and all other announcements, how much is left unallocated?

I have always given great credit to the Government for increasing R&D spend, although much now has to go to make up for the loss that we face from Brexit. I welcomed the first place that R&D received in the Green Paper but I am not sure that it is there with the same force now. There is much to welcome but we are still aiming to be behind the OECD average and well behind all the pace-setter nations, even when we hit 2.4%. Can the Minister assure us that this is not the end of the science story in the UK’s industrial strategy?

Finally, the report remains weak on identifiable, quantifiable and operable ambition and targets. DARPA, which is cited in the report, is clear about its mission and objectives. It is essentially and critically to ensure that the US military maintains overwhelming technological superiority over any rival. The clarity of the mission makes it clear how its challenges and structure can be overcome. The industrial strategy challenge fund needs to be similarly clear. Can the Minister provide us with what he considers to be the most concrete objectives, targets and outcomes we can measure it against; and what specific goals any of the measures are set to achieve?

I would have preferred a stronger call to action. It is said that you have to set goals that are almost out of reach. If you set a goal that is attainable without too much work or thought, you are stuck with something below your true talent and potential. Discipline is the bridge between goals and accomplishment. Without that, as good as this White Paper is, it can never truly be great.

[Lord Fox (LD)]

My Lords, I draw attention to the interests registered in my name. Like the noble Lord who has just spoken, I am pleased that the words “industrial strategy” are coming from the Government’s lips. In the life-cycle of an industrial strategy, we are perhaps at the most optimistic bit before cynicism and despair begin to set in. I shall try not to hasten us down that curve but there are some points that we should perhaps bring out today. It behoves me most of all to point out that the reference to Brexit, made as an aside in the Statement, clearly indicates the effect that the Government believe it will have on our industrial capability—and it is not positive.

This should be set into the context of the OBR’s recent forecast which downgraded GDP by £45 billion by 2021. That is around £700 per person. We would have valued a sense of urgency in the report but there has not been any. It has been a long time in the making. The Minister pointed out that we have been through a long consultation and a long Green Paper, which was almost a year in the cooking. I acknowledge that we need a long-term strategy but, because it is a long-term strategy, that does not mean it needs such a long-term gestation.

For us, the most important part in this—it has received few column inches despite the font size and photographs, as pointed out earlier—is the implementation side. Without implementation, this is just another brochure; another tour of the industrial landscape. It is right that it falls to a Cabinet committee, chaired by the PM, to drive this issue forward. I would welcome the Minister’s comments on how often the committee meets, how much energy we can expect from it and how often Parliament will receive a progress report from it.

Like the previous speaker, we also welcome the establishment of the industrial strategy council—or we think we do because there is so little detail it is almost impossible to know what it is, what it is for, how it will be resourced, how it will be staffed and to whom it will be answerable. Like the previous speaker, we would welcome answers to those questions.

Then we come to the grand challenge. There are noble Lords on many Benches who think this is a rehash of picking winners. I know the Statement went out of its way to decry that view but, however one looks at it, there is an element of picking sectors that we think are needed and can be successful, and investing in them. One can call that something else or picking winners. I urge the Minister to ensure that we are not cutting out funding into the wider exploration and seeking of knowledge because, without investment in that kind of research, graphene would never have been discovered. We still need to seek out the unknown unknowns in order to advance our science and keep us moving forward.

Perhaps I may add another warning on DARPA. This is not a DARPA process for one important reason—there is not the money that DARPA has to throw at these challenges. There is not the huge industrial military complex that sits behind it, which has itself enormous US Government funding for these initiatives. We should be careful when we bandy the word DARPA around.

That said, overall the topics that have been chosen for the challenge are broadly welcome. I note the inclusion of clean growth, which was hardly mentioned in the Green Paper and not at all in the consultation. It was mentioned extensively in the Lib Dem response to the consultation so I shall claim that as a Lib Dem win. However, the Government’s record casts doubt on their commitment to clean growth. They have scrapped subsidies for solar and offshore wind and cut funding for carbon capture and storage—even though we know that kind of support works—and, further, they have sold off the Green Investment Bank. This announcement is either a damascene conversion or just more paper.

I have just one question on the life sciences strategy. The Government commit the NHS to its role in the life sciences strategy: what extra resources will be given to the NHS in order for it to take up the research role it has been set?

The Government want to increase research and development spending to 2.4% of GDP by 2027. That of course is only the average, as has been pointed out, and a more ambitious target would be more sensible. However, there is not very much new money. If you do the maths, you will find that it is about £0.4 billion on top of what has already been announced. Certainly that is what has been said in the other place. The £2.5 billion investment fund to be created by the British Business Bank was not costed in the Red Book, raising questions of where the money will come from. Perhaps the Minister can enlighten us. These commitments are inadequate compared to what is being lost—the £2 billion provided by the European Investment Fund for start-ups and the €3.6 from Horizon 2020, which will disappear after that time.

