Financial Services and Markets Bill

Lord Mitchell Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

I hope the Government will act on this. I know that they have a consultation under way, but they really need to get their skates on because this industry is growing very rapidly, and I fear that a significant number of young people are now entramelled in a situation they will severely regret.

[Lord Mitchell (Lab)]

My Lords, I thank the noble Baroness, Lady Kramer, for drawing your Lordships’ attention to the three-year campaign we had on payday lending, which in the end won. We removed a great scourge from consumer credit in this country. I apologise for not speaking at Second Reading; I intended to, then Covid got me.

I will make a couple of general points before getting into buy now, pay later. When I was 16, I was asked to leave school. One mock GCE pass out of seven subjects at O-level led to my marching orders. I got a job at Hoover selling vacuum cleaners and washing machines door to door. That truly was the school of hard knocks. It was 1959. We were sent to sales training school to learn how to complete a sale. They told us, “Wear a dark suit, white shirt, firm handshake, and at all costs, get your foot in the door. Demonstrate the product to the lady of the house and then present her”—it was always her—“with the dual positive suggestion: ‘Will madam like to pay cash, or would she prefer hire purchase?’ Whatever the outcome, you’ve got the deal.”

So, I know about deferred payments, which in those days were also called “the never-never”. I emphasise to noble Lords that I am not against buy now, pay later. In fact, I think it is a good thing. People’s budgets are squeezed, and if a financial mechanism can be devised to make purchasing easier, it surely must be applauded. The problem is when it gets out of control, as many noble Lords have said.

Buy now, pay later has no interest component, and because of this, it is not regulated by the FCA, it is not protected by Section 75 of the Consumer Credit Act and individuals do not have recourse to the Financial Ombudsman Service. This loophole was surely never intended and ought to be closed.

It is currently too easy for consumers to acquire debt beyond their affordability, and therein lies the danger. Plus, of course, consumers can acquire payment liabilities through a host of different providers, each of whom has no knowledge of the existence of the other. We saw that in payday lending, whereby you got to your limit with one payday lender, so you went to another and then another, you got the money from here to repay this one, and so it went, until people got into terrible situations.

I do not have the foggiest why the Government have said that they want to regulate that but are telling us that it is not appropriate. I ask the Minister: why are the Government dragging their feet on something that seems so dangerous, obvious and uncontentious?

I have one further point to make. Buy now, pay later is growing exponentially and we now have a measure of just how big it is. Half the population use this unregulated form of finance. Casting our minds back to the financial collapse of 2008, we cannot ignore the subprime mortgage crisis in the US that triggered all the turmoil. We are not there yet, but massive and increasingly unaffordable debt is simmering below the radar, and it is a huge potential danger. Can the Minster assure the Committee that the Government are tracking this sector and are aware of the risk?

[Baroness Penn (Con)]

My Lords, I shall turn first to Amendment 43, tabled by my noble friend Lady Noakes, before dealing with buy now, pay later. The Government fully support the intention behind this amendment to facilitate the swift reform of the Consumer Credit Act, and work is under way to do just that. There is no doubt that this legislation needs updating. The Act is becoming increasingly outdated, and its prescriptive nature means that it is unable to keep pace with advances in the market without modernising reform.

However, we must appreciate that the Act is complex, and any work to review it requires careful consideration to ensure that any future approach is fit for purpose. For this reason, a first public consultation on this reform was published in December, which will close for responses in March. As part of the review, the Government are seeking views on how to rectify the complex split of regulation currently contained in primary legislation, secondary legislation and FCA rules which is hard for consumers and businesses to navigate.

Small Business, Enterprise and Employment Bill

Lord Mitchell Excerpts

Wednesday 11th March 2015 Lords Chamber

Moved by

[Lord Mitchell]

74B: After Clause 151, insert the following new Clause—
“Growth and impact of unpaid internships
(1) The Secretary of State must publish a report on the growth of unpaid internships within the United Kingdom labour market over the past five years.
(2) The report shall include details on, but is not limited to—
(a) the incidence of unpaid internships by industrial classification;(b) the average and median length of unpaid internships;(c) an analysis of those who undertake unpaid internships including details on age; gender and ethnicity;(d) the impact of unpaid internships on social mobility;(e) the impact of unpaid internships on graduate prospects; and(f) current legislation and provisions available to address the exploitation of unpaid internships.”

[Lord Mitchell (Lab)]

My Lords, in moving this amendment, I restate my interest as the chairman of Instant Impact, a graduate recruitment company.

In speaking to her amendment in Grand Committee, my noble friend Lady Donaghy asked the Minister to respond to several questions. Some were addressed and some were not. I aim to push these points a little further. Whether we like it or not, intern experience is a key component of many CV statements. Competition for top jobs is fierce. In my time, I have looked at many CVs and found that each one seems to be more impressive than the last. Much time and energy are expended by a candidate to show himself or herself in the best possible light. In my day, you could wing it and hope that it would be all right on the night; today, that is no longer the case. These days, organisations look for the brightest and the best. They look at not just the quality of their degree or of the university they attended, but at the kind of person they are. Is he or she well rounded? Will they fit into the team? Do they have resilience? Can they articulate an argument? Will they make a positive contribution to the organisation? And perhaps the most important question of all: what is their employment experience?

We on these Benches support internships, much as we support schools’ work experience. The relationship between schools and business needs to be much improved and there is nothing better than sixth formers spending time getting to understand the work environment. In such situations we understand that it is unrealistic to expect payment. However, this amendment is concerned not with work experience but with internships, which often become quasi-employment or, indeed, actual employment.

A couple of weeks ago, I read an article in the Sunday Times which highlighted a recruitment company that charges young people a fee of up to £3,000 to secure unpaid internships in the City. I have been present at a charity auction which raised tens of thousands of pounds by offering internships at a major fashion magazine. Such extreme examples illustrate the lengths to which people will go to spice up their CVs. The media, fashion, advertising, PR as well as high-tech and, indeed, our Palace of Westminster, are the prime offenders. They have bright young things working for them free of charge simply because they can. They get away with it because people are desperate for good jobs and they want the kudos of good names on their CVs. In some ways it resembles the unpaid pupillage that used to exist in the legal profession. It was banned there; it now ought to be banned in the wider world.

The Chartered Institute of Personnel and Development estimates that there are 20,000 unpaid interns. I bet that it is significantly more. The Sutton Trust says that the cost to a young person of being an unpaid intern in London is nearly £1,000 a month. A poll has said that 70% of the population say that unpaid internships are unfair and 65% of businesses want to end them. Many have suggested that the full minimum wage should come into effect after a four-week internship. Intern Aware, to which I pay tribute, has lobbied hard on this issue and I have much sympathy with this position.

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[Lord Mitchell]

My Lords, I thank the Minister for that reply. What she has said is certainly very helpful. If I detect the mood in your Lordships’ House at the moment, everyone seems very supportive of improving the situation regarding internships, ensuring that these young people are paid and taking the necessary action on it. I thank the noble Baroness, Lady O’Cathain, for the supportive comments that she made. She made a fair point about how the information will be gathered. I suspect that lots of companies are deluged with information; one more piece of information is probably not a good thing, but all the same, it has to be obtained otherwise decisions cannot be taken. The noble Lord, Lord Storey, has been very supportive on this all the way through. I thank him very much for that, and for the helpful comment from my noble friend Lady Morgan.

As I said, there is unanimity in the House on this issue, for which I certainly feel very grateful. I will of course withdraw the amendment.

Amendment 74B withdrawn.

Small Business, Enterprise and Employment Bill

Lord Mitchell Excerpts

Tuesday 3rd March 2015 Lords Chamber

[Baroness Harding of Winscombe (Con)]

My Lords, I rise to speak against these amendments. I must first declare an interest because I run a large public company, TalkTalk, which would clearly be subject to this legislation.

I agree with the Government’s prompt payment proposals, and it is worth us pausing to recognise how robust they are and how tough a reporting requirement this will be. To report quarterly in detail on your payment performance and policies is more detailed than the report I have to make on the financial performance of my company. I have an obligation to report in full on a half-yearly basis. I would not underestimate the power of transparency—of having to report this publicly and clearly. We see this in a whole range of compliance areas in business. Having to explain publicly to your customers as much as to your suppliers what you are doing acts as a strong brake on bad behaviour and is the beginning of the culture change in payment policy that I am sure that all sides of the House want to see.

I am not persuaded, however, by the Opposition’s amendments. There is a real danger that we try to overcomplicate and second-guess how businesses will wish to negotiate with each other. There are also a lot of unintended consequences—I am sure that they are genuinely unintended—in the Opposition’s amendments that will simply lead businesses to avoid the provisions and will create the very problem that they are seeking to avoid, which is the negotiation of much longer payment terms that meet all the requirements of a much more tightly defined code but actually do not enable small businesses to be paid faster.

It is therefore important that we support the Bill and the improvement in publicising and shining a light on poor payment policies and performance. But we in this House must not think that we can create culture change by specifying in ever more precise detail what businesses can and cannot do. That would have the opposite effect on the culture that we are trying to change.

