Small Business, Enterprise and Employment Bill

Debate between Lord O'Neill of Clackmannan and Baroness Donaghy

Wednesday 7th January 2015 Grand Committee

[Lord O’Neill of Clackmannan]

I support the amendment and my noble friend. In 2002, I was the chair of a Select Committee that looked at retentions. At the time, it achieved a degree of notoriety in so far as, once the six weeks had elapsed, we got a letter from the department—I should say from the Minister, even though he was a member of the Government of my own party—but frankly it was not worth the paper it was written on. It was the most feeble response on this issue. Therefore, perhaps uncharacteristically, I am not here today to make party points, because my lot were as bad as the other lot. However, the fact was that the civil servants were somewhat uncomfortable when we took them word by word through their communication. Eventually, with them having a second bite at the cherry, we got a rather better ministerial response.

Given the glacial speed at which this matter has been dealt with by the respective Governments, it was not a surprise but a matter of some satisfaction that in 2014 we had the question of retentions being dealt with included in the fair payment charter. Both sides have already spoken today about culture change but 23 years to secure a culture change on a matter as fundamental as payment seems to be a rather relaxed, laid-back approach to this issue. While there is always more rejoicing in heaven when one sinner repenteth—and there seem to be a number of sinners repenting on this issue at the moment—the fact is that the bus to Damascus is taking a lot longer to arrive than it should.

Therefore, I encourage the Minister to look afresh at the dates. The payment charter was important and a significant advance but I do not think that we should rest on our laurels in this respect. A number of businesses are short-changed as a matter of course because of retentions and it is indefensible that the public sector should be part of that. On the other hand, it is almost inevitable because 40% of all construction work in the United Kingdom is paid for by the state in one way or another, whether by local government, the health service or those authorised to do so by other people. There is even a fair amount of work carried out at the behest of regulatory bodies which, although independent of the state, are nevertheless instruments of the state in one way or another.

We should not underestimate the significant contribution that could be made by a Government prepared to increase the pace of change here. While the advance that has been made in the past two or three years in terms of payment generally is to be applauded, this most pernicious form of payment retention cannot be justified. It has been said that this is a means of regulating bad practice, but it is a most unsatisfactory one. There was a time when the supply chain was a somewhat feisty, disagreeable means of doing business, where there was quite considerable ill feeling between relative tiers of that chain. That is no longer the case but a significant minority of businesses is still prepared to hold on to money that legitimately should be given to people who have fulfilled their work.

We could go into anecdotal evidence of this kind of practice. For example, the people who prepare the foundations for a building project are very often still waiting to get paid because the car park turf has not yet been laid. They have long departed the site and finished their work but are still waiting because the project is not completed. That kind of sharp practice should not occur in an efficient economy or decent society. I would like to think that the Minister had a bit of scope here, could take this amendment away and, if it is not quite to her needs, do something more with it. If I were to individually ask the Members of this Committee whether they agree with this practice, think it contributes to the efficiency of the British economy or even think it is fair, they would probably answer that “No” is the only answer. It is not fair and it does not promote economic efficiency. It enhances distrust between sectors of an industry where this Government and their predecessors, through the appointment of a chief adviser on construction and the like, have been trying to bring the parties together to get them to have a concerted approach—that is, the management, unions and various sectors of the industry. As long as we have this kind of practice, we will not have the trust that lies at the heart of an industry that can do so much but sometimes falls at the first hurdle. The first hurdle of any business is payment, as we have said already today.

[Baroness Donaghy (Lab)]

My Lords, I support my noble friends in this amendment. My experience is really only in the construction industry but there may be issues that are general to other areas where there are a large number of subcontractors. In construction, the retention system—if we can call it that—is about 100 years old, but in practice it is positively medieval. It is holding back money owed for work that has been done and completed. There seems to be little or no recourse because, if a subcontractor tries to take on the principal contractor in public through the legal system, they suddenly find that the work dries up.

I know for a fact someone who is owed £1 million by a principal contractor. After several months and being told that the accounting system had changed—a very common thing to be told—he was then informed that if he paid £50,000 up front, he would get his money. I know another company with a turnover of £45 million that wrote in last November: it has retention outstanding of £762,000. In some cases, as my noble friend Lord O’Neill said, people have to wait for so long for areas that are completely extraneous to their own work, and wait for years until—sometimes—the main contractor has gone out of business and they do not get their money. This encourages a bullying culture: a clamping down from the top so that undercapitalised principal contractors squeeze the next layer down.

That has implications—which is where I come in, if you like—for the way that building workers are treated. They are the ones who, in the end, have to pay for all of this. We as taxpayers have to pay, of course, for failed companies and lost hope and opportunities, but building workers are paying for a system that really ought to be reformed. This proposal is long overdue. Germany manages without such a system, as does Japan. We do not need this system, rather we need a fair system where money goes into a bank on trust and is paid out automatically on the satisfactory completion of a particular tranche of work. That is not a lot to ask for. The noble Baroness opposite talked about culture change, and I agree that that is extremely important. But the only way in which that is going to be done is by making some of these pernicious practices illegal.