Local Enterprise Partnerships

Debate between Lord Snape and Baroness Neville-Rolfe

Wednesday 11th February 2015 Lords Chamber

[Baroness Neville-Rolfe]

That is primarily a matter for the LEP, but we undertook a robust assessment of the strategic economic plan for each LEP in allocating the funding—both the £1 billion recently and the £6 billion last year. However, I am very pleased that the noble Baroness has brought this project to public attention, and that she will continue to discuss these claims with the local enterprise partnership. Like her, I live off the A303; the new road investment is changing the area, and the population is ageing. However, the decision on where these projects are focused is a matter for the LEP.

[Lord Snape (Lab)]

My Lords, would the Minister like to monitor LEPs countrywide and share my concern at the lack of women members of those organisations? Is she aware that only 15% of LEPs countrywide consist of women; that in Birmingham, for example, out of 18 members only three are women; and that out of 13 members of the Black Country LEP there are no women at all? Before she gets embroiled in too many specific projects, can she ask the organisation responsible for LEPs overall why there is such a deplorable lack of female representation?

Small Business, Enterprise and Employment Bill

Debate between Lord Snape and Baroness Neville-Rolfe

Wednesday 28th January 2015 Grand Committee

[Baroness Neville-Rolfe]

My Lords, I do not know whether it is appropriate for me to stand up before noble Lords start to talk about the amendments, but I am essentially, as noble Lords know, a practical person, keen to try to progress the Bill and to do the right thing with today’s business on pubs. I will respond to the point that has just been made on consultation and reassure the noble Lord, Lord Snape, that Jo Swinson, my friend in the other place, held a round table with pub companies and another with tenants, both for the same amount of time. Officials have also had discussions with people on both sides of the debate throughout, while always trying to be balanced and objective. Ministers, advisers and officials have also had several meetings with Greg Mulholland since Report in the Commons, although it would be fair to say that he is keen to keep his clause exactly as it is. So far, that has made progress a little difficult.

[Lord Snape]

I thought I heard the Minister say that she has not met Greg Mulholland. It is surprising that a Minister in charge of a Bill in your Lordships’ House has not got round to meeting the person responsible for a major amendment to that Bill, although she rightly paid him a compliment for the work that he has done. Is there any reason why she did not meet him?

--- Later in debate ---

[Baroness Neville-Rolfe]

I thank the noble Lord for raising that point. There is a link to the stocking requirement, which I shall come on to talk about, as he suggests. I am not suggesting that investment is the easiest thing to deal with, because we all want investment in this important industry.

Perhaps I can mention a couple of final points before I move on from investment. One is my noble friend Lord Younger’s point about cash flow, which is a good point. If a tied tenant expresses an interest in choosing MRO, the pub company can make the argument about the benefits of the tie—for example, in managing tenant cash flow. That freedom will still exist. At that point, the tenant can choose to remain in a tied agreement. I am grateful to the noble Lord, Lord Mendelsohn, for entering the fray on this issue and suggesting a way forward on the question of securing pub company investment in pubs. I am happy to look at that further.

Further, enabling tenants to forgo the MRO in exchange for a promise of investment may risk intimidation of a pub in difficulty. That will probably not occur often, but it was a concern that we considered in trying to balance these things.

I turn to Amendment 89AA. I believe that it is designed to help to define a significant price increase in relation to a price increase that would trigger an MRO. It is important to get that definition right. It needs to be fair to pub companies and tenants alike. That is why the Government propose to consult on the definition and set the detail out in secondary legislation. I confirm that reference to wholesale price lists will be used in our consultation proposals for that definition.

Amendments 89AB and 89AC amend the MRO trigger for circumstances outside the tenant’s control that affect trade. The noble Lords opposite wish to confirm that all four of the conditions set out in subsection (9) of the proposed new clause in government Amendment 89A must be met for this trigger to be engaged. I can confirm that the current drafting of the clause delivers this effect.