Catapults are important and I am pleased they have been mentioned. I have two points. The paper mentions that there are poorly performing catapults. Can the Minister enlighten us as to how many are performing well and how many are not? Secondly, I note that the highly-regarded CEO of Innovate has just stepped down. Perhaps we can hear what that is about.

We on these Benches have said before that we will need the right people to implement this strategy. There has to be a joined-up national skills strategy.

Businesses: Start-ups

Lord Mendelsohn Excerpts

Monday 20th November 2017 Lords Chamber

[Lord Henley]

I welcome what my noble friend has to say and I hope that noble Lords on the other side of the House take note of it.

[Lord Mendelsohn (Lab)]

My Lords, as welcome as the rise in numbers is, is it not the case that under close examination the data shows some very worrying trends? Professor Mark Hart of the Enterprise Research Centre, one of Britain’s leading academics on this matter, points out:

“Too many of these businesses do not create jobs or do anything for UK productivity”,


and that our entrenched problem is,

“turning start-ups into high growth companies”.

Can the Minister confirm what proportion or number of start-ups in these figures was for structuring purposes—holding companies, special purpose vehicles, personal service companies and partnerships—and can he set out the Government’s plans to reverse the decline in the three-year company survival rate, the falling number of high-growth companies and the proportion of start-ups that scale?

[Lord Henley]

The noble Lord asked quite a number of questions and I will restrict my answers to two. He is right to express concern about productivity. This is something that we will want to address, and I hope that he will be ready for the Statement on the industrial strategy that I hope will come out later this month. He also expressed concern about companies progressing from small to medium and medium to large. That is why we made an announcement in last year’s Autumn Statement about patient capital and why we announced a review into it. We are waiting to respond to that in due course.

Fourth Industrial Revolution

Lord Mendelsohn Excerpts

Wednesday 15th November 2017 Lords Chamber

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

My Lords, we recognise the huge benefits of the fourth industrial revolution and are working across government to exploit them. The digital strategy outlines ways to make Britain the best place to start and grow a digital business, trial new technology or undertake advanced research. We are working closely with industry, considering the recommendations of two major government and industry reviews on digitalisation and artificial intelligence.

[Lord Mendelsohn (Lab)]

My Lords—

[Lord Holmes of Richmond (Con)]

My Lords, I thank my noble friend for that response. There are some excellent initiatives in various departments, not least the use of blockchain in the Department for Work and Pensions to greatly empower benefits recipients. Does my noble friend agree that all the advantages of the fourth industrial revolution will be realised only through a connected, collaborative approach across the whole of Whitehall? Otherwise, the opportunities before us will not be fully utilised and realised and we will fail, fast.

[Lord Henley]

My noble friend is right to say that there are great opportunities ahead of us. He is right to stress the need to work across government. There will be no silos in government, as far as we can make clear. BEIS and all other departments will work together on this. I merely mention BEIS because that is where I happen to be at the moment—I am sorry; I could have expressed that better. The other point to make to my noble friend is that we want to work with industry and all those outside to make sure we receive the benefits of the change we are seeing with the fourth industrial revolution.

[Lord Mendelsohn]

My Lords, I apologise to the House for my enthusiasm. I also apologise to the noble Lord, Lord Holmes—a great ally on many issues—for getting up far too early.

Although the fourth industrial revolution is a recognisable force that promises great GDP growth and the transformation of the world of work and production, the greatest risk to economic efficiency is that income and wealth will be ever more skewed. A weight of reports, including an excellent one by UBS Investment Bank, warn that inequality will be greater and the benefits will accrue to fewer and fewer people. As part of their work on the fourth industrial revolution, will the Government establish not only new measures to track this issue, but appropriate targets to ensure that its economic benefits fall to all in society?

[Lord Henley]

My Lords, I welcome the noble Lord’s enthusiasm for these matters. I think the House is grateful for his very prompt intervention.

The noble Lord recognises, as I do, that changes are coming and that we must accept them and work for them. He will have seen the Made Smarter Review that we commissioned, published only a week ago by the chairman of Siemens, and I think he would accept that we will see many more jobs; I think the review estimated this could create something in the order of 135,000 new jobs. In terms of what he was saying about greater inequality, which I do not accept, there are estimates that the fourth industrial revolution will not only create new jobs, but create them faster and create better-paid jobs. That is something we need to look at. I will certainly look at the other reviews he mentioned, but there are challenges that we must accept. These changes are happening and we must work to ensure that they happen to our best advantage.

