Small Business, Enterprise and Employment Bill

Debate between Lord Mitchell and Baroness Neville-Rolfe

Tuesday 3rd March 2015 Lords Chamber

[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.

Small Business, Enterprise and Employment Bill

Debate between Lord Mitchell and Baroness Neville-Rolfe

Monday 26th January 2015 Grand Committee

[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.

--- Later in debate ---

[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

Debate between Lord Mitchell and Baroness Neville-Rolfe

Monday 19th January 2015 Grand Committee

[Lord Mitchell]

My Lords, I rise to speak to Amendment 37, to which I have put my name. I pay tribute to my noble friend Lord Watson of Invergowrie for the work he has done in this area and for that very clear exposition of the relevant issues. He has made the important points, so I shall try not to repeat what he said.

Amendment 37 would give the Secretary of State power to make regulations ensuring that the PSC register is current and accurate. My noble friend Lord Watson explained the importance of that, but I shall echo his arguments. It is vital that the register be up to date if it is to do the job we expect of it and shine a light on some of the murkier examples of using anonymous shell companies to obscure the true ownership of an asset. I believe the Government see the register as providing something of a snapshot of the beneficial owners of a company, but in this day and age where technology has made instant communication the norm, rather than the exception, there is no reason why the PSC should not be kept up to date.

In this context, it is worth considering the evidence put before the Committee in the other place by the Institute of Directors, which said that the PSC,

“will be updated once a year and a fair number of people said in our consultations, ‘It’s going to be out of date within minutes of being published.’”—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 14/10/14; col. 19]

In your Lordships’ House there is an obligation on each of us to maintain our register of interests, which is not allowed to be more than one month out of date. Why should companies have an annual requirement? It simply does not make sense in this electronic age. In their response to the consultation, the Government said that they will continue to work through the principle that information will be provided to the central registry to ensure that there are no loopholes or unintended consequences. My concern is that this could be a loophole, so I would like the Minister to address it.

My second point is about accountability. As my noble friend Lord Watson said, this amendment requires the Secretary of State to ensure that the right regulations are in place so that what is on the PSC register is accurate and complete. Parliament will be able to scrutinise these regulations to check that they are capable of delivering an accurate register.

I shall pick up a remaining point from the debate about this group, and I hope the Minister will be able to put our minds at rest. Too little progress has been made in encouraging Overseas Territories and Crown dependencies to have public registers. If we return to the original Lough Erne agreement, it is clear that making progress on this issue is an integral part of fulfilling its spirit. I hope the Minister can update us on whether the Government will consider making such registers obligatory.

[Baroness Neville-Rolfe]

My Lords, I share the sentiment expressed by the noble Lord, Lord Mitchell, about the contribution that the noble Lord, Lord Watson, has made to this debate. I thank other noble Lords for this group of amendments which are in the spirit of ensuring that the register is effective and informative, which is what we all want. I hope I have understood noble Lords’ various concerns correctly.

I fully support the objectives expressed. We must have a single source of easily accessible information on the individuals who exercise significant control over our companies. However, reform has to be proportionate. It should not come at the cost of imposing unnecessary burdens on business. We have heard very persuasively, particularly from the Government Benches, how important this is. As I will explain with concrete figures, some of these amendments would impose additional costs which I am not sure we could justify because I am not convinced that there would be corresponding additional benefits. I shall explain that.

The noble Lord, Lord Watson, asked about when the outcome of our consultation on corporate directors will be known. We will try to write to the noble Lord before Report with the key findings.

On Amendment 37, the Government agree that information in the PSC register must be accurate, but I do not think we need an extra regulation-making power to ensure that that is the case. I am confident that the existing measures we have in place, and those we will introduce through the Bill, can already deliver noble Lords’ intentions. These measures include: criminal penalties for the provision of false information; public scrutiny of the information; and multiple checks pre and post registration at Companies House. To give just one example, in 2013-14, 9 million submissions underwent multiple checks by Companies House, resulting in nearly 400,000 being rejected. If we were to go further—for example, by requiring companies to use third parties to verify data before their annual filings at Companies House—our provisional estimates for the first year would be in the region of £400 million to over £1 billion, with a further cost of £300 million to £900 million per year thereafter. It is potentially a big bill.

--- Later in debate ---

[Baroness Neville-Rolfe]

I thank my noble friends for their amendments and for the wide-ranging debate. It is good that the noble Baroness, Lady Wheatcroft, and the noble Lord, Lord Borwick, added their voices to the Committee’s discussions, which I found very interesting and illuminating. Of course, the common thread in this group is that of access to information in the PSC register, albeit from very different perspectives.

I start by responding on a couple of general points. The noble Lord, Lord Watson, asked about the response to our discussion paper on PSC rights. Last week, I laid a Statement before the House setting out how we will take the policies and discussion paper forward. We intend to publish draft regulations this summer. This sort of consultation, which we have applied throughout the Bill, helps to limit unintended consequences. The noble Lord also asked why a person needs to tell the company how they are using the information. This is essential to ensure that data are used for a proper purpose. It is important to remember that the full date of birth will be publicly available from the company, even though this will not usually be on the public register at Companies House, and we do not want people passing these data on to fraudsters or identity thieves, for example.