Amendment 89AD relates to the same change of circumstances trigger and proposes to replace,

“an impact on the level of trade”,

with,

“an impact on the level of profitability”,

as the measure for that trigger. We consider that a focus on the tenant’s ability to trade addresses the key issues that affect the fair balance of risk and reward between pub company and tenant. The government amendments ensure that where changes in local economic circumstances affect tenant income, the protection of the MRO trigger will apply. To focus instead on profit would bring in issues such as rates, energy prices, wages and salaries. These issues could further impact on the income of the tenant but there is likely to be minimal impact. The amendments also introduce more complexity in terms of definition and measurement of a significant impact.

I believe that through Amendment 89AE, the noble Lords opposite are seeking to confirm that on the sale of a pub the other triggers for MRO would still apply. Where the new owner of the pub is covered by the code, then this is the case. Where the pub company purchasing the pub is below the threshold, the tenant will not have the MRO option but will have the protection of the voluntary industry code. This is consistent with the Government’s acceptance of the will of the other place to remove family brewers from the scope of our measures.

Amendment 89AF would introduce a power for the Secretary of State to provide an MRO trigger on transfer of title or administration in two specific circumstances. The first is if avoidance of MRO was the “sole or significant” reason for transfer of title or administration. The second is where,

“fewer than 500 pubs … are part of a group or have similar ownership to other companies”,

which own more than 500. I will deal later with the detail of the Government’s reasons for removing the transfer of title and administration trigger, but first I will focus on the specifics of the Opposition’s amendment.

We think it is extremely unlikely that the serious step of administration would be used to avoid MRO. No company considers insolvency lightly. Where a company is in financial difficulty, it will seek professional advice from an insolvency practitioner. It may be advised to restructure the business, which could involve selling off some parts of it. However, entering administration to avoid MRO would not achieve the objectives of administration, which is to rescue the business. For this reason, an insolvency practitioner would not recommend administration. It is also hard to imagine that pub companies would sell off high numbers of pubs purely to take themselves outside the scope of MRO and the code. Most of the pub companies in scope have over 1,000 pubs, so that would be a drastic step. I reassure noble Lords that where a tied pub is sold to another company covered by the code, MRO protections would continue to apply.

The amendment tabled would also provide a power to bring companies with fewer than 500 pubs into the scope of the code where they were part of a group or had similar ownership to other companies that cumulatively own more than 500 pubs. We share the noble Lords’ concern about the potential for gaming—for example, through the break-up of a pub company to avoid the threshold—but I confirm again that the Government have provided this protection in Clause 69(2). I am afraid that we are not clear whether there are companies with fewer than 500 pubs that have similar ownership to companies with more than 500. Nor, if there were, is there evidence that they should be brought into scope with reference to a concept of similar ownership.

Amendment 80, tabled by my noble friend Lord Hodgson, seeks to remove two of the trigger points in the MRO clause so that tenants will not have the right to MRO if their pub is sold or the pub-owning company goes into administration. The Government’s amendments should address my noble friend’s concern. In the case of the transfer of title trigger, the Government consider that other, more proportionate protections exist for tenants when their pub is sold to another owner, as any new owner would be bound by the tenant’s existing contractual rights. If the sale makes little difference to the pub, there is no problem. If it makes a significant difference to the trading position, another MRO trigger is already available—the trigger for circumstances outside the tenant’s control. The inclusion of the transfer of title trigger would have the unintended consequence of making the sale of pubs as going concerns less appealing to potential buyers, leading to fewer pubs and fewer pub tenancies. For these reasons, the Government wish to remove this trigger from the Bill.

The Government’s amended clauses also remove the trigger when a pub-owning company goes into administration. During administration, the company in administration may continue to operate. Tenants will continue to have their existing obligations towards the company in administration, and the company will continue to have its existing obligations to the tenants, acting through the administrator. If any of the other triggers for MRO are met during this period, such as if the company brings in a significant price increase, the tenant will still have the right to MRO. The primary aim of administration is to rescue the company, and this preserves jobs as well as value. Giving all the pub-owning company’s tenants the right to MRO at this critical point would be likely to reduce the value of the pub company’s estate. Pub-owning companies below the threshold are unlikely to buy the company’s pubs if the tenant could opt for the MRO option during the course of the sale. This would reduce the chances of rescuing the pub-owning company and could ultimately push the company into liquidation. Clearly, this would not be in the interests of the tied tenants, employees and suppliers of the former business and the creditors.

