Financial Services and Markets Bill

Lord Stevenson of Balmacara Excerpts

Committee stage
Wednesday 25th January 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support all the amendments in this group introduced by my noble friend Lady Noakes, to many of which I have added my name. I do not need to repeat the arguments so powerfully put by my noble friend. Clause 8 amends FSMA 2000 through new Section 71K to create a designated activities regime, which allows certain activities related to financial markets to be regulated within a framework that is separate to the existing FSMA regime for authorised persons, while still being compatible with a comprehensive FSMA model. The intended purpose of the designated activities regime seems to be to enable the Government to perpetuate the various retained EU law regimes without adequate parliamentary scrutiny, particularly given earlier comments on the inadequate way in which we scrutinise SIs.

New Schedule 6B is an indicative list of designated activities. This regime may at first be used to replace the retained EU law being revoked under the Bill, but there is no apparent limitation to the Treasury extending it in future to new or different activities. The designated activities regime is almost completely unconstrained in scope and effect. As such, it could be used to ban all kinds of products and classes of provider, and/or to establish parallel licensing requirements for particular activities, for both authorised and unregulated firms. The Explanatory Notes to the Bill state:

“Initially, the government expects most designated activities to be activities which are currently regulated through retained EU law”,


suggesting that new designated activities may be introduced.

The market will be keen to ensure a level playing field for regulated activities among FCA-authorised, dual-authorised and unregulated firms. Can my noble friend the Minister confirm that FSMA 2000’s new Section 71N means that rule-making in relation to designated activities will be the sole competency of the FCA? Currently, the PRA and the Bank of England share regulatory responsibility with the FCA for a number of technical standards relating to the entering into of OTC derivatives, for instance. Additionally, if the requirements are set out in the FCA handbook for authorised firms and in separate instruments for unauthorised firms, there may be a risk of divergence and inconsistency.

I have tabled Amendment 35 as a probing amendment, on removing the admission of securities to listing on a stock exchange from the lists of designated activities. First, I would question whether listing should be a regulated activity at all, because many listings happen without an issue of new shares or other securities and may, for example, be undertaken by companies wishing to show that they are good corporate citizens that want their corporate information to be available to the public in the same way it is for other listed companies. This was certainly a major consideration when many major Japanese companies such as Toshiba, Fujitsu and Honda listed their shares on the London Stock Exchange in the 1980s and 1990s. They subsequently undertook capital-raising exercises involving the issuance of securities, but those were separate exercises. I see no reason why unregulated firms may not act as sponsors for stock exchange listings, and therefore would question why the arrangement of listings should be a regulated activity.

Do the Government intend as a matter of urgency to act on the recommendations in the listings review undertaken by my noble friend Lord Hill of Oareford? Does the Treasury intend to undertake a fundamental review of the prospectus regime, as recommended by the review? Does my noble friend agree with the recommendation that prospectus requirements should be changed so that, in future, admission to a regulated market and offers to the public are treated separately? Could she tell the Committee whether she thinks that the empowerment of the FCA through the designated activities regime will make stock exchange listings more expensive and cumbersome than they have become during the past 14 years, or less? In that time, as my noble friend Lord Hill pointed out, the number of companies listed on the London Stock Exchange has declined by 40%. I look forward to hearing the Minister’s comments.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I shall speak to Amendment 32 in name, which is part of this group, although it points in a slightly different direction from the speeches we have just heard. I declare an interest, as I was chair of StepChange, the debt charity, in the period 2010 to 2014, although I have no current connection with it.

This is a probing amendment aimed at ensuring that a particularly egregious form of high-cost credit, log-book loans, issued under the bills of sale legislation dating from Victorian times, is afforded the customer protection measures rightly offered to consumers who use other forms of credit. In that sense, it needs an extension of the power discussed in this clause. To be clear, I would much prefer it if the Bills of Sales Acts of 1878 and 1882, and their related legislation, could be repealed. One way or another, I hope that some speedy action can be taken to resolve this issue. Such efforts appear to have stalled, despite a lot of work nearly a decade ago by the Treasury and the Law Commission.

Over the past few years, the Government and the FCA have been largely successful at clearing up the high-cost credit market. It is true that they had to be pushed to get started, and many noble Lords present may recall this House playing a significant part in focusing attention on payday loans, for example. But there are still issues to be addressed. The consumer duty is also a valuable step forward, and I hope that it will be a great success. At the same time, the introduction of statutory backing for the debt respite—the breathing-space regulations—and the forthcoming statutory debt repayment plan will offer immediate and effective help to the many hundreds of thousands of people who face unmanageable debts each year. The Government have done well in this area, and I commend them.

However, the current credit squeeze and cost of living crisis are going to exacerbate this situation. Indeed, if past history is a guide, logbook loans may well become as prevalent as they were in in 2014, when 52,000 bills of sale were registered in one year at the High Court. As I said, logbook loans are issued under bills of sale, which are governed by two Victorian statutes that I have already mentioned: the Bills of Sale Act 1878 had immediately to be amended, so there is also the Bills of Sale Act (1878) Amendment Act 1882. Basically, they allow individuals to use goods they already own as security for loans while retaining possession of the goods. This legislation is archaic and, in the words of the Law Commission,

“wholly unsuited to the 21st century.”

It went on to say that

“it causes detriment to all those who use it, including logbook lenders, logbook borrowers, business borrowers and third party purchasers.”

Nobody, it seems, has a good word to say for them.

This is all set out in a substantial Law Commission Report commissioned by HM Treasury in 2016. In that report, the Law Commission went on to point out the following. Most people who take out logbook loans are borrowers who already have difficulty in securing other forms of credit. Its research revealed that the term is usually six months to three years, while the interest rates ranged from 60% to 443% APR but were usually in the range of 120% to 187%—high-cost credit indeed.

There are complaints that some lenders use the threat of repossession of the goods to demand unreasonable and unaffordable extra payments, even when the loan is substantially repaid—something which is not permitted in, for example, hire purchase agreements. However, logbook loans lie outwith modern consumer protection legislation. It is true that the Financial Ombudsman Service may provide redress after the event, but the FOS is not able to prevent repossessions. There is no protection afforded to private purchasers who buy goods subject to a bill of sale, even if they act in good faith. Those who buy a second-hand car without knowing it is subject to a car-book loan face an unpalatable choice: pay off somebody else’s loan or lose the car.