European Union (Approvals) Bill

Lord Mendelsohn Excerpts

2nd reading (Hansard): House of Lords
Wednesday 25th October 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I thank the Minister for his introduction to this Bill and for his affirmation that it is the Government’s assessment that the fiscal impact and merits are proportionate. As has been explained, this Bill fulfils the provision in Section 8 of the European Union Act 2011, which requires Parliament to approve draft decisions made under Article 352 of the Treaty on the Functioning of the European Union. Parliamentary approval will enable the United Kingdom to vote in favour of the draft decisions. This is a short Bill with limited financial and significant legal implications, and one for which there is a consensus in favour. We on these Benches lend our support to it today.

While we remain a member of the European Union, we should of course remain committed to ensuring that we fulfil our responsibilities as a member state until the time of withdrawal, and continue to scrutinise EU matters before Parliament.

I welcome the opportunity provided by the Bill to pave the way for Albania and Serbia to become observers in the work of the EU’s Fundamental Rights Agency. This is a provision afforded to nations like Albania and Serbia, which are not full EU members but have EU candidate status. We agree with the Government’s assessment that gaining observer status of the Fundamental Rights Agency will assist both those countries towards potential accession to the EU, if that is their will, subject to the EU’s policy of “firm but fair conditionality”. Monitoring fundamental rights issues covered by the Fundamental Rights Agency will enable Albania and Serbia to adapt their domestic legislation appropriately and further embed a commitment to human rights in their national politics. This is an outcome I think we can all support. Observing the work of the Fundamental Rights Agency further marks an important step in the progression of Albania and Serbia— subject of course to the provisions that the Minister outlined in his speech—towards a deeper embrace of democracy, individual rights and anti-discrimination.

The Fundamental Rights Agency provides EU institutions and member states with independent, evidence-based advice on fundamental rights. Its mission is:

“Helping to make fundamental rights a reality for everyone in the European Union”.


Its areas of work will be familiar to many in this House and include supporting access to justice, children’s rights, the integration of migrants and tackling racism, xenophobia and related intolerance or discrimination. These have remained the core values of Europe—ones which we hold dear and have been strong advocates for in Europe. It is very important that this move towards ever-greater co-operation with Albania and Serbia takes the form of participation in the Fundamental Rights Agency. While the Bill does not immediately confer observer status on Albania and Serbia, it paves the way for the EU-Albania and EU-Serbia Stabilisation and Association Councils to determine the terms of their observation, and is therefore an important step towards that outcome.

However, I would like to ask the Minister whether the transition deal they are seeking with the EU would include membership of the Fundamental Rights Agency. Will it include a continued say in the potential accession of other countries to the EU, while we are under those arrangements? The European Commission President Jean-Claude Juncker has said there will be no further EU enlargement before the end of his term in office on 1 November 2019. However, under the Government’s plans, we may at that point still be a member of various EU institutions. What are the Government’s thoughts at this stage about whether, under a transitional Brexit arrangement, the UK will seek to support EU expansion to western Balkan countries?

The second aspect of this Bill is the EU-Canada competition enforcement co-operation agreement. The purpose is to give approval for the revision of the agreement of 1999. The new agreement would expand the scope of information exchange between the European Commission and the Canadian Competition Bureau for the important purpose of anti-trust and merger investigations. The proposed new agreement would strengthen the hand of regulators in ensuring fair competition, tackling anti-competitive behaviour and pushing back against monopolising activity. That is a task that demands extensive international collaboration—increasingly so as the global economy transforms. The sharing of data, evidence and other information and working closely with international partners is ever more central to an effective competition regime. International collaboration is crucial for effectively identifying and investigating anti-competitive behaviour and for preventing cartels, mergers that distort the market and other damaging business practices.

While we remain an EU member state, a better-informed European Commission also means a better-informed UK Competition and Markets Authority. However, will the Government clarify their plans to ensure continued exchange of information related to competition investigations between the UK and Canada, and between the UK and the EU, after Brexit? It does not seem at all clear what competition regime arrangements we are heading towards in either a transitional arrangement or a final agreement. Indeed, the proposed changes for which this Bill seeks approval, and which we support, none the less highlight the risk that the EU may after Brexit share information about EU-based UK companies with Canada but not with the UK. Will the Minister provide some reassurance on that point and clarify whether the exact same level of information exchange will continue unabated on day 1 after Brexit? It is vital that we avoid any cliff edges, so that our competition regime is not suddenly isolated or disadvantaged in its duties, even temporarily.