I want to clear up something which was raised by the noble Lord, Lord Snape. He expressed concern that the Government are trying to deny existing tenants the right to MRO. This is not the case. We have merely sought to remove two of the triggers to avoid unintended consequences that are detrimental to tenants. I should be happy to discuss this further with the noble Lord, as we are in the same place on objectives.

[Lord Snape]

I thought that it was the wicked noble Lord, Lord Hodgson, who was seeking to deny tenants this particular protection, not the Government.

[Baroness Neville-Rolfe]

Perhaps I can move on to further amendments.

The market rent only amendment introduced in the other place made provision to allow brewers who own tied pubs to require any tied tenants of theirs who elect to exercise MRO to continue to sell the brewery’s products, so long as the tenant may buy them from any source. Amendment 91ZA, which I am bringing forward today, provides in Clause 65 that stocking requirements, which satisfy the conditions in that clause, do not constitute a tie, so they can be included in an MRO offer. Under such a stocking requirement brewers can require their pub tenants to sell their products, limited to beer and cider. This focuses the measures on what pub-owning companies tell us are the products that concern them. Under Amendment 91ZA, the tenant must be able to buy this beer or cider from any source and be able to sell beer and cider produced by other companies.

I thank my noble friend Lord Hodgson for Amendment 69. I agree that the MRO provisions largely remove the need for the parallel rent assessment. However, the MRO option is available only to tenants with an existing tied agreement with their pub-owning company. As prospective tied tenants do not have the right to an MRO offer, we intend to retain the protection of the parallel rent assessment for them. This means that prospective tenants may request a parallel rent assessment, following rent negotiations with their pub company, upon paying a fee of £200. Together with the transparency provisions of the Pubs Code, this will ensure that prospective tenants can make an informed decision on whether a particular tied deal is fair and right for them. We also intend that those tenants who have contracted out of the Landlord and Tenant Act will have the protection of the parallel rent assessment in any negotiations on a new lease at their existing pub. This is because those tenants do not have a right to renew their lease and so will not have the right to the MRO option when they negotiate a further deal. I agree that the parallel rent provisions are no longer required for existing tied tenants who now have the MRO option, and Amendments 69ZA and 69ZB, which I have tabled, would deliver this.

I apologise for the marathon, but when I said that the Government were committed to MRO I really meant it. The government amendments before us are designed to make it workable. Unless we amend the clause, we risk ending up with an Act that is so anomalous and open to legal challenge that no Government, whatever their make-up, would be able to implement it effectively. Surely this is not the outcome that noble Lords are seeking. I urge the Committee to accept these amendments so that we have a legally robust foundation on which to build the continuing discussions ahead of Report. In the spirit of the discussion, I ask the noble Lord, Lord Whitty, who has the first amendment, whether he is now content for us to move the government amendments.

--- Later in debate ---

[Lord Snape]

My Lords, I enter the debate with some trepidation after the way that it was introduced. I, too, will be very brief. I am grateful to the noble Lord, Lord Hodgson, for making my speech for me. He underlined the dangers of the amendment. Tenancies at will are where part of the problem lies. I go back to my daughter and son-in-law’s experience. They think that it must be wonderful to have a tenancy on a country pub with ivy round the door, great customers and all the rest of it. Of course, they will be treated very well by the pubcos. They will be looked after; their delivery will come on the proper day; lots of things will be done on their behalf. After a year, once they sign up, they will find out the reality of the situation. It is at that stage that many problems arise, despite the blandishments of the noble Lord, Lord Hodgson, so I hope that despite his honeyed words, the Minister will resist the temptation. I say to him: nice try but it will not wash, I am afraid.

[Baroness Neville-Rolfe]

My Lords, I thank my noble friend Lord Hodgson for his amendment on tenancies at will. I was very glad also to hear from the noble Lord, Lord Snape, given his great experience in the industry.