[Lord Mitchell (Lab)]

My Lords, I start by coming back at what the noble Baroness, Lady Harding, has just mentioned. I know that she runs an exceptionally good company; I do not know what TalkTalk’s payment terms are, but I bet that they are good and that it pays on time.

However, there are many people out there, including many large companies, whose behaviour is quite disgusting. We have seen in the past few months egregious examples of big customers stuffing their suppliers. I will give a few examples. Diageo, the owner of Guinness and Johnny Walker, recently informed its suppliers that it would extend its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms—I wanted to say from Heinz 57 but it is not quite that—from 45 to 97 days, and the list goes on to include Monsoon, GlaxoSmithKline and Debenhams, to name just a few more. It is a common theme. These companies put the squeeze on their suppliers for two reasons. First, they want to accumulate as much cash as they can. That is understandable as they want to boost their balance sheets. More perniciously, they do it simply because they can. It is bullying.

Many of us have run small businesses and we know all too well the perils of cash flow management. We know what it is like to sweat while waiting for our big customer to make the payment. That is what keeps us up at night and what this amendment aims to rectify. According to the Institute of Directors, two-thirds of its members with fewer than 250 employees suffer from late payments. It is estimated that payments delayed over and above the contractual terms total—well, in my notes I have £40 billion but my noble friend Lord Mendelsohn says £60 billion. Whatever it is, it is a very large number. It is not just the supplier who suffers; it goes to the supplier’s own suppliers and to all the families who work with these companies that are now at risk. It permeates everything.

In this amendment we seek to introduce a radical change. Where a late payment occurs, an automatic interest rate penalty will kick in at the Bank of England base rate plus 8%. I can promise that if there is an outstanding payment with interest rates clicking up at 10% or 11%, it will gain everybody’s attention and will be paid.

I should like to make one more comment. Later this afternoon we are going to be addressing the issue of government schemes to improve finance for small business. I have no doubt that the best way to improve SME finances quickly and effectively would be to improve cash flows.

--- Later in debate ---

[Lord Mendelsohn]

My Lords, I will also speak to Amendment 4. Our amendments deal with an entirely connected element of late payment and other sorts of payment practices. Amendment 3 addresses concerns about companies exceeding payment agreements, discounting for prompt payment and retrospective discounting. This proposed new clause gives the Secretary of State new regulation-making powers to impose,

“a limit on the number of days after receipt of a supplier’s invoice a company can seek to challenge that invoice”,

and to prohibit companies from,

“seeking to change the payment terms of a supplier company unilaterally”,

or requiring supplier companies to pay to join that company’s list of suppliers or remain on it. Amendment 3 takes forward some fairly straightforward measures on what I would describe as abuses but on which I think there is a fair degree of consensus. Amendment 4 is perhaps slightly more exotic. It makes provision for the Secretary of State to,

“make regulations prohibiting the practice of a company seeking to reverse fixed payments and apply retrospective rebates and charges to a supplier company”.

Companies looking to extend their payment terms still could be on the right side of a prompt payment code if they use a variety of other practices to provide extended payment and credit terms to themselves. They can also add unfair terms using the asymmetry of power and information. Across much of the rest of the Bill the Government’s proposals have done a somewhat reasonable job to start addressing that issue, which afflicts small businesses, but companies can still change terms unfairly or even force unfair terms on weaker companies. “Pay to stay” must be the most egregious such practice but it is certainly not the only one. A weak approach to late payments coupled with no action on unfair practices or terms will mean that small businesses are unlikely to gain much from this Bill, which will seriously affect their cash flow or make their ability to fund and finance themselves not as strong as we really need with our current economy.

I have also witnessed at first hand the inventiveness of large companies to obfuscate and stop meeting their obligations on other payments. I have even had the misfortune with one particularly large supplier of meeting someone called “supplier disputes resolution”; this really means that they are a lawyer from the legal team, there to cause more problems rather than resolve anything.

I must thank the many small businesses and their advisers and representatives who are providing us with information on this. They have told us strongly, chiming with my own experience, of just some of the wariness that they feel is associated with raising the problems of poor practices of other companies, and of the nature of some of the pressures that they are under. These problems could include larger companies withholding payments, imposing fines or even creating retrospective payments or charges.

One has only to talk to small businesses for a short period to understand the iconic nature of the Premier Foods controversy, where it was forcing suppliers to pay to stay on its supplier list, which is perhaps one of the more appalling practices. Others force businesses to pay to go on the supplier list, which distorts competition and tries to use market power against smaller companies. Our measures will ensure that the problems of late payments are not transferred to other practices. The amendments also have the benefit of addressing legitimately some of the terrible and detrimental practices that small businesses suffer from large companies which exceed their agreements and act retrospectively, leading to tremendously bad consequences for other companies.

Withholding payments or arranging debits on control invoices can be caused by disputes or by issues about quality. These should rightly be raised prior to any unilateral fine, debit, discount or withholding of payment, and swiftly resolved between the parties. We agree with the Government that when there are disputes the most important thing is to resolve them as swiftly as possible. These amendments give the Secretary of State new regulation-making powers to address these issues.

There are cases where businesses retrospectively, at the end of the year, impose cuts to meet the previously agreed supplier prices to meet their margins, with no regard for the established contract. This is levelled against many plcs. Recently, we saw Debenhams unilaterally conducting a 2.5% discount on supplier prices as a last-minute attempt to boost its failing profit margins. Sending retrospective debit notes is on the basis of investments made to provide benefits to suppliers—very supposed benefits indeed. This is not to say that they do not make for a plausible argument; but the manner in which these can be applied and that they rarely have any performance-reporting, a direct correlation to those benefits or even requirement of proof that they were spent on this show the ways in which companies also impose egregious practices.

The contract terms, conditions and price negotiations are really up to the parties. Commercial terms, such as marketing discounts, early-payment discounts, stock write-downs, rebates and charging for central distribution costs appear to affect more the long-term performance of the companies operating them, and distort their price negotiations. But those are within the gift of companies if they decide to use those sorts of practices and the matter is clearly up to them. These terms can be entered into by parties, but it should not be possible to impose them retrospectively or coercively by means of threats or market power.

I am looking forward to the Minister’s response to these amendments. In Committee, the Government understood some of the concerns and they have not been deaf to the many stories that they have heard about the application of practices of this sort and the problems they create. They also seemed to acknowledge that their initial responses were not sufficient. In Committee, their view was that in practice requests for changes of payment terms are not imposed unilaterally and that they are made with the agreement of both parties, even if the smaller party may feel that it has no option other than to agree. We patently know that that is not the case. We have seen many examples of where changes have been made unilaterally.

The late payment directive is explicit that unfair contractual terms and practices are not acceptable. I spent some time looking at the late payment directive, which I was assured had significant UK participation in its drafting. I have to confess that it is rather good. It talks about the way in which these sorts of changes are not acceptable and should not be acceptable and says that, even in circumstances when they are imposed on the smaller party, they should not be.

The Government argue that concern about doing something about “pay to stay” may have the unintended consequence of stopping supplier lists, which may be a good thing. We agree with them. This is not meant to stop supplier lists. It is important for companies to be able to manage supplier lists. The problem is the terms on which people join those lists. We suggest amendments which give the Secretary of State the ability to make those changes. We are not being prescriptive. We are broad in defining what they can address. It remains for future consultations, regulations and other things to implement them. What we are trying to get at is clear. It is also clear that we are doing something, which is not too prescriptive. I know that some noble Lords have concerns about that. In many ways we have taken, perhaps for the first time, the argument that the Government presented in Committee that “may” cannot become “must”—so rather than “must” we have said “may”. It is important for the Government to understand that these are some of the issues they should address. Given the scale and size of the problem, we can identify late payments, as opposed to poor and extended payment terms, as somewhere where we need action to help small businesses. I beg to move.

[Lord Mitchell]

My Lords, “pay to stay” and retrospective terms are examples of thuggish behaviour which large companies use to beat up their suppliers. I listened to what the noble Lord, Lord Cope, said on the previous amendment about suppliers having a choice about whether they want to supply large companies. I do not think it is quite that simple. The companies we are talking about—major supermarkets and the like—have tremendous power, and suppliers have no option but to supply them, so this is not a contest of equals but of David and Goliath, and in this case Goliath usually wins.

As my noble friend Lord Mendelsohn said, just before Christmas Premier Foods, the maker of Mr Kipling cakes and Hovis bread, told suppliers that they could lose their contracts unless they made cash payments to remain suppliers. That time, it misjudged the mood. The press took up against it, and very quickly it backed down. Perhaps that is a good example of shaming some of these companies about what they do. However, the practice still exists and our amendment gives the Secretary of State power to prohibit a company requiring a supplier to make a payment in order to join that company’s list of suppliers.

Even worse is the ability of companies to alter the terms of payments unilaterally. I have seen it personally in a family business and with suppliers to big retailers. A supplier fulfils all the terms of the contract and he waits and waits for a payment that never comes. Eventually the company contacts the supplier and says that payment could be made in a couple of days if only the supplier could accept a hefty discount. This is odious behaviour and in this amendment we seek to contain it.