There was also a question about the inspection provisions. Concern was expressed that the PSC register would not necessarily be available for use by journalists and NGOs. Any person may inspect the PSC register for a proper purpose. The purpose of the PSC register is to provide transparency of company ownership and control, so a person may inspect the register in the interests of finding out that information, including in the context of journalism, for example. Someone working with a journalist could pass on the information, provided that they had stated the purpose. I agree with my noble friend Lady Wheatcroft that, once things are made public, they are public, but I think that we will reflect on the debate that we have had this afternoon on this point.

My noble friend Lord Flight said that he felt that the protection regime needed extending and that the current proposals were too limited. We are building on the existing directors’ protection regime, which we believe works well—that is, the current one for companies, to which there have been a number of references and of which I have had experience in my company life. It has improved over the years and generally works well. However, as I set out last week, we are considering whether we need to extend it further. The ultimate objective is transparency, so purely commercial reasons, for example, would not be valid.

I now turn to the amendments, starting with Amendment 37D. The noble Lord clearly appreciates the need for the Secretary of State to be able to grant exemptions from the PSC register in genuinely exceptional circumstances. The amendment provides some examples of such circumstances, such as in relation to national security, with which I agree. In these rare cases it would be damaging to require the fact of that exemption to be publicly stated. This could cause people to try to obtain the information in question by other means, which is not what we would want.

Turning to Amendment 44, I know that the noble Lord will want to ensure that civil society is able to obtain PSC information. As my honourable friend Jo Swinson made clear during Committee in the other place, these provisions will not prevent them doing so. The Bill already allows companies to apply to the court to refuse inspection when information is not sought for a proper purpose. This provision will help to prevent misuse of information in the register by fraudsters and those who simply wish to send people junk mail—whoever they are. If the company’s application were upheld by the court, access to the information would be denied.

In Amendments 44A to 44H and 44J, my noble friend Lord Flight obviously comes to the group from a different perspective, seeking to severely restrict the ability of people to inspect a company’s PSC register. I recognise the concerns raised around allowing public access to this information, including the points that my noble friend mentioned—notably the impact on UK competitiveness and personal privacy. However, I remind him that the Government consulted on the question of public access to PSC information and acted on the basis of the responses that we received. I do not think we will be able to agree to an entirely different approach today. It is not our policy to respond to any lobby but to make real and important changes to tackle the criminal use of UK companies, which is a significant problem, made worse in the international digital world. We want to lead in this area, as the Prime Minister has made clear. I hope that the sketch made by my noble friend Lord Leigh proves to be wrong.

Again on privacy, we have carefully considered the impact that this policy has on the privacy of individuals through the conduct of a full privacy impact assessment. That document has been published and is on the GOV.UK website. The assessments indicated that the proposed measures are necessary and proportionate. In reflecting further, it is important that we also revisit that assessment. We firmly believe that a central, public register is the most appropriate option for the UK, and allowing people to access the company’s own PSC register is an important part of that. I will not repeat what I said in opening today, but increased trust is good for business. Making sure that the UK maintains its reputation as a clean and reliable place to do business and invest is very important. We have taken clear steps to protect personal information wherever appropriate.

On effectiveness, which my noble friend Lord Flight raised, we are looking closely at how Companies House and law enforcement agencies can work together to enforce the regime. The criminal sanctions and public nature of the register will also help to deter criminal activity.

On the issue of compliance costs, a final stage impact assessment estimates a net cost to business per year of £97.5 million, which over 10 years is around £1 billion. Those costs are spread over a population of 3 million companies. Of course, some small businesses are not companies and are not covered by this particular provision. In addition, for companies with simple ownership structures that already know their PSCs—that is, the vast majority of companies—the costs will be minimal. For example, the final impact assessment found that there would be a cost of £10 to small, simple companies in updating beneficial ownership information annually, and a cost of £10 in providing information to a central register annually.

On Amendments 47 and 47A, I would have serious concerns about allowing third parties to ask the registrar of companies to review a person’s right to protection. It is important to remember that applications will only be granted in very limited circumstances, for example when someone is placed at serious risk of violence or intimidation as a result of a company’s activities. On that basis, I do not think it would ever be in the public interest to override that decision.

I hope that I have responded to the key questions raised. I have said that we are happy to reflect on the detail of the debate on Amendment 44. I am not sure what the conclusion of that will be, but I listened to what was said today. I hope my noble friend and noble Lords are reassured by this discussion and will agree to withdraw or not move their amendments.

[Lord Mitchell]

I thank the Minister for her reply. In general, we are reassured. Many things have been discussed today and we will all go away and reflect before Report. There was one moment when the noble Lord opposite mentioned Huntingdon Life Sciences, which made my spine run cold. There was an occasion when a private company in which I was involved, of which I guess I was the PSC, was dealing with Huntingdon. We were leasing computers to it and the animal rights brigade suddenly parked outside my house. That lasted for only a day or two, but it was quite unnerving. However, that is by the by. I thank the Minister for what she said and I beg leave to withdraw the amendment.

Small Business, Enterprise and Employment Bill

Debate between Lord Mitchell and Baroness Neville-Rolfe

Wednesday 7th January 2015 Grand Committee

[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.