The two distinct aims of this Bill have the potential to contribute significantly in their own way towards a more prosperous and peaceful Europe. That is very clearly in our interests, whether we are a member of the EU or not. A stable, democratic south-eastern Europe and a strong, flexible international competition regime are important ambitions, and to that end this Bill marks a welcome step forward.

Science and Innovation Strategy

Lord Mendelsohn Excerpts

Monday 23rd October 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

First, I point to my entry in the register of interests and to the fact that our family office is an investor in UK science and research. I thank the noble Lord, Lord Patel, for securing this debate and for introducing it so well. I also congratulate him on his appointment as the chair of the highly regarded Science and Technology Committee. I have been a huge admirer of his clinical and academic achievements; he is an outstanding figure in this House. I wish him well in that post and wish the committee continued success.

In that vein, I place on record our gratitude to the noble Earl, Lord Selborne, for his excellent stewardship of the committee over the last 11 years. Its reports have never failed to inspire and interest this House. I also thank all noble Lords for their contributions to this debate, which have been absolutely outstanding and quite expert. It shows the importance that Members of the House place on these challenges. There was one point in the speech of the noble Lord, Lord Patel, which I hope the Minister will respond to at the end, about when the Government will respond to the submission of Sir John Bell’s Life Sciences report. It is important for us to get an early indication of that. It is an excellent report that requires a very early response.

We have been through a lot of material about the strength of our research community. Our research base is a global force and our universities produce research of a quality that far exceeds that of our competitors with similar resources and population size. Our public scientific research employs some 100,000 researchers and has a turnover of £8 billion. Private scientific research employs another 150,000. We know the quality; we know the size. But, as the industrial strategy identifies, our problem has been innovation—how we take that tremendous base and move it on. As the noble Lord, Lord Patel, put it wonderfully: we have turned money into ideas but how do we turn ideas into money?

The industrial strategy, in particular its section on this area, is excellent and a very important step forward. I congratulate the Government on it, but it is still extremely worrying to see a number of things inspired by our tremendous research base that we fail to adopt. The story of graphene, discovered in Manchester in 2004, is a very important example. I recently read a research report saying that the graphene sector will have a 34% compound annual growth rate over the next 10 years. As I read through it, the report identified that the country with the largest number of companies who have adopted graphene technology—the market leader—is the United States of America. The growth markets for the use of graphene expected over that period will be in South Korea and other areas in the Asia-Pacific region. We have singularly failed to commercialise one of our greatest modern inventions. That is a very sorry tale.

It also reminded me of the story of two individuals who were considering where they were going to locate a life sciences company to establish the overall solution to Duchenne muscular dystrophy. After looking at where they were going to get the best collaboration and the fastest and strongest access to capital, including in this country, they chose Boston in the United States of America. They raised more money there, in the shortest possible time, than any life sciences company could ever do in this country. We have a real challenge on our hands, which is why I appreciate the industrial strategy and hope that we can really make some huge progress on it.

I have two very quick points to make. One is on productivity. It was only recently that we discovered through the Bank of England that productivity in Q2 this year, measured by output per hour, was just 0.9% higher than a decade ago—which is, quite incredibly, the worst performance for 200 years. The key to our industrial strategy is what it will be able to do for productivity. We have to accelerate massively our attempts to address this challenge, and I applaud and welcome the establishment of a business initiative to try and address productivity, even on a unit basis, which is to be led by the McKinsey alumnus and former director of strategy at the Guardian Media Group, Tony Danker. I wish it much success. It is an important part of this, and I hope that we will see a much broader effort to try and address productivity in the White Paper.

Lastly, the question of governance, implementation and capacity is a crucial area, and I hope that the White Paper will address it in much more detail. In the end we will fail to achieve innovation if we do not have the right institutions, learn the right lessons or have the right leadership. We have had a number of important contributions on this. The noble Lord, Lord Bhattacharyya, commented on integrated long-term implementation, which is extremely important. The committee’s own suggestion of a means, similar to the OBR, of evaluating progress on the industrial strategy is an important one; if we do not measure it, we cannot assess it. We need something that gives a nationwide sense of what the challenge is.

We have to consider the institutions that we have. Do they have the capacity and bandwidth to do what we want them to? This summer I visited Silicon Valley and Stanford, and I can tell you that the reason why Stanford is a great success and a spur of innovation is that it does not impose onerous terms or expect too much from the things that come from its places. The noble Baroness, Lady Greenfield, made absolutely the right point: an American university gets money back in a different form through donations, so our models are not the same, but universities have learned how to make innovation flourish—and it is not about the university’s role and its accretion of value to itself.