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Moved by

[Lord Mitchell]

6: After Clause 5, insert the following new Clause—
“Small and Medium Sized Enterprises Access to Finance
(1) The Secretary of State has a duty to conduct a review on alternative forms of finance available to small businesses as defined in section 33(2) and micro businesses as defined in section 33(3).
(2) The review should include, but is not limited to—
(a) an assessment of how the banking sector is catering to the finance needs of SMEs,(b) current methods used by the Government and relevant organisations to encourage SME consideration of alternative forms of finance, and(c) the extent to which alternative forms of finance have been used by SMEs.(3) The Secretary of State shall release a report on the findings of this review and lay it before both Houses of Parliament within one year of the commencement of this Act.
(4) The Secretary of State may, by regulations, act on the findings of the review.”

[Lord Mitchell]

My Lords, I have addressed your Lordships’ House many times to take the Government to task for the slow take-up of new schemes designed to provide finance to small and medium-sized businesses. My theme has been constant. There have been so many initiatives over the period of this Government that even I, who really ought to know about these things, am confused. If I do not get it, how can small businesses understand the options when they seldom have to deal with them?

I have cited Funding for Lending as an example. I know that the Government think that it has been a resounding success, but that is not what I hear at the coalface. One banker said to me, “What am I to do? The Government throw money at us, and I have a choice: whether to deploy these funds on small businesses, which are risky and difficult and costly to analyse and administer, or else use the cheap funding to build my mortgage business where I can assess the risk, and it is easy to run”. It is also not what the figures show. More often than not, one quarter followed by the next quarter, the amount of funding extended by Funding for Lending has gone down.

While all these government initiatives have been sputtering along, there has been a very acceptable growth in non-government schemes. The market for alternative finance has exploded, largely as a result of the paralysis of the high street banks, and we on these Benches think that that is to be encouraged. Challenger banks have made a very big impression. Metro Bank, Aldermore and others, such as Santander, are changing the landscape. Peer-to-peer lending has taken off and is becoming a major force. We, as I say, welcome these changes. The traditional banks have let down small business, and it is perfect that alternative sources are stepping into their shoes.

We need, however, to know what is happening in the marketplace. So many questions are asked in your Lordships’ House on this issue, and the truth is that no one seems to know the answer. This amendment will place a duty on the Secretary of State to conduct a review of alternative forms of finance available to small business. This review will examine how the banking sector is catering to the finance needs of SMEs and how SMEs are being encouraged to use alternative forms of finance.

We need the facts, and only an obligation on the Secretary of State will give us the information we require. I beg to move.

[Lord Cope of Berkeley]

My Lords, as the noble Lord, Lord Mitchell, has said, we have debated access to finance and all the various schemes, both government and private sector, on a number of occasions. I agree with him that there is an awful lot going on in this field. A lot of improvements have been made, by the Government’s efforts, these new forms of alternative finance and so on. I go along with the noble Lord, Lord Mitchell, on all that and on the difficulties of assessing quite what is happening and where the best developments are.

Where I get into trouble with Amendment 6 is the last little bit—proposed new subsection (4)—which says that, at the end of this review, when it is laid before Parliament:

“The Secretary of State may, by regulations, act on the findings of the review”.

That is an incredibly sweeping power, which I would be wholly reluctant to give the Government. I heard what the noble Lord, Lord Stevenson, said at the end of the debate on the previous amendment, but this is a very sweeping power indeed, about which I am very cautious.

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[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord, Lord Mitchell, for proposing the new clause, for his survey of finance for small and micro businesses, and for his welcome for some of the positive innovations that there have been in this sector in recent years. It was also extremely useful to have the comments of the noble Lord, Lord Myners, with his great experience in the City and in government, but I also heard the concern of my noble friend Lord Cope about the sweeping nature of the power. It was good to hear the comments of my noble friend Lord Leigh of Hurley.

The noble Lord has proposed a new duty on the Secretary of State to publish a review on alternative forms of finance available to small and micro businesses within a year of the commencement of this Act. I start by reassuring noble Lords that the Government share their conviction that small and micro businesses need greater access to alternative forms of finance. Lending to small business, as has been said, is still concentrated within the four largest banks, which account for almost 90% of business loans by volume. Overall rejection rates for loans and overdrafts are declining, but still stand at around one in four over the past 18 months. Access to appropriately regulated alternative sources of finance can provide a real counterbalance to the mainstream banking sector.

I fully agree with the noble Lord that we should seek transparency on the availability of alternative forms of finance. I disagree, however, that a new review is necessary as it would duplicate existing publications on small business finance. One of these publications is the British Business Bank’s report on small business finance markets, which was published in December 2014. Its main focus was on the increasing use of alternative forms of finance by small business. I believe that this is what noble Lords are largely seeking from this clause. I can confirm that the British Business Bank intends to publish its small business finance report annually. I am happy to commit today to place this report in the Library of the House when it is published again this year.

The British Business Bank’s publication sits alongside a number of other independent pieces of research into this important subject, including the Bank of England’s quarterly Trends in Lending report, last published in January, the quarterly independent SME Finance Monitor, most recently published last week and Professor Russel Griggs’s report on the banks’ lending appeals process, published this week.

My response to the noble Lord would not be complete without touching on an even more important report—the work of the Competition and Markets Authority, the new, independent competition regulator. The CMA is conducting a market investigation into the retail banking sector, including the provision of banking services to small businesses. It has a wide range of powers available if it finds there are problems in the sector. The existence of this investigation helps to respond to the points made by the noble Lord, Lord Myners. The CMA is due to report by April 2016 and I know that it will be of huge interest to this House. The Government will then respond to any recommendations made within 90 days. Any legislation that follows this response would, of course, be subject to parliamentary scrutiny in the usual way. I believe that we should let the regulator do its job and not pre-empt its recommendations with a concurrent review by the Secretary of State of how the banking sector is catering for the needs of SMEs.

Finally, I draw the noble Lord’s attention to the positive measures in this Bill to promote access to finance. Clause 1 removes a contractual barrier to invoice finance. Clause 4 provides for greater sharing of information through credit reference agencies. Clause 5 provides for the UK’s larger banks to be required to refer rejected finance applicants on to alternative finance providers. These provisions got a good degree of support across the House in Committee. I believe that all these measures will make a real difference to the availability of alternative finance for small business. Given the activity described, I am not convinced that a further report as proposed in this clause would be of merit. I hope that the noble Lord will feel reassured by what I have said and that he will feel able to withdraw his amendment.

[Lord Mitchell]

I thank the Minister for her reply. I thank the noble Lord, Lord Cope, for his insightful addition to what was said and on reflection I think that he may have a point on Clause 4. I also thank the noble Lord, Lord Leigh. He and I know each other well. I have never before heard the statement that he made but he has my email so he knows exactly where to send it. I also thank the noble Lord, Lord Myners—I find it very hard to say that and am tempted to say “my noble friend”—for making the comments that he did. I have always felt that the banks are, and act like, a cartel and that you cannot tell one from the other. It is really good that they are now starting to change and are being forced to change. If my particular area—digital technology—is making that happen, so much the better. Crowdfunding has been very exciting but many of the new challenger banks have been able to come into this because of the technology they are using. That is absolutely fantastic.

I thank the noble Baroness for her comments and feel very reassured that the Government are working in this direction. The facts are really clear. Whether we are in government or not, I would like to be standing here in a year’s time having a conversation like this with the facts at hand. I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Small Business, Enterprise and Employment Bill

Lord Mitchell Excerpts

Monday 26th January 2015 Grand Committee

[Lord Storey]

I very much thank the noble Baroness for tabling this important amendment. In doing so, she brings with her a wealth of experience in this area. We know of Members in both the House of Lords and the other place who employ interns—I was conscious of that when I first came to Parliament—but you can do that only if your parents can look after you financially. If you are living on a council estate in Sheffield, Liverpool or Glasgow—let us keep the full nations in and also say Swansea—your chance of doing an internship in Westminster would be non-existent. We also know that if you do an internship in Westminster, it is an opportunity for real career advancement.

My view is that all internships should be open and accessible, and freely advertised. They should be paid after an agreed period, at minimum wage, and be for a set period so that we level the playing field and it will not be just the rich and wealthy who can afford to provide those opportunities for their children. Everybody could have that opportunity as well. But there are real difficulties in this area; it is not quite as simple as we think. I thought, “Great. Interns should be paid”, et cetera, but then we have to think carefully through the issues. That is why this probing amendment is so important.

What is the position of work experience? As a former employer, I remember that local schools would send pupils for two weeks’ work experience. What about volunteering and genuine volunteers? A close friend of mine volunteers every Saturday to work in the local Oxfam charity shop. How does that work out? Some young people generally want to volunteer—with no ambition to follow a career in that area but because they have a social conscience. The other issue is: how does that fit in with sandwich courses at universities, where people will go from university as an intern for a full year? Those things need to be carefully considered because of the interrelationship between them, and because of the issues of taxation and finance involved.