The 1882 bills of sale legislation requires all bills of sale to be completed on a complex standard form and registered with the High Court, which uses a paper-based record system. Failure to comply with any of the documentation requirements carries substantial sanctions, not least being that the lender loses any rights over the goods or money owed to them. Those sanctions clearly would be out of scope if current consumer protection standards applied, but—

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[Lord Stevenson of Balmacara (Lab)]

As usual, I have forgotten where I was in my perorations, so the Committee might get a few words that it has heard already, which can be ignored. I think I was talking about the requirement in the 1882 legislation that all bills of sale have to be completed on a particularly complex standard form, and then registered with the High Court, which, of course, uses a paper-based record system. The sanctions for failing to comply with any of its documental requirements would be out of scope if current consumer protections applied, and lenders are understandably loath to amend them.

It costs about £45 to register a bill of sale with the High Court, and another £50 to search it. That does not happen very often, because you cannot search by vehicle registration number or any other useful form; it is just a simple list of all the registered cases.

I think most people would agree that the Law Commission makes the case very well for the repeal of the Victorian bills of sale legislation. What is so disappointing about all this is that, originally, the Treasury seemed to share that view. In a Ministerial Statement in February 2017, the Government accepted

“the overarching thrust of the recommendations”,—[Official Report, Commons, 7/2/17; col. 6WS.]

albeit warning that they would not proceed until they had further reflected on some of them. The reflection took the form of a limited consultation with stakeholders, which received 25 responses, after which the Treasury decided not to take forward the draft Law Commission Bill. The principal reason given was that several of the 25 respondents felt that some of the consumer protection proposals in the draft Bill prepared by the Law Commission did not go far enough. It is almost difficult to believe that.

That remains the position. I have tried to keep the pressure on: I took over the Law Commission Bill as a Private Member’s Bill. I got 10th place in the ballot one year, but then lost the Bill because of a snap election called by, I think, Mrs May—I forget now who was Prime Minister. However, I have had meetings; in 2019 I was kindly joined by the noble Lord, Lord Young of Cookham, and the then Economic Secretary to the Treasury, John Glen, but to no avail. In his last letter to me, he accepted that there was consumer detriment taking place but, as numbers of logbook loans were falling, he said he believed

“that the rationale of the Government’s decision not to proceed with legislative reform in this area still stands”.

John Glen is now promoted and in the Cabinet, and I am where I am. However, I respectfully disagreed with him then and still do today. Only a few months ago, I was written to out of the blue—they must have got my name from the news about the Bill when it was first introduced—by people who had been scammed, aided by logbook loan legislation. An elderly couple had put all their hard-earned savings into a motor home, which they wanted to use for their retirement. Just when they had completed the purchase and the renovations, spending almost as much again as they had on buying the vehicle, they discovered that it had mysteriously acquired an outstanding logbook loan, and they lost the vehicle and their capital. This is the sort of thing that happens.

I look forward to the Minister’s response today, and I remain willing to attend further meetings if she thinks that might help move this issue forward. I know from discussions with StepChange that consumer detriment is still happening in this area. I agree with the FCA, which I spoke to earlier in the week, that the credit squeeze, inflation and the energy cost crisis is going to make the return of logbook loans—and, indeed, many other forms of high-cost credit—as inevitable as it is undesirable. If accepted, my amendment would give the FCA the tools it needs to assist the many people affected by this egregious legislation—albeit I still believe that the right solution is for the Government to commit now to repeal the Victorian legislation as soon as reasonably practicable.

[Lord Naseby (Con)]

My Lords, I am not going to repeat what my noble friends Lady Noakes and Lord Trenchard have said, but I certainly think that His Majesty’s Government—I am a very loyal member of the governing party—need to recognise that this is a once-in-a-lifetime opportunity in this Bill. Therefore, for me, the driving force should be to ensure that in doing what we are doing—I accept that it is important to mention designated activities—we should be driven by the need for growth for our economy, good competition and innovation. Those things are so key to the future of this country, the City and the whole of the financial services area that we need to be a little bit careful. I think that my noble friend Lady Noakes’ proposal is a perfectly valid one. The Government can have another look at it, but I do not think that it is necessary.

Budget Statement

Lord Stevenson of Balmacara Excerpts

Wednesday 25th March 2015 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, with some notable exceptions, including the last speaker, this has been quite a good debate. There is no question but that the prizes for economic literacy lie on this side of the House, although notable exceptions might be made for the noble Lord, Lord Skidelsky, who, as usual, put his finger exactly on the button and made a number of points which I am sure had the Minister squirming in his seat. At least they bloomin’ well ought to have done—I did not see much squirming, but I hope he will read the remarks in Hansard.

The advantages of being the last Back-Bench speaker are often not recorded. Several noble Lords at the end of this debate have said that they did not like the fact that they were among the last, but I quite like it. For one thing, what you say is usually ringing in the ears of those who have to wind up, so you will get some response to what you have said. Secondly, if like me you are the sort of person who deals with the fag-end, if you like, of the political spectrum, you can often get in without having all your remarks previously made. I will speak about the arts and the importance they have in the economy—your Lordships may not like that, but I am going to do it anyway, because it needs to be said. The remarks by my noble friend Lady Thornton on disability and women were also refreshing and very apposite to the debate.

Like many other Members of your Lordships’ House, I was present at the moving memorial ceremony for the late Dickie Attenborough—Lord Attenborough—who died last year. As part of the ceremony, his brother David read an extract from his maiden speech, given in November 1994, which I would like to quote. He said:

“From the very earliest of times the arts have been an instinctive essential of our humanity … The arts not only enrich our lives but grant us the opportunity to challenge accepted practices and assumptions … The arts are not a luxury. They are as crucial to our well-being, to our very existence, as eating and breathing … The arts are not a perquisite of the privileged few; nor are they the playground of the intelligentsia. The arts are for everyone—and failure to include everyone diminishes us all”.—[Official Report, 22/11/94; cols. 178-81.]

As my right honourable friend the leader of the Opposition observed in his excellent speech after the Budget last week, a glaring omission from the Budget Statement was public spending. Why, he asked, was there,

“no mention of investment in our national health service and our vital public services”?—[Official Report, Commons, 18/3/15; col. 780.]

I am sure that he meant public services including arts, culture and sport, which I will mention later.

The figures are there to be seen in the Red Book. Page 69 shows what is planned in the next Parliament, particularly for 2015 to 2018. There are as many cuts in departmental spending in this period as there have been over the last five years, and what is striking is that the pace intensifies in the early part of the next Parliament.