I agree with my noble friend that tenancy at will agreements are important in enabling pub companies to cover short-term gaps, to keep pubs trading in between tenants. They also allow the company time to complete due diligence on a new longer-term tenant. Temporary agreements can be useful to a prospective tenant as a trial run, prior to committing to a longer-term agreement. I have known ex-senior civil servants who have taken on pubs and found them quite a challenge.

In the other place, my honourable friend Jo Swinson committed to consider calls to exempt genuinely short-term agreements from the Pubs Code. These calls came from pub companies and some tenant groups. I can announce today that the Government will use the power in Clause 68 to exclude from the code tenancies at will and temporary agreements that do not extend beyond a certain limited period. This is to ensure that agreements that are meant to be temporary do not run on for long periods of time as a way of avoiding the code. This does not require an amendment to the Bill but, as part of the consultation on secondary legislation, we will consult on the length of agreements that should be exempted.

We have heard different views from stakeholders as to the length—including 12 months, as proposed by my noble friend—but we have also heard calls for six and nine months. Therefore, we will consult more widely on the length of any exemption period before bringing forward regulations. I hope my noble friend will feel able to withdraw his amendment.

Small Business, Enterprise and Employment Bill

Debate between Lord Snape and Baroness Neville-Rolfe

Tuesday 2nd December 2014 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)]

My Lords, I start by saying that I am delighted to see my noble friend Lady Harding of Winscombe and am much looking forward to her maiden speech.

Over 200 years ago, Napoleon said that the British were a nation of shopkeepers. He was nearly right. If he had expanded his vision slightly and said that Britain was a land of small businesses he would have been spot on. Small businesses have always been the lifeblood of our economy—and recently there has been some good news. At the start of 2014, there were a record 5.2 million small businesses in the UK, 7% more than at the start of 2013, representing the largest annual increase in the business population since the business population estimates began in 2000.

The coalition Government have led the way in their support for small business. Among the measures taken are the cut in corporation tax from 28% to 20% by 2015, the doubling of business rate relief for small firms and the doubling of the annual investment allowance. But we recognise that it is not sufficient just to offer help. People also need to be able to discover easily what help is available. We have therefore streamlined the support though the GREAT business website, giving a single point of access for advice. Similarly, we will bring together schemes for small firms into a single service, so they can access a wide range of support in one place, tailored to their needs.

The Bill before the House builds on the Government’s commitment and is designed to make the UK the best place in the world to start and grow a business. I will briefly tackle the content of this long Bill using five broad themes: making life easier for small business; improving the climate for business; improving company transparency to deliver on our 2013 G7 commitments; encouraging better employment practices; and—to pubs—helping beer drinkers and the publicans who serve them.

On my first theme, helping small businesses, one of the most daunting things for a small business is to start trading as a company. The Government propose to make the whole process easier by streamlining the company registration process, and the Bill requires this to be in place by May 2017. Especially since the economic downturn, another key challenge for businesses starting up or trying to grow is securing the finance that they need. The Bill promotes greater competition in the banking sector by opening up the market to alternative finance providers. Some 71% of small businesses approach only one finance provider when seeking finance. The Bill will require the big banks to share information on small businesses that they reject for finance with online platforms, when the small business would like them to do so. This will help them gain access to alternative finance providers.

Nine out of 10 small businesses still use paper cheques. The Bill will provide for electronic imaging via smartphones and other mobile devices, allowing cheques to be deposited remotely, thereby speeding up the process in the banks, in addition to—not, of course, separate from—more traditional methods. This will dramatically reduce clearing times, from up to six days at present to less than two, increasing convenience and providing net benefits of nearly £94 million a year.

Cash flow is particularly crucial for small businesses and is often the difference between success and failure. It is not right that small and medium-sized businesses are, according to figures published by the Experian payment performance index in July, owed nearly £40 billion in late payments. This affects 60% of UK small businesses, with the average small business waiting for over £38,000 in overdue payments. The Bill introduces measures that will give small businesses more information on what payment practices to expect from their customers. These changes will incentivise larger companies to improve their payment policies and practices. Business representative bodies, including the Federation of Small Businesses and the Confederation of British Industry, have welcomed this work.