There is a lot that has to be learned by our institutions in a very short space of time. We talked about DARPA. The question of whether or not we need such an institution is important, as is the question of whether we have the right range of institutions. In relation to the ones that we have, does Innovate UK have the right money or the right capacity, and can it invest the right money? Surely the Rainbow Seed Fund, the fund that we established to try to promote our research and innovation, is a paltry fund. I must declare an interest: I have co-invested with the fund, which I think is a most outstanding institution. To my mind, the fact that through the fund and others like it we have not invested the billions that are necessary to innovate in our country beggars belief, and I hope the White Paper will address that.

Life Sciences Industrial Strategy

Lord Mendelsohn Excerpts

Monday 23rd October 2017 Lords Chamber

[Lord Prior of Brampton]

My Lords, we have an extraordinary record on clinical research, particularly on trials. In 2016 just under 700,000 patients in the UK were recruited for clinical trials, and the UK accounted for 29% of all trials that took place in the EU. So the story on clinical trials is a very good one and the NIHR is much to be complimented.

[Lord Mendelsohn (Lab)]

My Lords, the excellent life sciences sector is dogged by uncertainty around Brexit. It is experiencing a chill in investment, has problems in attracting and retaining talent, is losing out on EU scientific grant funding and collaborations and has the potential loss of regulatory alignment with the European Medicines Agency to contend with. Does the Minister not therefore agree that that makes the case for the Government to adopt the target, set in Sir John Bell’s excellent report, to achieve an R&D spend of 2.6% of GDP from the 2015 level of 1.7%? That is the most available and crucial step that the Government can make. What is the case for not doing it today?

[Lord Prior of Brampton]

My Lords, there is a strong case for increasing the amount of resources that go into R&D in the UK. It is true that about 1.7% of GDP goes into research at the moment, whereas the OECD average is 2.4% and many countries are aiming at 3%—Germany is looking at 3.5%. We share that aspiration. As the noble Lord will know, we are increasing the amount of money that the Government spend on research by £2 billion a year from 2020-21 and an extra £4.7 billion over the lifetime of this Parliament, which is a very big increase. This is one of those areas where we can almost never spend enough.

International Investment

Lord Mendelsohn Excerpts

Tuesday 17th October 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I thank the Minister for repeating the Statement in this House. I also thank him for his personal interest in these matters, not just in relation to Bombardier but for his deep involvement in shaping the Green Paper, which is shown through its pages.

I turn to the last part of the Statement, which is the very welcome news that Bombardier and Airbus have determined to create a joint venture to look at developing the C Series aircraft. The pairing of these two cutting-edge product lines is a very exciting prospect for the future of aerospace manufacturing and the excellent industry that we have here. We are hugely encouraged by such a step and what it means for the UK. I would be grateful to the Minister for some further information on what assurances or indications the Government have gained from both companies as to the likely investment or potential for jobs growth in this country as a result of such an excellent step. I reaffirm the broad consensus of the House, as demonstrated during the course of the last Statement, that we strongly support the Government’s actions in defending Bombardier’s position against a completely unjustified and unwarranted attack by Boeing, and a process which we are not convinced is as straightforward and clear as it could be. We urge the Government to do whatever they can and we support their continued efforts to try to ensure a swift and speedy resolution of these matters.

We warmly welcome the excellent and timely Green Paper National Security and Investment and Infrastructure Review. We are pleased that the Government have chosen to look at how we can update our structures to deal more effectively with changing times. As a general observation, this creates further changes to our merger regime, some of which the Minister has already mentioned, such as matters involving the Takeover Panel and the FCA and further reviews of corporate governance. Even some of the insolvency reforms have a bearing on how we look at this regime. I make a plea for a more holistic process in how we review these issues of industrial strategy. Especially as we face Brexit, it would be useful if the Government could come up with a more joined-up approach to how these different parts can achieve the outcomes that we want, rather than having conflicting and competing claims or unwelcome consequences.

In relation to the principles from which we approach this review, it is important to state—as the review itself does—that we have to ensure that the UK remains open for investment and participation. We still want to be a major global player in all these areas. Sometimes the indication that we are involved in a review creates a chill. We should be clear that, while it is entirely legitimate to protect the country’s interests, we will not create a large investment review. This also applies to how we address issues such as the clawback of funds and how those funds might be used for early development or other things for companies which might not be eligible. That provision would itself raise a series of questions. One has to assess things delicately and put them in sensible terms. The intention is clearly right, but we would not want it to have unwelcome consequences.

We are pleased with the short-term and long-term approach to ensuring that we have an adaptable and operational system. The review stresses our foreign direct investment position, which this House has discussed many times. We are mildly sceptical about the nature of some of this investment. The charts in the paper identify the level. If we subtract the gold transactions which take place in the UK as goods received—which effectively net each other out—I am not sure the position would be so flattering. Our FDI position is not as good as is suggested and we should be conscious that we have a long way to go in encouraging the right sort of job-creating investment. The review should be seen in that context, rather than giving the feeling that we are in a much stronger position than we are.