In its Budget commentary, the Office for Budget Responsibility says that achieving the Government’s plans,

“depends heavily on cuts in public spending—particularly on public services and administration”,

in,

“the first two years of the Government’s medium-term spending policy assumption”.

That represents a,

“3.6 per cent of GDP (or £65 billion in today’s terms) cut in day-to-day spending on public services and administration”.

The OBR’s briefing note says:

“The real cut in public services spending … is … much more severe than anything we have seen to date”.

It comments:

“It is important to emphasise that this profile arises from what the Government itself describes as a ‘fiscal assumption’ and not from firm and detailed departmental plans”.

You might ask why there are no plans—it is very surprising to find at the end of the Parliament that there are no plans set out for the next few years. According to the OBR, these assumptions,

“will form the baseline for whichever party or parties are in government after the election and have to carry out the next spending review. This profile for implied public services spending may have ticked a number of boxes for this Budget, but it will not have made that task any easier”.

According to the Red Book, the Budget implies real cuts in departmental allocations, which I make to be 5.5%, 5.25% and then 2.3% over the first three years. I would be grateful if the noble Lord could confirm that those are the figures and I have read them correctly. I make that total £65 billion in round terms. However, given that certain departments are protected, there is going to be a differential impact on departments such as the DCMS, which is what I want to speak about. Again, the figures are not there in the Red Book, but I reckon that will be 30% over three years, which is almost exactly the same as the cut made in that department over the last five years. Given that the DCMS has a current baseline figure of about £1.2 billion, that suggests that a body such as Arts Council England, for instance, will face a cut of some £85 million in that three-year period, which is roughly 10% of its grant. That of course is on top of cuts already imposed in this Parliament of about 30%.

Like my late noble friend Lord Attenborough, I believe that the arts are important for the economy as well as the country more generally. At a time when people ask where the jobs of the future are going to come from and how we are going to pay our way in the world, we should be in no doubt that the arts and creative industries are the important sector that we must be supporting, because it will provide the jobs, the growth and the support for the economy.

Of course, this country excels in the arts and culture in all their forms. We produce some of the greatest creativity on the planet. Whether it is music, fashion, film, theatre, broadcasting, design, art, libraries or museums, our cultural creativity is admired, envied and consumed right around the world. The creative economy already accounts for more than 2.5 million jobs and contributes more than £70 billion a year to the UK’s economy and £15.5 billion of exports. The creative industries are growing faster than any other sector.

However, the artistic and creative success which is so evident today did not come out of the blue. It is built on years of public support and investment—investment which nurtured the creative talent of people from all walks of life, in all parts of the country, because arts and culture thrive on the widest pool of talent. For our economic success in this sector to continue to grow in the future, it needs a widening, not a narrowing, talent pool. These cuts will destroy this growth.

Let us take, for example, the decline in arts provision in our schools. The fact is that since this Government came to power there has been a marked reduction in the participation of our children in the arts. The Government’s own report Taking Part spells it out. For primary schoolchildren, participation in arts activities is down by a third: music down from 55% to 36%; theatre and drama down from 49% to 33%; dance down from 45% to 29%; and visits to heritage sites have almost completely declined.

Your Lordships’ House will recall the debates on the much vaunted EBacc, which the arts community fought so valiantly against because it sent a damaging signal to schools that they could, with impunity, downgrade the arts they already provided. So now the number of children sitting arts GCSEs is declining. Since the election, music is down 9%, drama down 13% and film—my topic—is excluded from the curriculum altogether. Incidentally, the Government have also cut teacher training places in arts education by 35%, so the numbers of specialist arts teachers have fallen. This makes no sense in terms of the arts and our creative industries but it makes no sense at all in wider cultural terms either.

Britain is for some reason blessed with brilliant creative talent, dynamic artistic cities, vibrant festivals and one of the world’s most iconic cultural institutions—the BBC—but what we do not have from the current Government is substantial, strategic, visionary leadership in this sector, an arts policy fit for the 21st century which ensures art and culture for all, or the investment, particularly for young people. As Lord Attenborough said in 1994:

“The arts are for everyone—and failure to include everyone diminishes us all”.—[Official Report, 22/11/94; col. 181.]

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[Lord Deighton]

I thank noble Lords for an excellent and wide-ranging debate. When I first did a Budget debate, the discussion was all about whether growth would ever return. Today, we are discussing whether having the fastest-growing economy in the world, creating 2 million jobs and having zero inflation is a good thing or not. I will drill a little more into the detail on that.

I had thought that we were talking about this Budget but we have also had an interesting discussion because the party opposite has wanted to wallow in whether it was responsible for the financial crisis, which is an open goal that I can scarcely resist. I think everybody agrees that the recession was caused by the financial crisis, starting off in the American mortgage system. However, as my noble friend Lord Northbrook said, the rate at which public spending had expanded by the time we got to the financial crisis left this economy more exposed than it should have been. This was a problem for all recent Governments, who left us too exposed to the financial sector.

The other point, which is not often raised, is that we clearly had very poor financial regulation in the financial crisis. That exacerbated the problems with the banks. I am afraid that the previous Government were the architects of a highly flawed regulatory system, which failed to detect many of the problems. While I am not saying that they are completely guilty, I am saying that there are some very serious cases to answer.

[Lord Stevenson of Balmacara]

I appeal to the noble Lord to move on in this debate because we are going to get nowhere with it. The regulation he is talking about was of course fully endorsed by his party. It was absolutely thrust on us but with pressure on all sides to do it. He cannot evade or duck the responsibility in this. This was something that happened outside the UK. It was brought into the UK and we did our best about it. We have already heard my noble friend Lord Layard and others explain how we managed to get the economy back on track. I think that it would be worth moving on.

[Lord Deighton]

I am very happy to move on. I did not really bring it up. I was just expanding my perspective on a topic that many noble Lords opposite had rehearsed.

With that incentive, I shall move on to living standards. I think everybody accepts that the financial crisis has created an extraordinarily difficult period. As I said in my opening remarks, it affects people at the bottom end of the income spectrum, people with other difficulties to cope with, more than anybody else. The noble Baronesses, Lady Thornton and Lady Smith, were eloquent on some of those issues.