My only concern about the amendment is that it calls for a report in 12 months’ time; I think that it needs to be sooner, rather than later. When the Minister replies, I hope that we will hear some supportive sounds about the probing amendment.

Finally, I was quite surprised that when I tabled a Written Question asking how many interns there were in Westminster, the Government were unable to provide that information, which seemed to me bizarre.

[Lord Mitchell (Lab)]

My Lords, I support my noble friend Lady Donaghy’s probing amendment. I have to make a declaration of interests. I am chairman of a company called Instant Impact. The principal business of that company is the recruitment of graduates from universities, which is obviously close to what we are discussing today.

“The condition of your birth does not determine the outcome of your life”.

Those are not my words, but those of an unlikely source, US Republican Congressman Paul Ryan, a staunch right-winger and not one we would expect to support the nanny state. Who among us could disagree with that?

Of course, in the Labour Party, we believe passionately that everyone should have an equal chance to succeed, no matter what his or her background may be, but the Conservative and Liberal Democrat parties are wedded to the same mantra: whatever our birth may be, each of us should have the same opportunity.

When most of us were young and seeking our first jobs, it really did not matter whether we had worked as interns. Indeed, the term barely existed. Sadly, all that mattered was where the candidate went to school and, more importantly, where the candidate went to university. In my case, Ealing Technical College probably did not stack up too highly. A good degree was a help, but not a necessity. A gentleman’s third-class honours was still acceptable with a wink and a rueful smile. That was true then, but no longer.

Today, the CV has become a rite of passage. It must be fine-tuned and honed, with not so much the right school, but certainly the right university and, without question, the right level of honours degree. The soft factors also count: sporting activity, cultural pursuits and charities supported. In a highly competitive world, whatever makes you stand out and interesting will help you to land the job you want. These days, young people need to include job experience on their CVs. They need to show that they have worked for a series of organisations and that they have become well rounded individuals. One of the ways that they do that is by becoming interns.

To the wealthy and well connected, getting their sons and daughters into suitable internships is relatively easy. I bet that many of us in the Room today have address books that other people would kill for. We have access to everyone who counts and, even if we do not, we have no problem in working the network to make sure that we get our children or grandchildren through the door. Some of us are able to fund our children if they do not get paid for their internship. After all, we can argue that it is the final part of their education and goes with the territory.

As a result, whole swathes of our economy are riddled with unpaid interns. The media, fashion, advertising and the new social media companies recruit unpaid interns at will, simply because they can. As has been said, how many Members of Parliament or Peers in our own Palace of Westminster have unpaid interns working in their offices or their constituencies? I do not know the answer but I would bet that the number is much higher than most of us suspect.

What happens if your parents do not have the contacts or are simply unable to fund you while you are working for nothing? I hope that the Government accept my noble friend’s amendment because we need more information about whether people are being exploited. If they are, I hope that the Minister will commit to looking at a four-week limit, as suggested by Intern Aware. I should like to hear the Minister’s views on this. I hope that she does not suggest—as the noble Lord, Lord Popat, did, when the noble Lord, Lord Storey, asked a Question in the House a few weeks ago—that we should refer to the Government’s Graduate Talent Pool for an answer. I have never heard of it and nor has anyone else I know. It really does not feature on the intern recruitment side. I also ask her not to suggest that HMRC has the powers to intervene and that it can hunt down any offenders. It is stretched to capacity, and anyhow it has other fish to fry.

There are many organisations that support the four-week limit. Axa, a major insurance company, says that a four-week limit to unpaid internships will ensure a fair opportunity for everyone. Ernst & Young says that young people deserve to be paid for the work that they do on internships, and if they do not, it is reprehensible. The wonderful Charlie Mullins, the founder of Pimlico Plumbers, a small business—which is not so small these days—says that it is completely reprehensible for companies to expect interns to work without pay. The ACCA has asked for an end to unpaid internships. RIBA expels members who use unpaid interns. UK Music says that interns should always be paid at least the national minimum wage. Lastly, the Times said in a recent editorial that the,

“abolition of unpaid internships is worthy and desirable”.

Under current national minimum wage law, an intern is entitled to pay only if they are working under a contract; of course, for a contract to exist it needs consideration. That means that if an intern receives nothing except expenses from their employer, the national minimum wage will not apply. The worst employers are exploiting this loophole and, under the law as it currently stands, there is little that can be done. The dice are loaded against those who cannot afford to take unpaid internships. The solution is not to discourage rich people from helping their children but to do a lot more to help clever kids who do not have wealthy parents.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Baroness, Lady Donaghy, for raising this issue and giving us the opportunity to have a debate. She brings great knowledge and experience of all employment matters, notably as a former chair of ACAS and now from her work at the CIPD.

Internships can and do provide valuable opportunities for young people taking their first step in the labour market, and we wish to encourage them. Speaking for myself, last July I had the very happy experience of taking an intern from a modest social background here in the House of Lords, and over the years I took a good number of interns when I worked in retail, as part of sixth-form studies or college vocational assignments. I tried to take people who might not otherwise get a chance to come in and get work experience; that is a great thing that employers, and indeed the public sector, can do.

The term “internship” is of course a relatively new concept—and, I am afraid, like so much else, a bit of an Americanism. As has been said, there is no definition of internships in UK legislation. Individuals undertaking an internship may be workers, employees or volunteers, depending on the reality of the situation and not their job title or what an employer decides should be set out in a contract.

The flexibility of our labour market is a source of pride and there are currently more people in work than ever. In the past year alone the number of people in work rose by 512,000, so employment is now at a record 30.8 million, providing valuable opportunities to young people. Of this remarkable growth, eight out of 10 were employees and eight out of 10 were in full-time jobs. In a labour market as flexible as the UK’s, there are a multitude of possible employment relationships that suit the employer and the individual, and this has to include short-term placements, internships and work experience. There is no single test to determine whether a contract of employment exists and whether an individual is an employee. Only an employment tribunal can determine whether a contract of employment exists. I appreciate that sometimes this can be confusing and unhelpful. Last October, my right honourable friend the Secretary of State announced a review of employment status—rightly, I think—to ensure that these issues are considered. We hope that the review will conclude in March.

The noble Baroness’s amendment asks the Government to publish a report which would assess the growth of internships over the past five years, their incidence by sector, their average length and the subsequent career choices of interns. We are not convinced that it makes sense to write the requirement for a report into the Bill. Internship and work experience policy is a matter for the Government to consider as part of their normal work on employment policy. As I have said, we are looking at the issue in the context of a review of employment status, conscious of the need to preserve good practice in relation to work experience, where it exists.

I understand the concerns raised about pay and social mobility, and that some young people will not know about the opportunities or be able to find internships. I assure noble Lords that the Government are keen to work with employers and young people to ensure access to high-quality graduate opportunities and that is why we fund the Graduate Talent Pool service—which more people have probably heard of now, as a result of the Question in the House answered by my noble friend Lord Popat and because of the discussions on this Bill. The service is free to employers and graduates and provides information on all aspects of internships.

My noble friend Lord Storey asked about volunteers. Genuine volunteers who are not workers and who willingly give their time for free are exempt from the national minimum wage. The Government’s Social Mobility Business Compact seeks to influence business to remove barriers to social mobility and to promote open and fair access to opportunities. This is what the noble Lord, Lord Watson, and my noble friend Lord Storey seem to be seeking. There are a number of strands to this, including work experience and paid internship opportunities. We are involving education providers—schools, colleges and universities —so that they build up links with business and other employers, including charities, which is another important area.

There is an issue about the entitlement to the minimum wage and I should explain that an intern’s entitlement depends on their employment status. If the intern is an employee or a worker, they are entitled to at least the national minimum wage from day one, and all other rights attached to their employment status. If the intern is a volunteer, they are not entitled to the national minimum wage but can receive reasonable out-of-pocket expenses. This may be the only way that people can get work experience. I worry that regulation could be perverse in its effect, especially with small businesses which probably cannot afford the great schemes we have been talking about that are provided by the big accountancy and insurance companies and so on. It is quite a complex subject.

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In conclusion, discussion of intern policy is an issue of the day, and will be taken forward in a number of forums now that the debate has been started and the numbers seem to be growing. It can be very valuable, and of course we need to ensure that the national minimum wage is observed. I hope that the noble Baroness has found my comments helpful and that she will agree to continue the discussion with me outside the Bill, but for the moment I ask her to withdraw her amendment.

[Lord Mitchell]

One word I did not hear—and I was listening very carefully—was “exploitation”. The feeling many of us have on this issue is that young people who are desperate to make sure that their CVs look good so that they can say that they have had the right experience are prepared to be exploited to make sure that their CV looks good. Many employers out there prey on them, and in many cases those situations where people are not paid can last for long periods of time. More than anything else, we want to address that.

[Baroness Neville-Rolfe]

I thank the noble Lord for that further clarification. There is a lot of common ground here. We need to address certain issues and, clearly, we are all keen to stamp out exploitation.