Will the Minister provide some thoughts on the following issues? First, what are our national security requirements? Are these strategic or are they direct security concerns? What balance will be in place on issues such as security of supply versus strategic control, as well as our own capacity to ensure that we have certain technologies? We welcome the important short-term measure of lower thresholds, which does plug gaps. On long-term measures, the review is right to look at mechanisms such as call-ins and notifications. However, these raise questions themselves, the first of which is the nature of acquisitions and security concerns as companies develop in the modern world. This is not always about the takeover of a company. As we have seen from the way in which companies acquire access to technology and other things, this can frequently be done through partnerships, joint ventures and other things which do not involve a complete and direct transfer of equity. Sometimes control changes due to debt, so we need to consider all these measures. I would be very grateful for the Minister’s observations on those points.

In relation to the nature of these companies, we have looked at lower tests on dual use in the military sector and those involved in the design of computer chips and quantum technology. Certainly, our security concerns can be identified in other high-tech sectors, including life sciences and even food technology, as well as other areas of science and research. I would be very grateful to be told how the Government decided which sectors to select.

In the context of the voluntary and mandatory reforms, what was the thinking behind the notion that you can divide those sectors into voluntary and mandatory? Certainly, the guidance the Minister talked about would be enhanced by giving a much clearer view on that.

Finally—I do not wish to sound too mischievous, but I will ask this question anyway—does our reviewing the matter at this stage suggest that we may well take a different view over the long term, as these companies already fell within the threshold, or that we might be open to taking a different view on what took place in relation to ARM or even Hinkley Point?

[Lord Fox (LD)]

My Lords, I draw your Lordships’ attention to the interests registered in my name. I, too, thank the Minister for repeating the Statement in this House. He is of course right to declare that the UK economy should be open. All of us on these Benches earnestly hope that that is the way the Government continue to play it and that we do not start to close down and become a little England.

The Minister also rightly highlighted the need for changes in appropriate safeguards. The world is changing very quickly, national security needs are changing and the Government are right to keep those under review, so this is a timely process.

The noble Lord, Lord Mendelsohn, asked for a holistic approach to the whole issue of mergers and acquisitions. En passant, I add pensions to that list, which he did not include, because increasingly pensions and the rights of pensioners are becoming a driver within the mergers and acquisitions section.

On the Statement, there is a powerful case for strengthening the public interest in takeovers, as, indeed our leader Vince Cable has argued regularly, most recently, I think, on the AstraZeneca case. However, while lowering the threshold is a welcome step, the Government’s proposals are narrow and do not add a great deal to the overall public interest element, which should be covered in a more holistic approach. In recent months we have seen several of the UK’s high-tech companies snapped up by foreign competitors. This has been exacerbated by the fall in the value of the pound. That is a regrettable outcome. Therefore, today’s inclusion of computer chips in the list of new technologies singled out is somewhat interesting given that it follows the much publicised acquisition of ARM, arguably the world’s best chip designer. That, again, was driven by the weakness of the pound. Perhaps the Minister agrees that there is an element of closing the stable door here. We wish that some of the measures we are discussing were in place at that time.

The addition of quantum technology raises the question: why only that? Again, the noble Lord, Lord Mendelsohn, opened up a list of other technologies. I had biosciences and some aspects of IT and encryption on my list. It seems to me a rather narrow list when you consider the potential threats to a range of technologies. In some technologies, the threats have not been thought of yet but they exist. In our view the scope should be widened to defend not just the science base from a security point of view but also the overall knowledge base of this country. Knowledge can leak out from this country through a variety of means, of which mergers and acquisitions is but one. Joint research projects are another. In many cases you often have competing aims where inward development exercises try to draw foreign investors into research projects where the IP driver in this country would be to exclude some of those investors. In many cases, therefore, we are creating a situation that is leaking out valuable information —whether it is for security interests or economically valuable—through actions that the Government or local government are driving. Perhaps this is something that the Minister could look at. At the heart of this is the narrow look at security needs. These Benches would widen that to cover more economic interests of this country, and we hope the Government will take that on board.

Turning to Bombardier, I am sure the whole House welcomes the announcement of this deal, which should protect the future of the plane-maker. Clearly, only a few days ago, we were discussing a very bleak future for the 4,000-plus workers and all of those indirectly involved in the economic area that it has created in Belfast, so this is good news. I said at the time that even though this is not a case that would, in the end, be won by Boeing, time was the issue that would kill off and affect Bombardier. This is a very effective way of trying to bridge that time and of negating that problem. We should all congratulate everybody who has been involved in expediting this so swiftly and effectively. I am sure there are “i”s to be dotted and “t”s to be crossed, and I hope the Minister will give assistance to all those who require it to make sure that happens. In that regard, will the Minister tell us what anti-trust hoops he expects this deal to have to jump through?