Small Business, Enterprise and Employment Bill

Lord Stevenson of Balmacara Excerpts

Tuesday 17th March 2015 Lords Chamber

[Baroness Neville-Rolfe]

My Lords, the amendments in this group make a number of consequential and technical changes to the Bill. I turn first to Amendments 4, 6, 12 and 13. In Committee, the Government moved a number of technical amendments about the penalties in the Bill. The majority of those related to the penalties in Parts 7 and 8. At the time, it was unclear whether changes to the fines available to magistrates in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 would be implemented during this Parliament. This was because the regulations needed to accompany commencement were yet to be debated in both Houses of Parliament and a number of the amendments were designed to ensure that the penalties worked in either event. As noble Lords may be aware, Section 85 of LASPO came into force on 12 March. As a result, there is no longer an upper limit on fines in the magistrates’ courts. My amendments therefore remove the changes we made in relation to these fines, as they are no longer necessary.

I now turn to Amendments 14 to 16. Noble Lords will be aware that the Deregulation Bill has recently been read in this House for a third time, and yesterday this House considered and agreed amendments made to it in the other place. These technical amendments are therefore required so that the Schedule 9 amendments are based on the text of the Insolvency Act after amendment by the Deregulation Bill.

Finally, I turn to Amendments 7 to 9. Our penalty measure in Clause 150 provides for full and prompt payment of employment tribunal awards. This will reassure claimants that, should they be successful at a tribunal, they will receive the money that they are owed. Clause 150(5) already amends the Employment Tribunals Act 1996 to provide that the affirmative procedure applies to regulations made under the new provisions. However, it does not also remove them from the category of instruments that are subject to negative procedure. Amendments 7 to 9 correct this.

I hope noble Lords will welcome these various amendments and give them the House’s support.

[Lord Stevenson of Balmacara (Lab)]

My Lords, it says in the Companion very clearly that Third Readings are mainly used for tidying up complicated parts of Bills that perhaps have eluded the draftsman or indeed are subject to a change in other places. The descriptions as made by the Minister clearly fulfil all aspects of that and we have no wish to enter into them.

I must say that I was slightly confused by the insertion and then removal and then the reinsertion but in a different way of the Legal Aid, Sentencing and Punishment of Offenders Act provision. However, the Minister has explained the reason for that in a private meeting and we are very happy with the provisions now.

Amendment 4 agreed.

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[Lord Deben (Con)]

My Lords, I thank my noble friend very much for this concession. I entirely agree with her that nobody in this House thought that the Government were not going to do this. We understood that there was no malice aforethought in any sense at all, but it is surprising how people can make malice if they can find a way of doing it, and many people were suggesting that, in some way, the Government were taking control over this independent body, which would be unacceptable internationally. That is why we made the point, and I, for one, am very pleased that the Government have accepted it. I thank my noble friend for the courteous way in which she has dealt with this and, indeed, the detailed answer that she has given us.

[Lord Stevenson of Balmacara]

My Lords, this is a strange moment because exactly the same arguments and debates—indeed the same personnel—debated much the same amendment in the Deregulation Bill, as the Minister has explained. The result on that occasion was that the EHRC was not excluded from the Deregulation Bill. In a sense, the points made by the noble Lord, Lord Deben, are entirely correct. I think that we as a House are convinced that the Government do not wish any ill on the EHRC and wish to see its “A” status preserved. We have excluded it from this Bill—which had a small but important adjunct of policy which bit on the EHRC—but we have not excluded it from the Deregulation Bill, which covers a much larger area. Obviously the Minister has skills way beyond those with which she came into this House—and there were many when she arrived. She has gained in strength and capacity. She has been able to do the impossible in going round the magic circle of Cabinet committees in a record-breaking time and I congratulate her on this amendment.

Amendment 5 agreed.

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[Lord Newby (LD)]

My Lords, Amendments 10 and 11 relate to the public sector exit payment provisions and deliver the commitment I made on Report to make these powers subject to the affirmative procedure on their first use. This was in light of a further report by the Delegated Powers and Regulatory Reform Committee and we are grateful for the committee’s scrutiny of the Bill.

This first use will be the substantive one to establish the exit payment recovery regime. The regulations will contain full details of the government subsectors, the types of exit payments included, the circumstances in which recovery is mandated and the amount to be recovered. They will also set out the duties upon the persons and employers involved to retain and communicate information and facilitate the repayment.

Amendment 11 allows for changes to this first set of regulations to be made by the negative resolution procedure. These subsequent regulations will contain the minor and technical changes which will be aimed solely at ensuring that the regime remains up to date and fit for purpose. For example, changes will be required to reflect any new public body that is created or closed. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, this is very much a technical issue. The amendment responds to the recommendations by the DPRR Committee and satisfies in full that committee’s concerns. When the Minister introduced the amendment just a few seconds ago, he did not refer to the supplementary memorandum by BIS which was circulated recently by the committee relating to whether or not the Delegated Powers and Regulatory Reform Committee had in some way impinged on the powers of the Scottish Parliament on this matter. Can he add a few words just to make sure that the record is clear on that?

[Lord Newby]

I am afraid I will have to write to the noble Lord.

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[Lord Stevenson of Balmacara]

My Lords, perhaps I may take this opportunity to thank the Minister for the way in which she has led this long and incredibly complex Bill over the past few months. She has been exemplary in offering meetings and has made sure that we have been fully briefed by officials, for which we are very grateful. Whenever debates have raised issues that she felt needed further consideration, she has written to us, thus carrying on a practice started by her predecessor; while he was pretty good at it, she has been exemplary and has won hands down in that race.

We said at the beginning of the Bill that we would like to work closely with her if we could because the Bill was in the right place in what it was trying to achieve and there were many things on which we could agree. Indeed, we felt that in some senses it could have gone further. I hope the Minister agrees that that has proved to be of considerable benefit to the process of getting the Bill to the position it is in now.

I want to make sure that recognition is duly paid to my team, my noble friends Lord Mendelsohn, Lord Mitchell, Lord Young, Lady Hayter and Lady Jones, who have all had to appear at various times during the passage of the Bill because it covered so many different aspects of the Government’s work. We also had the innovation of having a Back-Bench liaison Peer, my noble friend Lord Watson of Invergowrie. As well as taking a particular interest in the PSC register, he also worked very hard to make sure that Back-Benchers were fully involved. That helped to stimulate the debates and get us through the work. We have also benefited from a very hard-working legislative assistant, Nicola Jayawickreme, our former apprentice in our office at the end of the corridor, who has grown in stature and confidence as this legislation has progressed. So apprenticeships do work.