We should not forget the public procurement market. It is worth £230 billion and is important to small business. Alongside other measures being brought forward through secondary legislation in the new year that will transpose the new European Union procurement directive into UK law, the Bill will further help small businesses to access public procurement opportunities. The measures will extend across the public sector, including local authorities and the NHS, and make an important change for small business.

My second theme is the business climate. This Government’s regulatory reform agenda has been at the heart of making the UK one of the best places in the world to do business. The World Bank’s Doing Business 2015 report ranked us eighth out of 189 economies—an improvement in our performance of two places on the previous year. Within the European Union we are behind only Denmark. We have reduced the annual cost of domestic regulation by over £1.5 billion since January 2011. For new regulations, our “one in, two out” policy seems at last to have led to something of a culture change in Whitehall. I have known and worked in Whitehall for nearly 40 years, in one form or another. The Bill will strengthen small businesses’ confidence in government by introducing a business impact target to be set at the beginning of each Parliament, which the Government will report transparently on. It will be used for the independent scrutiny of economic impact assessments related to this target.

Where regulation is essential, we know the regulators implementing it do not always enforce it properly; 63% of businesses have, at some point, disagreed with a regulator’s decision, but have never appealed. The Bill provides for small business appeals champions to be established in the non-economic regulators—ranging from the Environment Agency and the Health and Safety Executive to bodies such as the DVLA—to improve the handling of complaints and appeals and, most importantly, to ensure that the process works, particularly for small business. For the financial services sector, the existing independent Complaints Commissioner will be required to report annually on the regulator’s complaint-handling procedures.

There are 2.9 million home businesses in the UK and they are of growing importance to the economy, with an increase of 500,000 in their number since 2010. The Bill will amend the Landlord and Tenant Act 1954 to ensure that starting a business from home will not create a business tenancy, thereby encouraging further growth in this thriving sector.

The business community, along with all parents in employment, needs access to good-quality and flexible childcare. The Bill will make it easier for schools and other providers to offer more early education and childcare. The measures will promote a prosperous and growing market to meet the needs of working families.

The UK labour market is also dependent on having a properly skilled workforce to meet its demands. Until now, Governments have not done enough to track a person’s progress through their school life and into the labour market. The Bill will enable the effectiveness of education providers in preparing pupils for employment to be assessed. The additional data we will secure will be invaluable to young people and their parents, and will focus educators on employment outcomes, as well as performance tables.

My third theme is company law. As I have said, the UK is an outstanding place to start and grow a business. However, there is a clear link between illicit financial flows and company structures. Measures in the Bill will therefore help ensure that UK companies are not used to facilitate criminal activity, such as money laundering and tax evasion. The Bill will establish a register of “people with significant control” over each company, increasing transparency around who ultimately owns and controls UK companies. The Bill will abolish bearer shares, directly removing an easy means of facilitating illegal activity. This meets an important G7 commitment. At the same time, we are simplifying the current filing requirements for companies, removing duplication and improving the accuracy and integrity of our public companies register.

Unfortunately, a natural consequence of a competitive market is that sometimes some businesses become insolvent. The Bill makes a number of changes that strengthen and modernise our insolvency regime.

My fourth theme is encouraging better employment practices. Part 11 of the Bill deals with these matters. We should not forget that this Government have secured great achievements in job creation. There are now more than 30 million people in employment, which is a record high. Since 2010, an additional 2.1 million private sector jobs have been created. Within these totals, small businesses employ an estimated 12.1 million people. Therefore, for small businesses to succeed we must ensure that those employed are treated fairly and that businesses playing by the rules are not disadvantaged by those which do not.

The Bill will provide assurances to people who step forward and whistleblow that action will be taken. Last year, a report by the University of Greenwich and Public Concern at Work found that 75% of whistleblowers believe that nothing was done about the wrongdoing they reported. The Bill will require regulators or professional bodies dealing with whistleblowing to publish an annual public report.

The Bill will also improve confidence in the ability of the employment tribunal system to deliver justice by incentivising payment of awards and addressing the current position that there are no significant consequences for non-payment. The Bill will also reduce the delays in the tribunals process caused by frequent postponements, addressing the costs to business that often arise from these delays.