We would also welcome some clarity from the Minister on what assurances have been forthcoming, both on investment and on the public statement made by the CEO, Tom Enders, on the notion that operations will be more efficient. What will be the job implications in both Belfast and perhaps in Broughton? What assurances have been given, and how will he be able to uphold them? In many ways, the US Administration and Boeing might feel that they have got off the hook somewhat by this, but there are still huge tariffs outstanding on this aircraft. The actions of the US remain a salutary warning to this country that its relationship with the Trump Administration is, at best, strained and poses something of a black cloud.

In conclusion, today’s announcement on takeovers and mergers sets out steps in the right direction. We welcome greater breadth in scrutiny and the requirement for notification. I am sure that, as the consultation process goes through, the Government will look at the technologies, and at which elements of which technologies we should be concerned about. I hope they will also take on board the public interest aspect in mergers and acquisitions.

Industrial Strategy

Lord Mendelsohn Excerpts

Wednesday 28th June 2017 Lords Chamber

[Lord Prior of Brampton]

My Lords, the sector strategies will be an important part of the industrial strategy and the life science strategy is probably one of the furthest forward. It will, I assure my noble friend, include proposals to improve access to the NHS.

[Lord Mendelsohn (Lab)]

My Lords, I am sure the Minister is aware of the Social Mobility Commission’s Time for Change report, which urges the Government to commit to speedy reform to avoid unsustainable social division, particularly with the regions being left behind with very uneven pay and skill levels, employment rates, job quality and access to high-level qualifications. Will the Government accept the commission’s call to use the industrial strategy to address this imbalance, which will, of course, show a more committed effort towards the regions than the fact that there have been three northern powerhouse Ministers in four years?

[Lord Prior of Brampton]

My Lords, I would say that probably the single most important objective of the industrial strategy is to address some of the regional imbalances that the noble Lord refers to. We have seen London and the south-east do extremely well over the last few years, and we will carry on supporting London and the south-east to continue doing well, but there is no doubt that many parts of the country have been left behind, with many people on stagnant and falling earnings. That is absolutely a key priority for the strategy.

Steel Industry

Lord Mendelsohn Excerpts

Tuesday 25th April 2017 Lords Chamber

Asked by

[Lord Mendelsohn]

To ask Her Majesty’s Government what steps they are taking to support the steel industry; and what role it will have in the Government’s industrial strategy.

[Lord Mendelsohn (Lab)]

My Lords, I am very grateful to those who are participating in this debate. We have a very distinguished group of speakers with tremendous experience and wisdom in these areas, and I look forward to hearing your Lordships’ contributions. My own detailed experience of the sector is only recent. Like so many issues brought to the attention of this House, one can get a rudimentary understanding, but it is rare to get the feel of an industry. I know that the Minister has such a feel for these issues and I am grateful that he has made himself available for this debate. He has always had a very open and thoughtful mind when it comes to matters relating to the steel industry, and his participation is appreciated.

When Greybull bought the long products division of Tata Steel, I was intrigued. I was interested in what a very capable turnaround team saw in this opportunity. What has become British Steel is the dream of Nathaniel and Marc Meyohas, the principals of Greybull, who are operators of the highest capability and have brought new life into the industry and the business. I was fortunate to visit their main plant in Scunthorpe last year, where I met the extraordinary team that they have assembled, steeped in expertise, who have transformed its prospects. Recruiting Roland Junck, the globally respected industry figure, as executive chairman was particularly inspired, but the whole top team, who have served the plant for many years, were deeply impressive.

I was struck by two things when I visited. The first was the extraordinary quality of the staff, not just in skill and capability but in motivation. I visited the blast furnaces. In the Scunthorpe plant they are known as the Four Queens. I met the blast furnace manager. With colossal pride, as the molten steel streamed out, he nudged me and said, “You see that? That is schools, hospitals, roads and bridges—all our country’s needs”. The second thing that struck me was the extraordinary technology that is applied there. There are hugely capable and trained staff dealing with all sorts of technologically sophisticated approaches in these very large sites, with large equipment and large sales. The facility has computers almost everywhere and it is able to produce products with the imperfections almost entirely removed and to ever-higher specifications. It is a highly technologically developed business.

British Steel has committed nearly £40 million in new investment and is now making regular quarterly profits. It reversed the pay cut that was taken by the workforce as a means of ensuring the survival of the plant, and it did it as early as it could.