Having spent a lot of time in areas that perhaps we did not expect to when the Bill was first introduced, and having become expert in the intricacies of how pub companies and pub tenancies work and the implications of various activities in that area, as well as lots more, let us say “Cheers” to this Bill as we wish it on its way.

[Lord Stoneham of Droxford (LD)]

My Lords, I endorse the words of the noble Lord, Lord Stevenson, by thanking the noble Baroness, Lady Neville-Rolfe, for her unfailing courtesy and competence throughout the transaction of the Bill. I also thank the noble Lords, Lord Mendelsohn and Lord Stevenson, for their efforts to improve the Bill and to work with all of us who have been engaged on it over the past few weeks. I thank my noble friend Lady Janke, who has been assisting me on these Benches. I particularly thank all the officials who have dealt with our replies and the detail of queries that we have had on the Bill throughout the past few weeks.

Money Advice Service

Lord Stevenson of Balmacara Excerpts

Thursday 12th March 2015 Lords Chamber

Asked by

[Lord Stevenson of Balmacara]

To ask Her Majesty’s Government what action they will take to implement the report on the Money Advice Service undertaken by Christine Farnish.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank those who have signed up to speak in this debate. We may be few in number but I know that this will be a high-quality debate. I declare my interest as the retiring chair of the charity StepChange and as a commissioner on the Financial Inclusion Commission, which reported yesterday. I commend its report as a much needed opportunity for all parties to refocus on the issue of financial inclusion, which is an egregious block on too many of our citizens fully participating in society.

When I applied for this QSD some considerable time ago, I was reasonably confident that the Farnish report would have been published by now. However, it is a case of being in “Hamlet” without the prince, or perhaps one of these dark Nordic noir detective stories— while I do not watch them, I do have the jersey. Where is the Farnish review? Can the Minister tell us what is happening and whether this Government will, in fact, ever publish the report? As I am sure he is aware, there have been rumours of many prospective publication dates, each of which has subsequently passed without action. Indeed, the Minister himself told me last week that it would definitely be available for this debate. All this is very surprising, given that it is supposed to be an independent report, and we know that the Government received the report before the end of 2014, in line with the published terms of reference. So why the delay?

Given the role that the MAS has until now assumed for itself, this delay is bad for the sectors with which it interacts such as the free debt advice sector. As I hope the Government realise, it is particularly bad for the board and staff of the Money Advice Service itself. Why should well meaning, hard-working and committed people endure prolonged uncertainty over the future of their organisation and their jobs? It is already evident that the organisation is thoroughly demoralised and in danger of haemorrhaging staff. This is not a good situation and it must be resolved in short order. The hold-up has already delayed publication of the MAS’s business plan for the financial year 2015-16, which starts in about three weeks’ time, and the next steps on its UK financial capability strategy. This can be in nobody’s interest.

It is worth recalling that the review was prompted by the Treasury Select Committee in the other place. Its report has been included in the Library’s helpful briefing note for this debate. In publishing its report of December 2013, it said:

“The Money Advice Service is not currently fit for purpose. It is far from clear that it has adopted the right strategy or even that it is performing its correct role. In finalising this report, the Committee considered carefully whether to recommend that the MAS be scrapped completely … The review must assess whether the MAS should continue to exist and, if so, how it can overcome the serious problems laid bare in this report. Its findings should be available for scrutiny by the Treasury Committee and others by the summer of 2014. Only then can a credible, informed decision on the future of the MAS be made”.

The committee set quite a high hurdle. Presumably the committee may also have views on the delay that has occurred since that report.

I assume that in the real world what will happen is that, after the Budget, the Treasury will formally respond to the Treasury Select Committee report, basing its comments on the Farnish review and submissions from the MAS, FCA and perhaps others, and that is when we will see the report. I would be grateful if the Minister could confirm this. Whatever happens, there is now little time left in this Parliament for the Treasury Select Committee to give proper consideration to this issue and we may have to accept that it will drag into the next Parliament. This does not seem appropriate.

Turning to the review itself, I have high hopes for the report. I hope that Christine Farnish, who is well respected in the sector, has not been constrained about answering the fundamental questions raised by the Treasury Select Committee about the very existence of the Money Advice Service. If she recommends that MAS should survive, I hope that she will set out clearly what its role should be in both the money and debt advice spaces.

In my view, for what it is worth, I can see a place for the retention of a slimmed-down Money Advice Service but only if its role changes. It should not set out to do what others are doing better. As I have consistently argued in this House, it should complement but not duplicate the work of charities and not-for-profit agencies which work so effectively in providing debt solutions and money advice. Secondly, MAS cannot and should not be a quasi-regulatory body, as only one body can do that—the Financial Conduct Authority, which is already having a significant impact on this sector. No group can be expected to operate to two regulators and that would not be sustainable. Albeit in a slimmed-down form, MAS could be given a new role—perhaps a strategic functionality focusing on creating and influencing financial services policy and as a consumer champion, complementing and supporting the excellent work already done by the FCA’s consumer panel.

In the rest of my contribution I simply wish to set out what all of us in this sector should do to develop a new policy on problem debt. We need to recognise that personal debt has a macroeconomic impact. Recent research carried out by StepChange has shown that problem debt imposes significant costs on our economy —it estimates about £8.3 billion per annum—most of which comes from job loss and low productivity from people struggling with their debts. It also includes the costs of rehousing people, mental health costs, the costs of relationship breakdown and other matters. These are real and effective drags on the proper work that could be done to grow the economy and restore it to full health. Action needs to be taken.

We also need to do more than just recognise the problem. Savings are a recurrent issue with people who have problem debt. New research that my charity carried out recently showed that about 500,000 households would have been able to avoid problem debt if they had had £1,000 saved. Low-income households, in particular, would see their chances of falling into debt reduced if they could put aside rainy-day savings. Low-income families are not saving because the incentives contained in the main savings policies are not relevant to them, based as they are on tax relief. They do not mean much if you do not pay much or any tax. It is also hard for people with tight incomes to make positive choices to save when they have more immediate concerns, such as putting food on the table.

We need to improve credit products available to low-income families so that they do not rely on high-cost forms of credit such as payday loans. People need to be able to spread the costs of high-cost items such as boilers, fridges and school uniforms, and they need products that are not going to hurt them. There is a real problem developing in the rent-to-buy market, an issue touched on in recent debates in this House. We need to think harder about what will provide the low-interest forms of borrowing that are necessary to avoid that.