Small Business, Enterprise and Employment Bill

Lord Mitchell Excerpts

Wednesday 7th January 2015 Grand Committee

Moved by

[Lord Mitchell]

1: Before Clause 1, insert the following new Clause—
“Needs and requirements of small and medium sized enterprises
(1) The Secretary of State shall provide a report on the future needs and requirements of the small and medium enterprise sector for the next ten years with regard to—
(a) access to advice;(b) access to finance;(c) access and support to engage in the export sector;(d) training;(e) recruitment of apprentices.(2) This report shall be published within six months of the passing of this Act and shall be laid before both Houses of Parliament.”

[Lord Mitchell (Lab)]

My Lords, first, happy new year to everybody. At Second Reading, the general tone that came from these Benches was that we welcome the Bill. We welcome it because we, the Opposition, realise only too well that national growth in productivity, investment, exporting and employment—all of which we desperately need—can come only from a strong political culture that supports small and medium-sized companies. The Government, and in particular the Conservative Party, want to lead us to believe something else, but we refute it. Labour stands for a dynamic business sector that will prosper with strong support and without the debilitating threat hanging over us of the possibly of the UK leaving the EU two years from now.

I must admit that even I have struggled to keep up with each of the announcements that the Government have made for various forms of funding for small business. Given that it is my job to keep up with all of this, I wonder what the average small business man at the sharp end makes of it all. Let us take a look at Funding for Lending. I said at Second Reading that I thought it was a flop, and the Minister—the noble Baroness, Lady Neville-Rolfe—chastised me and said that I had got it wrong. But I still have to say that I do not think I have got it wrong; I think I have got it right. Much of the funding that has been advanced to the banking sector has been assigned by the banks to the business areas that they know well: in particular, mortgage lending, which is easy, profitable and relatively risk-free for them, as opposed to lending to small businesses, which is hard work and risky, and probably cannot make anything like the same return.

Predictably, they went for the easy option and the route that minimises risk and maximises profit. As a business, why should they not? But that is not what the Government said was going to happen. Investment in small business has made little progress, which is why I called it a flop. The noble Baroness may think otherwise but I can assure her that, based on my own background in equipment leasing, I know the SME funding scene. She may be told by the banks and by her officials that small businesses are being helped, but I speak to those at the coalface and know that many businesses strive in vain to get vital funding. We have to do more to help them.

With that in mind, I turn to this first group of amendments. They are designed to ensure greater security and understanding of the action that the Government are taking with the aim of supporting small businesses. They will enable us to better account for the effectiveness of the steps taken in this direction. The first of the two amendments requires the Secretary of State to undertake an immediate strategic review of the key issues affecting small businesses and, in doing so, design better policy interventions to support them. The second requires that, allied to this strategic review of what small businesses need from government, the Government should publish an annual report which details the steps that they are taking. Taken together, the intention is, first, that there will be a greater level of strategic thinking about the correct policies to support small business in the future and, secondly, that Parliament will be better able to scrutinise these policies.

The truth is that this is required because all is not well with regards to the policy framework for small businesses. During the term of this Government, they have been adversely affected by a £1,500 rise in business rates in what by any account have been difficult trading conditions. It is our view that they should now see a freeze or a cut in business rates. This is one immediate step that could be taken towards supporting small firms. When it comes to receiving advice about how to strengthen and grow small businesses, the landscape remains confused. I have to say that when I go around and ask those who are running small businesses what is the main issue that really bothers them, it is business rates—so this needs to be looked at very seriously.

In the United States, the Small Business Administration represents a successful model for providing support and advice, and indeed for directing policy, and one that we should look to imitate in this country. It is often easier for large companies, especially those which can pay for lobbying advice, to understand how to approach business and how to look for the support that government may be able to provide. In the UK, responsibility for small businesses lies with the Minister of State, who has additional sectors to his brief. In the US, the head of the SBA is a member of the President’s Cabinet: surely we should have the same prominence here.

Perhaps the most important area which the report sought by these amendments should look at is access to finance. There has been a great deal of activity with the intention of improving credit conditions for small businesses—but, as I have said, with only limited success. The Federation of Small Businesses’ Voice of Small Business index shows that small firms are struggling to get the finance they need and still require greater competition and choice in the banking options available to them. Without improvement in these areas, we are unlikely to see significant improvements in credit conditions. The latest Bank of England Credit Conditions Survey shows that credit availability fell slightly during the last quarter, while Funding for Lending figures show that net lending to small businesses remains negative, despite improvements for larger businesses. This issue will arise throughout our discussions in Committee and these figures provide the backdrop to it.

The amendment would also require the Secretary of State to look closely at how best to support small and medium-sized businesses that want to export. This is vital and goes to the heart of the kind of economic recovery we want to experience. The news over the recess that the UK’s current account deficit is at one of its highest ever historic levels should serve to focus our minds on the importance of exports. The export-led recovery that the Chancellor promised has simply not taken place, and to meet the impossible target of £1 trillion a year by 2020 would require nominal growth of around 10% per year—way above current levels and, I must say, way beyond anything I can imagine.

The OBR’s latest forecast has revised down the contribution that trade is expected to make to GDP growth for every year of the next Parliament. Policy action taken to improve this does not show much sign of having a positive effect. The £5 billion export financing facility has helped few businesses. This is a huge missed opportunity. Also, I simply do not understand why we are forever cutting back our embassies and trade capabilities. You cannot set up an environment for export if you are not represented in the countries concerned. In my travels, I frequently come across foreign business people who say that the UK does not take their own country seriously and how good it would be to have more ministerial and trade visits.

Finally, we need to see increased help for those who want to recruit apprentices. The number of apprenticeships actually went down last year, so this is another area that the Government could usefully look at both in terms of future needs and the efficacy of current government policy. I hope that the Minister will be able to accept these amendments, which represent a good way of combining strategy planning and support for small businesses and the effective scrutiny of policy interventions. I beg to move.

[Baroness Wheatcroft (Con)]

My Lords, I take issue with these amendments. What we do not need is another report into the problems that small businesses face. There is no shortage of information on these problems, not least from the Federation of Small Businesses, to which the noble Lord referred. We know what the issues are. There is not enough finance available for small businesses. One of the things that this Bill attempts to do is make access to finance easier. It also includes lots of measures that will help small and medium-sized businesses. However, what those businesses need is action now, not another delay while another report is produced. As we get regular feedback on what the legislation does, that will become more than apparent. Organisations such as the federation will not hesitate to make clear what they think about what the Government are doing. This would be just another bureaucratic exercise when what we need is action.

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[Lord Cotter (LD)]

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

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

[Lord Mitchell]

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

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

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

Amendment 1 withdrawn.

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Moved by

[Lord Mitchell]

2: Clause 1, page 1, line 10, leave out paragraph (c)

[Lord Mitchell]

My Lords, I must declare, as I did at Second Reading, that I am the chairman and a shareholder of a graduate recruitment company called Instant Impact Ltd. I also have to declare that this company was founded by my son and a friend, who got to know each other when they were at Cambridge University. I know that this may have echoes of Second Reading about it, but I want to give an example of the sorts of issues that we have encountered. I think that they point towards financing in general and invoice discounting in particular. I shall not detain noble Lords for too long.

Instant Impact has been very successful. After four years of operation, its projected billing for this year is £1 million and its employees now total 22. We should have many more companies like this in the UK—and if we did, maybe some of our problems would be over.

However, success has brought its own issues, and the trickiest of all has been cash flow to support the rapid growth of such a company. In short, we could see that if we continued to grow so rapidly, it would put a severe strain on our bank balance. Therefore, as chairman, I was deputed to find new sources of finance. I was happy to do so but I was even happier for another reason: we talk a lot about small business but, to be honest, it is a long time since I have been in the front line, so it was pretty good to go out there and see what it was like to raise additional funding for a company that is doing quite well.

Eventually, we were successful in that one of the new challenger banks—the noble Lord, Lord Flight, is the chairman of Metro Bank, so I must give him my thanks—offered a superb invoice discounting facility, but not before we endured the lethargy and inflexibility of the traditional high street banks. Of course, as a company we also had to step up our game in credit control and debt collection, and we managed to get an infusion of equity finance.

The high street banks were simply awful. Do not believe for one moment that they have changed. One has the motto, “One for two”: one acceptance for every two rejections. I cannot believe that that is true. All they want is what they have always wanted—bricks and mortar security and personal guarantees. That is not much help to a service business set up by two young men with no assets apart from the business itself.

I went to see the very clearing bank with which I have dealt since I first started working in 1959. It knows my history and my successes inside out. A very senior manager, when I explained our requirements to her, said to me—I am not exaggerating—“Well, it looks like daddy will have to give a personal guarantee, doesn’t it?”. My answer was unprintable and my words should have no place in the august annals of Hansard. I told her that daddy has never given a personal guarantee and certainly did not intend to do so now, or words to that effect.

I have to say, “How dare they?”. After all the banks have been through and after we as a nation have effectively bailed all of them out, it seems that nothing has changed. They tell us that they are in business to support small companies but, when push comes to shove, they revert to their old ways. Too many small businesses when rejected by their own high street bank simply give up. They are intimidated. That is why the new sources of alternative finance—the challenger banks and the peer-to-peer lenders—must continue to be encouraged.