We have witnessed many closures in recent years—some preventable, possibly—with the resulting impact on communities. We have not served them entirely well with their transition. Last year our domestic market share fell to its lowest level on record, with only 39% of the steel used in the UK being produced here. Since 1995 employment in steel has fallen by 59%. I am sure there has always been a debate about what sort of size the market share should be and I think there is a case for 50%, but it is important that that 50% is profitable.

The global production footprint of steel suggests that the UK will not become a global leader in production but it is certainly desirable and deliverable that steel as a strategic necessity for our economy can be achieved, with the right policy framework. It still acts as a vital foundation industry for our world-class automotive, defence and construction sectors, and many others. It is an important part of our innovation and research base and it remains a crucial provider of highly skilled, quality and fulfilling work for more than 30,000 people, with an estimated four times that number in the supply chain.

It is notable that while other European steel industries have also suffered in the face of global headwinds, the UK has fallen furthest and fastest. We have gone from the second-biggest European producer in the 1960s to the fifth-biggest now, behind Germany, Italy, France and Spain. There remains a range of domestic barriers holding back our industry. As the BIS Select Committee in the other place pointed out,

“other European countries have both better valued their domestic steel industry and have been able to withstand global competition more effectively than … the UK”.

Put simply, the cost of doing business here is higher than in most of the rest of the continent.

The UK steel industry has suffered from a series of pressures relating to overcapacity, unfair trade and a competitive disadvantage with European competitors. There is broad agreement among everyone that we have to do a number of things to help: we have to promote UK steel’s use by government and business; we have to tackle unfair trade to ensure free and fair trading practices; we have to provide funding mechanisms for energy-efficient projects; and we have to work on what investment and support is needed in the long term, including skills and education in local communities. Most importantly, and the industry has been right to frame the problem in this way, the unilateral costs that are a direct result of historic UK government policy around electricity costs and business rates are utterly crucial. I believe that the recent initiatives which the Government have undertaken to compensate producers for high energy costs and to encourage government departments to procure UK steel are welcome steps in addressing the fundamental barriers facing UK producers.

However, this is about the fundamental business model. UK steel makes money, but not enough. There is a return on capital gap which is required in order to sustain this industry. For the sort of investment required in new plant, we need to ensure that it has the right level of profitability. It is well established that energy prices and business rates are two areas where we have an uneven playing field. Even after the Energy Intensive Industries compensation package, a 2016 analysis by UK Steel showed that British producers pay an extra £50 million per year in energy costs when compared to their EU competitors. The differential between the UK and Germany has been calculated as an extra £17 per megawatt hour. According to UK Steel, if that differential was removed, British firms would have increased their EBITDA by 70% in the period 2012-14, protecting jobs and enabling crucial investment.

UK steel-makers face business rates of up to 10 times those in France and Germany. We should not be in a situation where building a new blast furnace attracts a six or seven figure hike in rates. The current regime acts as a tax on investment that is not borne by European competitors. For example, in 2010 France reformed its new equivalent of business rates to remove plant and machinery from calculations to deal with exactly this problem; it has worked very well.

I am sorry that it took the steel crisis of 2015-16 to act as a trigger to focus attention. The Government have made some progress but it is too limited at this stage. This is not particularly partial criticism of the Government. There are certainly some matters which are not easy and straightforward. This will take a lot of political will and some careful thought but there is a pressure on whoever comes into government after the election—we can guess who might or might not—to show some renewed effort. There was some previous criticism of the industry’s managers and owners, but since the crisis it is clear that that has changed. New entrants have emerged and the existing quality management has been liberated. The workers in the industry and its trade union have shown not just capability but adaptability and a willingness, as they always have, to be part of a team accepting sacrifices and giving of their labour nothing but sheer excellence.

The industry is in good shape but the policy and regulatory environment is not, and this is where we must focus. We are in times where we can make changes. There have been changes which show that we can take a different approach. It is not just about leaving Europe; there is the opportunity of the industrial strategy. It is not just about the adoption by the Conservative Party of a price cap on energy markets or about progress in energy demand measures. All of these things suggest why doing more on the supply-side measures can be doable and timely.

The steel industry is the epitome of a modern, technologically-driven industry. I would argue that there are more high-tech, highly paid jobs in steel than in the IT sector in general. In business, the achievement is more important than the announcement. In government, it sometimes feels that the announcement is more important than the achievement. We have to set the course straight for what we are going to do to help steel. Others deserve our gratitude for keeping the industry alive and fit for purpose. It is the role and duty of those who make policy decisions on the regulatory environment to take the next steps. I am sure that all Members of the House will work with the new Government to that end.