People with unmanageable debt are not feckless, and need support if they are going to seek advice and commit to working out a resolution of their problems. My charity is calling for statutory protection against interest, charges, collection charges and enforcement action when people get structured help to repay their debts. This approach is modelled on the excellent Scottish system, the debt arrangement scheme, which is an obvious, low-cost, high-impact solution that gives people control, rewards responsibility, saves creditors the cost of pursuit and collection and gets them a predictable rate of repayment.

Fourthly, we need to ensure that insolvency solutions are fit for purpose. The consumer credit market has changed dramatically in the almost 30 years since the principal parts of our insolvency system were introduced. As the credit market has changed, so too has the nature of problem debt in the UK and the profile of people who find themselves in difficulty. However, our insolvency options have been updated only in piecemeal ways, leaving gaps in protection and coverage, prohibitive fees and a lack of flexibility around changing circumstances.

Finally, debt advice is underfunded across the UK. There are probably around 3 million people who need it, barely half of whom are getting it. We think that there is a need to go back and make an ambitious but realistic call on all businesses that create problem debt but currently do not make fair contributions. Debt advice on its own is not enough. We need to ensure that those who have decided to seek debt advice are quickly and efficiently offered solutions that will get them into a situation in which they can pay off their debts and be allowed to rebuild their relationship with credit. Ideally—it is something that we aim to do—that process should educate them so that they can manage their finances better in future.

The Farnish report is an important step in the progress we need to make on reshaping the money advice and debt solutions that should be available as we move forward in the 21st century. I have tried to outline some thoughts about what should happen next but, of course, one essential first step might be to have a proper debate about the report, when it is eventually published. “Hamlet” without a prince is not much of a play, and one could not even put on one’s jersey to watch a noir thriller with no plot resolution. I cast the noble Lord, Lord Newby, in a key role in this small masque and look forward to hearing how the story will end.

Small Business, Enterprise and Employment Bill

Lord Stevenson of Balmacara Excerpts

Wednesday 11th March 2015 Lords Chamber

[Lord Flight (Con)]

My Lords, I thank the Minister for listening to the various concerns in this territory and for the government amendments. I am aware that the insolvency industry is comfortable with the legislation as it now stands. It understandably has the view that it hopes creditor meetings will not disappear as they can be extremely useful. However, a most satisfactory compromise has been achieved, for which I thank the Minister.

[Lord Stevenson of Balmacara (Lab)]

My Lords, as the Minister said, in Committee we were concerned that, rather than increase creditor engagement, the original clauses in the Bill would reduce it. We reported that the Federation of Small Businesses believed that the proposal would be detrimental, the British Property Federation had concerns and that R3, to which the Minister referred, wanted the Government to think again about the issues.

We take the view that creditor engagement is a core part of a strong, transparent, fair and trusted insolvency regime. Indeed, we have such a regime in our country. Creditor meetings are an essential part of that and build trust and confidence in that regime. Although the clauses also included proposals on virtual meetings—we are not against that—we wondered whether it was a bit previous to suggest that they might entirely replace face-to-face meetings. I am delighted that the Government have listened to the arguments from all around the House and have agreed to come forward with these amendments, which we support. The noble Lord, Lord Flight, has been assiduous in his attendance and has pressed amendments without number. There were so many, it was hard to keep track of them. I think that only one has landed, but I am glad it is this one on no-win no-fee conditions, which will make a big difference. I am grateful to him for his support for this.

Amendment 57B agreed.

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[Lord Stevenson of Balmacara]

I am sorry to interrupt. I just want the Minister to clarify something. She said that our support for her amendment was at a late stage. I point out that that is not the case. We saw the amendment at noon one day and I signed up to it as soon as it appeared. It was certainly not at a late stage. We are very supportive of what she is doing. Our problem is that she is not doing it in nearly enough other cases. Her case that more evidence is required really does not stack up.

[Baroness Neville-Rolfe]

I am sorry if I caused confusion. What I was saying is that this is a relatively late stage in this Bill and that what we have done is taken steps to bring forward some of the actions that follow from the Francis review. Noble Lords opposite have been extremely helpful about supporting that and supporting it instantly. I am very glad to have been able to end that confusion.

Small Business, Enterprise and Employment Bill

Lord Stevenson of Balmacara Excerpts

Tuesday 3rd March 2015 Lords Chamber

Moved by

[Lord Stevenson of Balmacara]

5: After Clause 3, insert the following new Clause—
“Payment practices: retention of monies
(1) The Secretary of State may by regulations impose requirements on certain companies to publish information about their policies, practices and performance in holding, safeguarding and releasing sums withheld by, or on behalf of, a payer from monies which would otherwise be due under a contract, the effect of which would provide the payer with security for the current and future performance by the payee of any or all of the payee’s obligations under the contract (“retention monies”).
(2) The regulations under subsection (1) may prescribe—
(a) the companies or type of companies to which the regulations apply;(b) the information required to be published;(c) the intervals at which, and format and manner in which, publication must take place; and(d) the type of description of contractual provision to which the regulations apply.(3) The restrictions on regulations in section 3(3) shall apply to regulations made under subsection (1) of this section.
(4) The Secretary of State shall arrange a review of the operation of the type of contractual provisions mentioned in subsection (1) after a period of 18 months following the coming into force of the first regulations made under subsection (1), and shall lay a copy of the report of the review before each House of Parliament.
(5) The review provided for under subsection (4) may make recommendations for requirements and obligations to be imposed upon certain types or descriptions of companies in relation to the practice of retaining monies as described in subsection (1).
(6) After public consultation, the Secretary of State may by regulations impose such requirements and obligations on prescribed companies as were recommended by the review, in whole or in part and with such amendments as the Secretary of State believes to be required in order to—
(a) ensure that the practice of withholding retention monies does not give rise to unfair treatment of payees;(b) provide assurance that retention monies are held securely; and(c) ensure that the position of a payee company from whom retention monies are being withheld is protected when a payer company becomes insolvent.”

[Lord Stevenson of Balmacara (Lab)]

My Lords, Amendment 5 is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a practising solicitor who deals with construction contracts. When we raised this issue in Committee I made the following points. Recent research shows that about £3 billion is outstanding within the construction industry, and only in that industry, by way of cash retentions; that the practice unfairly enhances the working capital of the party deducting them; and that most of those who retained moneys openly accepted that they added cash retentions to their working capital or actually reinvested them. The effect is that bodies that are commissioning work are also in effect borrowing from the small firms that are carrying out the work. This is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.