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[Baroness Neville-Rolfe]

My Lords, I was glad to hear of the experiences of the noble Lord, Lord Mitchell, and his success in running a business. Let us hope that there will be success for others in that direction as a result of the changes that we are making in the Bill. Having been brought up on a farm, which I suppose is the ultimate small business—and one that, I am afraid, failed, which is also a relevant experience—and shared a small garden company, I know exactly what the noble Lord is saying about the availability of finance, funding and cash flow. These are always incredibly important issues for small companies.

Turning to Amendment 2, I have some sympathy with the noble Lord’s proposal and general stance, and I should like to reassure noble Lords that the Government are currently consulting on this very issue.

The purpose of our clause is to make it easier for businesses to access invoice finance, which I agree is one of the most important sources of alternative finance around. The effect of the clause is to create a power for the Secretary of State to make regulations which can invalidate contractual barriers that inhibit small businesses’ use of invoice finance in the way that larger companies are able to operate. The Federation of Small Businesses, the IoD and the Asset Based Finance Association have all expressed support for this measure.

In the consultation, the Government outlined their preferred option for using the power, which is to nullify a ban on invoice assignments outright with some exceptions. The Government also requested views on how this measure would interact with supply chain finance, commercial confidentiality, financial services and land interests.

Clause 1 as currently drafted gives sufficient flexibility to allow the draft regulations to be adapted if the consultation provides strong evidence that in some situations an assignment can lead to unintended consequences. Conversely, if we accepted this amendment today, we would remove one possible way of dealing with anti-assignment clauses before having had the opportunity to consider the evidence from the consultation on the best way forward. Our consultation will close on 16 February and a summary of responses will be provided shortly after.

I hope that the noble Lord feels that his probe has been effective, that he finds the explanation reassuring and that he understands that we are on the case in consulting not only in writing but by having stakeholder discussions. On that basis, I hope that he will withdraw his amendment.

[Lord Mitchell]

I thank the noble Baroness for her reply. Of course, this report will come before the Report stage of the Bill, so we can come back to it as necessary. Again, I thank her. I think that most of her response was reassuring and I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

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[Lord Mitchell]

My Lords, I think that the whole issue of late payments is to do with the business culture that exists. As the years have gone by, it has become easier and easier for large companies effectively to bully small companies so that they can maximise their cash flow. In these days of low interest, it is not a question of paying less interest but of being able to conserve cash flow at the expense of somebody else. It is a really bad situation. I am glad that the Government have taken the initiative on it, and we have come up with amendments that we think will help them.

I do not know whether this is true but I am prepared to bet that more than any government support for funding that we have discussed or any new initiative to help small businesses, the one thing that would change the situation and help companies would be an improvement in the culture of late payments. I suspect that in this Room today there are many noble Lords and others who have themselves come from small business backgrounds—perhaps family businesses—or have worked in small businesses. We all know what it is like to sweat while waiting for a payment from a big company, knowing that if it does not come you may be forced into a state of bankruptcy. Therefore, I think that anything that can be done to encourage payments and to reverse this culture of companies taking more credit would be great.

At the extreme, I do not understand why there is any credit on payments. After all, if you or I go into a shop to buy a new computer, we do not say, “Well, you know, it’s going to cost £1,000 and I’d like 60 days’ credit before I pay”. We would be laughed out of the shop. So why it is any different with a business? Why cannot payments be absolutely instantaneous? I know that I am portraying a very rosy situation here but I feel that there should be a move towards a greater reduction in the number of days’ credit that companies take. With the ease of making payments today, it should become lower and lower.

I want to make one plug if I may. I have mentioned before that I am the chairman of a small company. We had two particular debtors who were each not paying us £7,000. The young men who ran the company tried everything they could but the money was not forthcoming. In my role as Jack of all trades chairman, I decided to take on the job of chief debt collector as well and got on to these two companies to get in the funding. It was partially successful but they were very elusive. They said that one company had gone out of business—the usual sort of stuff you get. However, I discovered something amazing. To be honest, I never thought that I would be standing here saying how good Her Majesty’s county courts are. If you look up the county courts online, there is a facility there to issue a county court judgment online and quickly. I have to tell your Lordships that in both cases I did it and got the money plus interest within 14 days.

[Baroness Harding of Winscombe (Con)]

My Lords, I agree with an important element of what the noble Lord, Lord Mitchell, has just said but I disagree quite fundamentally with the conclusion that he draws as a result. I believe that basically we are talking about how you effect a culture change and, in that, the noble Lord is absolutely right—it relates to big companies, medium-sized companies and small companies. I must declare an interest as I run quite a large company. However, you do not effect a culture change in business by prescribing in detail in legislation what you should report for ever more. In that sense, “may” is a much more important word to include in this legislation than “shall”.

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Moved by

[Lord Mitchell]

13: Clause 4, page 5, line 8, at end insert—
“(c) a duty on designated banks and designated credit reference agencies to provide information about the criteria used to calculate the credit score of a small and medium sized business customer to such customers.”

[Lord Mitchell]

My Lords, 2015 got off to a cracking start for me. On 1 January, my football team, Tottenham Hotspur, put five goals past Chelsea. For those who do not follow football, that is as good as it gets. Then, on 2 January, the new rules on payday lending came into effect. Having campaigned on the issue for three years, that was a wonderful outcome.

When I was involved with payday lending, I became aware of how important it is for large banks to share individuals’ credit references with much smaller credit providers. If the credit information is not provided in a timely manner, it is much harder for loans to be advanced. Small businesses suffer from the same malaise. To advance credit, providers need data, much of which are historic. Without data, lenders are simply shooting in the dark. We are very pleased that the Government are addressing this measure but we believe that we can go much further in toughening up its implementation.

These amendments concern the ability of SMEs to work out how their credit rating is calculated and would place a duty on credit reference agencies to increase the transparency around how the scores are worked out. Clause 4 gives the Treasury the power to require banks to share information with credit agencies to increase the likelihood of SMEs accessing finance, even if they are initially turned down for a loan. This is important as there is a growing market of alternative finance providers that can help small businesses get the credit they need. For example, Funding Circle, a major peer-to-peer lender, has provided more than 36,000 loans with a value approaching £500 million, so this is already an important and fast growing market.

We support the provisions in Clause 4 and believe it is crucial that we look at expanding the provision of finance to small business. These amendments are aimed mainly at helping those who are refused access to finance but for whom it is not immediately clear why that is the case. As I mentioned earlier, many small businesses that are turned down by high street banks just turn tail and do not seek alternative providers. We must encourage the small business community to say, “If your bank turns you down, there are plenty of others who can advance finance to you”.

You and I can contact credit reference agencies to get information about our credit scores and, in so doing, can find out more detail about how we might improve them—for example, by using a certain type of credit judiciously over a period of time. This process is also important for correcting mistakes when they affect a credit score. All businesses need the same ability to find out why they are struggling to obtain credit. In the first instance, the information lets a small business know whether or not the fault lies with its business or results from a change of policy at the bank. If the fault lies with the business, it can look at taking steps to remedy it, such as making changes to the business plan.

This amendment is also important in terms of working out whether being referred by a bank to a credit agency and alternative sources of finance will affect a business’s credit score. If it is not accepted, the effectiveness of the change which, as I have said, has our support, will be difficult to judge. For instance, if the initial rejection raises the cost of lending, a business would have been better off seeking alternative finance. That does not seem to be the Government’s intention. The amendment would ensure that the change has the effect that the Government intend. This change is supported by the Federation of Small Businesses, which says that it,

“would also like to see a duty included in the Bill which requires banks and credit reference agencies to provide information about the criteria used to calculate the credit score of the small and medium sized business customer. This would increase transparency and guidance to help small firms to understand their credit score and to help them take steps to improve it. The customer would request this information in writing and no charge would be made for providing it”.

We have also included in this group of amendments a safeguard to ensure that only data relevant to this process is shared, and that it is shared only with the permission of the business. Without such a safeguard, there will be understandable reluctance among many businesses to have possibly sensitive data circulating without their express consent. I hope the Government can accept this improvement to a clause that has widespread support, to ensure that no opportunities to improve access to finance for small business are missed.

Finally in this group there is also a probing amendment on the likely costs of the process laid out in the clause. This is purely designed to ask the Minister to provide a little more detail than is currently available in the impact assessment as to where the costs of this change are likely to fall. I beg to move.

--- Later in debate ---

[Lord Newby]

I think, my Lords, that that concern is dealt with by the fact that approval or agreement that data might be shared tends to take the form of being included in the standard terms and conditions of the bank, so one will not be able to pick and choose. One will be presented with a standard form that states, “You agree to the following forms of data being used”. There will not be much scope for negotiation as to which data are open for discussion.