The Government are committed to ensuring that employers are penalised if they fail to pay the national minimum wage to their workers. On 7 March this year we increased the penalty percentage from 50% of total underpayments owed to workers to 100% and the maximum penalty from £5,000 to £20,000. The Bill goes further: it sets the maximum penalty to apply on a per-worker rather than per-notice basis.

Finally on employment, I know that there are strong views in this House on zero-hours contracts. Used correctly, I believe that such contracts support business flexibility and they are often welcomed by those employed on them. Recent research carried out by the Chartered Institute of Personnel and Development suggests workers on zero-hours contracts are more content than their counterparts in permanent employment. However, we want to make sure that these contracts are not abused and we recognise that exclusivity clauses sometimes included in zero-hours contracts are wrong, as they prevent people seeking work elsewhere. This is not in line with free-market or any other type of economics. I am pleased that the Bill addresses the problem by making such clauses invalid.

Finally, I turn to the subject of pubs. In my immediate family there are five adult males and me. That fact has many important consequences, one of which is that the majority view of the family is very much in favour of pubs. The pub industry makes a significant contribution to the UK economy. It is made up of many small businesses run by hard-working people and employs hundreds of thousands of people. While it is an industry which has suffered due to societal change, it contributes substantially to community spirit and cohesion, and it is one that we want to see grow and flourish.

The Bill will address the imbalance in bargaining power between pub-owning companies and their tied tenants to ensure that the latter are treated fairly and are no worse off than they would be if they were free of tie. For the first time, tied tenants will have a statutory code that they can rely on, based on the industry’s own voluntary code. It will be enforced by an independent adjudicator, who will have real sanctions at his or her disposal.

Noble Lords will be aware that this issue has a long history. Over the course of a decade there have been four Select Committee investigations into unfairness in the relationship between pub-owning businesses and their tenants. The Government have received, and continue to receive, a huge amount of correspondence from tenants about problems in their relationship with their pub-owning business. Research by the Campaign for Real Ale appears to show that 57% of tenants tied to large pub companies earn less than £10,000 per year, compared with just 25% of tenants who are free of tie.

Industry self-regulation has brought a number of improvements, and there is evidence that there is much responsible practice in this industry, yet some tied tenants continue to face unfair treatment and hardship. The Government gave self-regulation ample opportunity to succeed but the truth is that it has not delivered.

Noble Lords will know that there was much lively debate on this subject in the other place. Members there voted against the Government to include in the Bill a market rent only option. This provision requires large pub-owning companies to offer their tied tenants the right to go free of tie in certain circumstances. The Government resisted this proposal partly on the basis that it could have unintended consequences for the sector. However, we recognise that a majority of Members in the other place believe strongly that pub-owning companies need the threat of tenants going free of tie before they will offer their tenants a fair tied deal. The elected Chamber has spoken by voting this into the Bill and the Government have listened.

On that basis, I can confirm today that the Government intend to accept in principle the introduction of a market rent only option. Our focus now will be on making this option workable to ensure that tied tenants are no worse off than free-of-tie tenants and to minimise the risks of unintended consequences, such as job losses.

[Lord Snape (Lab)]

I wonder whether the Minister will allow me to intervene. I am sure that the House will recognise how far the Government have moved on this and will welcome that movement. However, can she assure us that any future discussions will involve representatives of the tenants and will not be dominated by the pubcos?

[Baroness Neville-Rolfe]

My Lords, I can assure the noble Lord that we are always discussing these issues and changes with tenants—that is extremely important when you are making changes of any kind—and, indeed, they have helped us to get to the position that we are now in. I thank the noble Lord for raising the point.

As I bring my opening remarks to their conclusion, I would like to take this opportunity to put on the record my thanks to the right honourable Member for West Suffolk and the Member for East Dunbartonshire, both of whom steered this Bill so successfully through the sometimes choppy waters in the other place, ensuring its safe and timely arrival in this House. I know that they will be continuing their keen interest as we move through the stages in this House. This Bill is important because it provides a number of significant benefits for small businesses, and they constitute a vital part of the economic framework of our nation. I commend it to the House and I beg to move.