The key issue is that cash retentions are being deducted from payments already earned. However, there is no statutory protection for the retained moneys that will ensure that they will in fact be available for release if, in the event, there are no uncompleted remedial works that need to be done. There is a good case for any retention funds to be kept separate from working capital, perhaps within an escrow account—as is now used for government contracts—or a separate trust account.

When the Minister responded to the debate, as well as outlining the new but still rather patchy approach to payments being adopted by the Government, she agreed that there were a number of issues of concern with the payment culture in the construction industry. But she said that the current statutory framework governing contractual terms on payment—which was introduced in 2011—with a prohibition on “pay-when-paid” clauses and a right to adjudication, would be sufficient to see out this unfortunate practice. She added that since 2014, the Government have been working with the industry to implement a payment charter that contains 11 commitments, including one specifically aimed at removing the need for retentions, with the intention of moving by 2025 to a position where retentions are no longer necessary.

The noble Baroness pointed out that the powers being taken in the Bill would be sufficient to gather the information needed for a review of current policy, and I take that point. But she was a little unconvincing about why it will take 10 years to gather the information about this issue, even if there were a need to go wider than just the construction industry. If this amendment is accepted, it would have far-reaching benefits for small businesses throughout the construction industry. They would not have to wait another 10 years before this practice is outlawed—but even if they did have to wait that long there is surely a case, which I have outlined above, for action now to require the use of escrow accounts for this type of payment. I beg to move.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord for this amendment and for providing the opportunity for us to look again at the important matter of retention payments. Following Committee we have been busy. We have consulted with stakeholders on payment terms, and it is clear that the practice of retentions is an issue, as we suspected, largely confined to the construction sector. As with other payment issues in construction, issues with retentions go to the heart of the industry’s business models. These models are driven by a broad and diverse range of customers—and, of course, there is an extensive reliance on subcontracting. The work is project based and frequently short term, with no ongoing relationships. Typically, low levels of capitalisation mean that the industry is heavily reliant on cash flow.

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Finally, the amendment would require government to take a power to introduce regulations. The Government’s work with the Construction Leadership Council will provide the evidence base for any action needed. Before that review has taken place, and given the lack of a clear consensus in the industry and among its customer base, the Government do not believe it appropriate to take such a power at this stage. We are taking a number of steps which will address the key issues at the heart of this amendment—and, on that basis, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Stevenson of Balmacara]

I am very grateful to the Minister for that response. I agree with her that the issue is the business model in play in the construction industry. It is almost certain that the conclusion that will come out of the review that she is talking about is the one that we have been talking about—that there will need to be a new model for how the industry deals with the problem of how it contracts for and pays for the work that has been undertaken on construction contracts. That cannot happen too soon, because there are a lot of issues that need to be picked up in that regard.

I was very glad to hear of the work that has already been started. It is a good way forward—and, of course, there is an advantage in having a sector group responsible for construction that is well embedded in the department. That should, I would have thought, bring forward some of the issues that she has mentioned.

It is rare for the Opposition to offer the Government a chance to get their hands on an unmoderated handle of power, which they might use on some unspecified future date, because we generally take the view that that is not a good thing to do. We did that in this amendment, but it has been turned down and spurned. I simply regret that—but I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

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[Lord Newby (LD)]

My Lords, Amendments 7 to 19 and 84 make two technical but essential changes to the cheque-clearing provisions relating, first, to consistency in the treatment of cheque and non-cheque paper instruments and, secondly, to the continuation of current statutory protections for the paying customer.

Amendments 7 to 9 and 19 are designed to ensure that non-cheque instruments, such as warrants and travellers’ cheques, are treated in the same way as traditional paper cheques under the new provisions for electronic presentment. Under the new legislation for cheque imaging, as currently drafted, it would be possible for corporate customers and other large non-bank customers to make arrangements to submit cheque images directly to the central switch that clears cheque transactions for all member banks, rather than their bank submitting images on their behalf. This would make the clearing process more efficient. However, the current drafting means that this option will not be available for non-cheque paper instruments that are not drawn on a bank.

The Government’s policy intention is to provide for a system that treats cheques and non-cheques in the same way, and therefore it is necessary to make these amendments to ensure the equal treatment of non-cheque instruments in all circumstances of presentment. On the basis of current practice, this approach does not present any difficulties. However, it is possible that the position could change in the future—for example, as a result of the development of new types of instruments that do not currently exist. For this reason, Amendment 9 confers a power on the Treasury to restrict the circumstances in which presentment by image is permissible. This power is intended to be used to deal only with any unforeseen issues that may arise in the future and could not be used to have any retrospective effect on instruments that have already been presented by image. It is subject to the affirmative procedure.

Amendment 12 is intended to ensure the continuation of current statutory protections for the paying customer. Under the existing cheque clearing system, a customer who makes a payment with a cheque can request the original cheque to be stamped “paid”, which stands as prima facie evidence that the payee has received the amount payable. This provides a protection for the payer in situations where the payee claims that they have not received payment.

The legislation for cheque imaging does not provide for an equivalent protection when cheques or other paper instruments are paid in by electronic image and the physical instrument does not end up in the possession of a bank. It has become clear that the loss of this protection would remove a useful service currently relied upon by some cheque users. Therefore, it is necessary to make an amendment to preserve this type of protection for the paying customer under electronic cheque clearing. This amendment will confer a power on the Treasury to make appropriate provision in regulations, subject to the affirmative procedure, because the precise nature of the evidence to be provided to the payer may depend on the technical design of the clearing system. The regulations will be able to set out the nature of the evidence to be provided to the payer and the effect of that evidence, including the weight to be given to such evidence.

Amendments 10, 11, 13 to 18 and 84 are consequential amendments dealing with the procedure for making regulations under Amendments 9 and 12, and they provide minor and technical clarifications of the drafting.

