Small Business Commissioner (Scope and Scheme) Regulations 2017

Debate between Lord Mendelsohn and Lord Cope of Berkeley

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.