[Lord Mitchell]

I should like to respond to the Minister by thanking him for his support on the subject of payday lending. There were some dark days in this three-year campaign, and he and I had private meetings in which he gave me a lot of encouragement. Me saying that from this Dispatch Box will have totally ruined his career, but he was very supportive and for that I am grateful. I thank him for the points he made, which are helpful. We will, of course, come back to all this on Report. I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

Payday Loans: Advertisements

Lord Mitchell Excerpts

Thursday 3rd April 2014 Lords Chamber

Asked by

[Lord Mitchell]

To ask Her Majesty’s Government what steps they are taking to reduce the number of payday loan advertisements watched by children.

[Lord Newby (LD)]

My Lords, payday loan adverts are subject to the Advertising Standards Authority’s strict rules. The ASA will not hesitate to ban irresponsible adverts. The Broadcast Committee of Advertising Practice is currently considering the issue of payday loan advertising on children’s TV and the potential implications for ASA regulation. The Financial Conduct Authority has introduced new requirements on payday lenders, including mandatory risk warnings and signposts on debt advice in adverts. It can ban misleading adverts that breach its rules.

[Lord Mitchell (Lab)]

I thank the Minister for the reply. Daytime television, my Lords, is deluged with advertisements for payday loans, many of them including fluffy puppets, catchy jingles and smiley people. Children see these advertisements and, not surprisingly, when family money is tight, they pester their parents to take out these loans. I intend to table a Private Member’s Bill to ban all advertising of high-cost, short-term loans until after the watershed. Will the Government support me?

[Lord Newby]

My Lords, I think it is right first to set out the scale of the problem. I am not doubting that there are issues, which is why the Broadcast Committee of Advertising Practice is looking explicitly at this matter. However, to set the issue in context, payday loan adverts in 2012 comprised 0.6% of TV ads seen by children aged four to 15, and, last year, all personal debt ads on children’s television amounted to 0.2% of total ad spend on children’s television. I am not saying that it is not an issue, but the number of ads being watched by children in this area is relatively modest—hardly more than one a week.

Payday Loans

Lord Mitchell Excerpts

Wednesday 11th December 2013 Lords Chamber

[Lord Newby]

Almost certainly too high, my Lords.

[Lord Mitchell (Lab)]

My Lords, in 2008, 12 million people viewed advertisements for payday lending companies. Last year, the total was 7.5 billion. Do the Government feel that the time has come for us to ban advertising for payday lending on television, particularly when it is directed at children?

[Lord Newby]

My Lords, the Advertising Standards Authority has been looking at a rising number of complaints about payday loan advertising on television. It has the power to ban misleading ads and already has done so in respect of ads placed, for example, by Cash Lady and FirstPayDayLoanUK. From April next year, the FCA will have the power to ban misleading financial promotions. It will be able to look at advertising and the whole way in which payday loans are promoted under that new power.

Financial Services (Banking Reform) Bill

Lord Mitchell Excerpts

Monday 9th December 2013 Lords Chamber

[Lord Higgins]

My Lords, I want to make two very brief points. The amendment refers to “charges” and to “high-cost credit”. However, the words “interest” or “the rate of interest” appear nowhere in the amendment. I would have thought that there was some case for explicitly including that in the Bill, because the use of the other, rather wider, expressions leaves too much scope for the situation to be fudged. I would be grateful if my noble friend would say something about that.

We have been talking very much about payday loans and their provision; but it has become apparent that a number of charges made overall by clearing banks sometimes can approach, if not exceed, the limits charged by payday loan providers. I would like my noble friend’s assurance that the organisation will take account of that also and, if necessary, deal with the problem of very high overall charges—particularly with regard to unauthorised overdraft charges, for example—made by clearing banks as well as by payday lenders.

[Lord Mitchell (Lab)]

My Lords, my head has been spinning in disbelief since the introduction of this Government’s amendments. Even two weeks ago the Prime Minister, the Chancellor and the Business Secretary were resolute in their opposition to any form of capping of interest rates offered by payday lending companies and other suppliers of short-term credit; yet here we are today, legislating for just such a cap. We are stating to the FCA that what was previously defined as a “may” now will become a “must”. That is a good outcome and I, for one, applaud the Government for this massive U-turn. It could not have been easy for them to eat their words, but politics is politics and if the heat has got too hot it is time to get out of the kitchen.

For nearly four years I have been working on a campaign to regulate payday lending. Of course, I knew about loan sharks and the terrible misery that they cause; but I had not really focused on the way this industry was developing. When I did, I was aghast. Here was a business that was enticing people into debt and playing on their vulnerabilities. Any way you cut it and any way you measure it, 6,000% interest is beyond morality and decency. I felt that it had to be regulated and that it was my duty to do so within this Parliament.

Last year we managed to persuade the Government to include an amendment to the Financial Services Act that gave the Financial Conduct Authority the power to regulate all aspects of payday lending and, in particular, to cap interest rates. We gave it the teeth, but sadly it did not bite. Indeed, it decided that it was not yet persuaded that these rates should be capped at all. One can only wonder: if 6,000% had not moved the FCA, would 10,000% or 100,000% do so?

A little-known fact is the extent of financial support that payday lending companies receive from the City. I have read that Barclays Bank lent Wonga over £250 million; when I investigated further I found that the number was very much higher. If you consider how much all the clearers and all the other financial institutions must be lending to the payday lending companies, the number must be many billions of pounds. The City purports to have washed its hands of this grubby sector, but in truth it participates by using payday lenders as surrogates.

I have this to say to Barclays and, in particular, to its chairman. If your mission really is to clear up the mess of the last 15 years, then please tell me: what is your bank doing, funding the payday lending industry? We have come a long way in these past four years and tonight will be a milestone. But we need to go further still. I address these comments to the FCA. Please ban all advertising for short-term loans targeted at children. It is bad enough that people have to borrow money from the payday lenders—but giving payday lenders carte blanche to use sophisticated advertising to encourage young children to persuade their parents to get into more debt has to be morally wrong.

Despite appearances to the contrary, I am not against the payday loan industry. We need it, it is essential and it must be successful, but we want an industry that offers loans at fair rates and does not extort. I think that this amendment achieves just that.

Economic Prosperity and Employment

Lord Mitchell Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Mitchell]

My Lords, first, I congratulate my noble friend Lord Haskel on securing this debate. After his recent illness, it is wonderful to see him back in his place, giving them hell as usual. The noble Lord is my mentor in your Lordships’ House. Whenever I need advice, and often when I do not, he has been there to guide me and give me the benefits of his huge experience and wisdom. I thank him most sincerely.

Noble Lords will recall the atmosphere this time last year as we eagerly awaited the opening of the Olympic Games. When the Hammersmith flyover needed major repairs, a whole group of people could hardly conceal their glee. Noble Lords might remember the people who said that it was going to be too expensive at £9 billion, the transport system would not work and the whole place would collapse. They said that it was going to be a national embarrassment, and many of them decided to get out of the country. They went to France or America or wherever, and was it not good to see that we proved them so wrong? Who today complains about the cost?

One reason why the Games were so special was the extraordinary success of Team GB, but this achievement did not happen by chance. That glorious summer of Olympic success was not achieved by a Government who retreated and let the athletes get on with it, nor was it done through government picking winners. The unpredictability of sport, as with business, would have made that a foolish gamble. Instead, it was sustained by an active government programme that provided practical support and funding to British athletes. We in business can learn a lot from this, too.

Britain needs a proper British investment bank with strong regional presence and a long-term focus. We are the only country in the G8 without a state-backed institution like this. Its absence has made it much harder to correct the collapse in small business finance after the banking crisis in 2008. We need an active industrial strategy that can help to remedy one of the chronic weaknesses in British business—a lack of investment and a lamentable achievement in productivity. From the 1970s onwards, investment has been lower in Britain than in most of its competitors. The fall in investment after the financial crash has been greater and longer lasting than for any comparable recession since 1973 or 1990. Without radical change, there is a danger that any economic recovery will be based upon a consumer take-up, rather than an investment surge. It will leave us extremely vulnerable to future economic shocks.

I have serious concerns about the Government’s progress on infrastructure investment. Of the 576 projects that have been announced by the Government, only seven have been completed; 80% have not even been started. I simply do not understand the Chancellor’s recent statement announcing so many infrastructure projects, all of which will be delayed until after the election. Why wait? Why dither? Just do it, and do it now.

I am particularly concerned that poor planning and implementation have hampered the delivery of super-fast broadband to many areas of the country, particularly rural areas. Despite all this, e-commerce in the UK is thriving. We have a higher share of our GDP in this area than any other developed nation. This is brilliant, but we cannot take our feet off the accelerator. I have been horrified by how many business-led reports I have read recently that seem to totally ignore the digital revolution taking place before our eyes. Sometimes I think that politicians think that they are digitally savvy just because they use Ocado or Amazon. In their mind’s eye, too many still seem to regard the digital revolution as a bit player in the wealth of the nation. As I have said before, if business people are not having sleepless nights over their potential exposure to the digital onslaught, their future will be bleak.

Here is the truth: the digital revolution is Schumpeter’s creative destruction writ large. Just look how traditional channels of distribution have been destroyed by the new media—music, movies, printed news, books and photography—and the companies that have gone to the wall, including Jessops, HMV and Blockbuster. There are many more to come. The sectors just about to fall to the advent of this tsunami of technology include banking, medicine and education. The changes in these sectors are particularly breathtaking. This new digital order represents a flat world where my competitor and the person challenging me for my job may well live halfway around the world, and our thinking needs to reflect it.

I take as an example HS2, which I must say I first enthusiastically supported but which I am now having second thoughts about. I do not think that we have factored in the technological changes that are upon us. I do not understand the logic of spending £40 billion and more just to enable people to get from Birmingham to London 23 minutes earlier or Manchester to London 50 minutes earlier for them then to be stuck in monster traffic jams on the Euston Road. I adore using the TGV in France, and I have been envious of that country’s achievements, but could it just have been a 20th-century phenomenon? Just for once, why do we not try and project what the world will look like in 20 years’ time, when HS2 is scheduled to be completed, and in doing so remember what the world looked like 20 years ago? Which of us could have predicted Skype? Who would have thought it would be possible to speak to one’s children in Australia holding a small device in one’s hand, to receive the transmission in high definition and perfect sound, and for there to be no delay in transmission? Who would have guessed it would also be free of charge?

Now let us project forward. In 2033, can we imagine a technology that could transmit a perfect hologram of a person halfway around the world sitting on a chair in front of us—a hologram where you are hard pushed to tell the reality from the image? If this and thousands of other technologies are bubbling away, who in their right mind would journey to a meeting starting early in the day and getting home late at night, no matter how fast the train will travel? That is why we need to project the technology forward in all these mega-expensive infrastructure decisions.

I was going to talk about my new role, which is no longer on the Front Bench, but I shall leave it because I have hit my time.

Queen’s Speech

Lord Mitchell Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Mitchell]

My Lords, in my reply to the gracious Speech, I will address two issues. The first is the special concern of small business growth, and the second the consequences and opportunities of the digital revolution.

Despite the fact that my job definition as Shadow Business Minister includes responsibility for SMEs, I have vowed to myself to refrain as best I can from using the expression SME. It is so engrained in our vocabulary, but it is such a misnomer. The fact is that small businesses and medium-sized businesses are not the same and should not be grouped together; their requirements are so different that combining them is an error. Those who do so, in my opinion, demonstrate that they have no understanding of the particular needs of each sector.

As I have mentioned on many occasions in your Lordships’ House, nearly 40 years of my business career were spent in the small business environment. Well, that is not quite true, because the three small businesses I founded each grew to become medium-sized international companies. But in the beginning each business started with a few of us sitting around a small table, or at the bar in a pub, where we said, “Wouldn’t it be a good idea if?”. It is very hard to convey what it is that motivates one to become an entrepreneur. When I think back, I sometimes think that I must have been crazy; the incidence of failure in start-up businesses is heavily stacked against the entrepreneur. What few people outside the entrepreneurial circle understand is just how stressful it all is. There is the perennial stress that the money might run out, that an important customer might go somewhere else, or that a key employee might be recruited elsewhere. You need the constitution of an ox. Put simply, it is not for everyone, but if you succeed it is truly wonderful.

When I created my companies I never thought about the rates of income tax, corporation tax or capital gains tax, and I certainly did not have the vaguest notion what inheritance tax was, nor did I care. Indeed, when I started my first business in 1972, I seem to recall that the top rate of income tax was 83%, plus unearned income tax of 15%—not what one might call an entrepreneurial incentive. To me it was all irrelevant. I wanted to be my own boss. I had worked for big companies, and I simply knew that I could do it better; it was the arrogance of youth. I loved the freedom, I loved building teams of well motivated and excited people, and I revelled in the joys of customer satisfaction. So when I hear politicians somehow thinking that a tweak here and an incentive there will suddenly turn us into an entrepreneurial society, I know that they have got it wrong. It is not how it works. Nothing illustrates this better than the shares-for-rights issue that we debated at length in the previous Session. No businessman would have dreamt up such lunacy as this.

What does matter is creating a climate where the entrepreneur feels comfortable—and for them, as for all business people, the one ingredient that gives comfort is confidence. Success in any field comes from confidence. Just see what happens to a football team when a great new manager arrives; the same players are revitalised. As the Minister will know better than anyone, we saw it in the Olympics. When people believe in themselves, they can move mountains. As it is with sport, so it is with business. Confidence comes from leadership, and leadership, of course, comes from the very top. When I look at the grim face of George Osborne, all I see is dour despondency. What he needs to do is to lighten up and provide strong, positive leadership. He needs to change the atmosphere, be upbeat and introduce a strategy for growth. He could have done it in the gracious Speech, but he chose not to.

Goldman Sachs, for which I know the Minister has a special attachment, has run an interesting study in business growth, and I would like to bring it to your Lordships’ attention. Several years ago, Goldman Sachs introduced a project called 10,000 Small Businesses, which is a target that it set for itself. In conjunction with five UK universities and based on its American experience, it set its goal to supercharge ambitious small businesses, seeking to generate small business growth that otherwise would not have happened. The results have been extraordinary.

Small businesses are the major source of job creation and also drive economic growth through innovation and market expansion. It is true that the overwhelming majority of small businesses do not grow and are static; they are important, but they do not produce economic growth. But there is a small percentage of small companies that are ambitious, growth hungry and well run. What the Goldman Sachs programme seeks to do is to locate such high-growth companies and propel them to achieve significantly greater returns. So what does Goldman Sachs do? It selects high-growth potential companies that have more than 10 employees and a turnover of just over £1 million and screens them carefully to determine their ambition and their management competence. Each CEO commits to undertake 100 hours of involvement over a four-month period. As Goldman Sachs puts it, they are companies that have dreams and talent which they wish to translate into advanced action. They learn about money and metrics, leadership, marketing, strategy, financing, and putting it all together. At the end, they produce a business growth plan—not so much a business plan, more a commitment to growth. The most exciting aspect of the programme is the dependence on peer-to-peer learning and engagement, which comes from the entrepreneurs themselves, from different backgrounds and different industries, sitting down together, challenging, querying and providing support from each other to each other.

The results are staggering. Employment growth is up 23% compared with 1% for small businesses as a whole, and there is revenue growth of 16% compared with minus 9% for the small business area as a whole. Equally impressive are the following qualitative statistics: 92% became more confident of their ability to grow their businesses; 83% introduced new internal processes; 81% used financial data to derive business decisions; and 84% had an understanding of external finance options that they did not have before. The programme has so far created around 2,000 new jobs. This type of programme is not exclusive to Goldman Sachs and variants are practised by others, but there is no denying that these are impressive results and an indicator that selecting high-growth small companies with big ambitions and helping them to accelerate their growth is an important way to stimulate the economy.

I cannot let the opportunity go by without welcoming the noble Baroness, Lady Lane-Fox of Soho. Her maiden speech was outstanding; for me, as an IT entrepreneur, it touched many key points. The noble Baroness is not in her place, but perhaps I can relate to fellow Members of the House of Lords how I first met her. I had to see her to do with a charity that I was involved in, and I was given an address in Soho. I went along this street and that street and, eventually, was standing outside what I would probably describe as a massage parlour. It was a tanning salon—noble Lords get my drift. I was pretty concerned about this, but I went in through the aforementioned massage parlour and into the noble Baroness’s office, where lots of exciting people were doing amazing things in the IT sector.

Soho has played a major part in my own life. As a misbegotten youth, I used to spend much time there going to jazz clubs and generally hanging around. But perhaps I should move swiftly on. When I met my wife, she was a film director working in Soho, and we had our wedding reception there. In a moment of complete madness I opened a mega-restaurant just off Dean Street, which failed dismally and cost me a fortune. I put it down to a learning experience. So one way or another, Soho is part of my life. My only regret is that, unlike the noble Baroness, I did not have the foresight to include Soho as part of my title.

To those of us in the IT sector, Martha Lane Fox, as she then was, is a legend. Lastminute.com was one of the triumphs of the dotcom boom and one of the survivors, as was I, when all around us collapsed. Indeed, the noble Baroness is a born survivor. No matter what slings and arrows have been flung her way, she just brushes herself off and gets on with it. She has been a champion for our industry and has helped government understand the challenges of the digital revolution. Through her chairmanship of Go On UK, she has sought to make Britain the most digitally skilled nation in the world. That is a tough challenge in that, as she said, 7 million people have never used the internet. I am delighted to have a fellow IT entrepreneur in your Lordships’ House and I look forward to working with her.

There is a digital train crash about to happen. In the past few months, we have seen some dramatic failures on our high streets. Jessops, HMV and Blockbuster video have all gone bust but not as a result of the financial crisis, the Government’s policies or the boom in out-of-town shopping centres. They have failed because they were unable to anticipate the tsunami of the digital revolution. Cameras are on their way out, music is streamed, DVDs are downloaded over the internet. This is just the beginning and we had better get used to it. The internet is changing everything. It is Schumpeter’s creative destruction being condensed into months rather than decades.

This digital revolution is exciting and challenging. It will continue to revolutionise our lives. We must not be afraid of it. We must grasp it and make sure that all our people are equipped to participate in its benefits. Most of all, we must make sure that no one is left behind.