To conclude, these amendments will ensure that the provisions for electronic presentment treat cheques and non-cheques consistently and that existing customer protections continue under the new system. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, I welcome the contribution to this debate by the noble Lord, Lord Newby, and for his helpful explanation of the matters that are being considered by this large group of amendments. We had a fair bash at this in Committee, so I was a little surprised to see so many additional regulations on this matter, particularly as this is an attempt to simplify rather than make more complicated an already rather obscure area of financial transactions. Indeed, in some senses these amendments seem to take us back rather than forward in that they seem to provide a bolstering of a paper-based or evidence-based solution to a number of things that one would have hoped could have moved on to an electronic age. But I am sure that the intention behind them is entirely correct, and we support the general direction of the move.

I wanted to pick up on one point. In the wording of the amendments on the Marshalled List there is reference to the power for the Treasury to make regulations, but it does not specify how they are to be exercised in practice. I agree that the number of occasions will be limited, but the Minister mentioned that the first group would be subject to the affirmative procedure and did not say anything about the second or third groups and whether they would be subject to the negative or the affirmative procedures. Could he clarify that for me please before we leave this point? If it is too difficult to do now, I am very happy to have that in correspondence, but we have no objection to this in general.

[Lord Newby]

My Lords, I think I said that the second group would be subject to affirmative resolution. My understanding is that the two issues that we are debating will both be subject to the affirmative procedure. If I am mistaken, of course I will write to the noble Lord.

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Moved by

[Lord Stevenson of Balmacara]

20: Clause 17, page 19, line 14, at end insert—
“( ) The following regulators are excluded from the provisions outlined in this section—
(a) the Equality and Human Rights Commission;(b) the relevant regulators in—(i) the Department of Health;(ii) the Department of Transport;(iii) the Department for Work and Pensions;(iv) the Department for Business, Innovation and Skills;(v) the Department for Culture, Media and Sport;(vi) the Department for Communities and Local Government.”

[Lord Stevenson of Balmacara]

My Lords, my noble friend Lady Thornton would have preferred to have been in her place on this matter, but unfortunately she has suffered an unexpected bereavement. I am sure that your Lordships’ House would wish to send her its commiserations and hope that she is in good spirits at this difficult time.

The question of whether the Government have the relationship with the EHRC correct has featured on a number of occasions in this Bill and the Deregulation Bill. The Minister will be aware that the EHRC enjoys an A status as a national human rights institution. It is therefore right that on all occasions the Government are crystal clear that it is not appropriate to apply general regulations to the EHRC. The A status is awarded by the United Nations International Coordinating Committee of National Human Rights Institutions, which regularly reviews the EHRC’s compliance with the United Nations Paris principles, which require the EHRC to be an independent body.

We have to avoid the reality, or indeed the perception, of interfering with the commission’s ability to perform its regulatory functions and ensure that it is always and at all times independent. If that were jeopardised, it would in turn jeopardise the A status, which is generally agreed to be of importance to the UK’s international standing and reputation. For example, it enables the UK to influence the protection of fundamental rights globally and gives us a voice at the United Nations Human Rights Council. Any downgrading of the commission’s status would have a significant negative impact on the UK’s global influence.

The amendment also deals with regulators in other departments unspecified, which suggests that there may be regulators within each or any of the departments that might have the same characteristics as those applying to the EHRC. In some senses, that is a reflection of the fact that we are still in discussions within the Deregulation Bill about exactly how this process will be developed.

We understand—the Minister may be able to confirm—that it has now been decided to exclude at least one regulator in the Department of Health. If that is the case, the exclusion should also appear in the Bill, as that of the EHRC will if the amendment is accepted.

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[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Stevenson, for his comments on Amendment 20, which would restrict the regulators to which the provisions on small business appeals champions can apply. It was also good to hear from my noble friends Lord Deben and Lord Lindsay.

Clause 18 already provides that the list of regulators to be covered by the appeals champions should be set out in regulations. A consultation on the list of regulators closed in January. We intend to publish a summary of the consultation and our response before Parliament rises, based on careful consideration. The Government’s response will then become the basis of the regulations which will bring regulators into scope. These regulations will be subject to affirmative resolution, so Parliament will have the opportunity to consider which regulators should be on the list. On other occasions, the noble Lord, Lord Stevenson, has called for just that affirmative resolution. Although the consultation has closed, we shall take into account representations that noble Lords have made during discussions on the Bill. I am coming on to reassure about the EHRC, but I encourage any noble Lord who has particular concerns about anything else to let me know: we will give them a fair hearing.

Listing inclusions and exemptions would make the Bill cumbersome and unwieldy. Pre-empting our case-by-case consideration through a blanket exemption is not the right way ahead. The amendment first seeks to exclude the EHRC. Noble Lords have linked this to the protection of the EHRC’s A status as a national human rights organisation. The Government share the determination to protect the commission’s status and we understand that, as a regulator, the EHRC is different and needs to maintain its independence from government.

The Government’s position is that the EHRC will not be in the scope of the champions policy. It was not included in our consultation on the list of regulators to be brought into scope. No specific regulatory functions of any other particular named body are listed for inclusion or exclusion in the Bill and it is not necessary to do so in relation to the regulatory functions of the EHRC. Doing so would set a precedent that might lead to overly complex legislation. We have never proposed to include the EHRC, and today I can make a commitment not to do so. The Government will not include the EHRC in the small business champions policy. I hope that noble Lords will accept that full, unequivocal and repeated assurance. In Committee, the noble Baroness, Lady Thornton, was kind enough to accept my assurance on this point, and the majority of noble Lords accepted similar assurances in respect of the growth duty during the passage of the Deregulation Bill. I hope that the House will be willing to do the same today.

The second part of the amendment proposes to exclude any regulator belonging to a list of departments. The proposal would exclude more than half of the regulators we propose to include. Many of them have considerable contact with small businesses. There is broad support for small business appeals champions to make sure that businesses have effective routes to regulators. The amendment would deny that assurance to care homes, which need to challenge rulings by the Care Quality Commission or businesses challenging inspections by the Health and Safety Executive. I do not understand why we should emasculate a policy that has such widespread backing.

The noble Lord, Lord Stevenson, asked whether the Government had decided to exclude a health regulator from the appeals champion policy. We have made no decisions yet, and we shall do so on a case-by-case basis. As I have said, if any noble Lord or regulator is in this situation, they should make representations to us. We intend to make a decision on the list and publish our response before the end of the Parliament.

This is not the growth duty. This is simply a policy that aims to improve public administration and provide an assurance that regulators have the procedures and processes in place to support business appropriately. We all agree that small businesses need a better deal, and we should be aiming to apply this policy to regulators where possible rather than looking at potentially wide exemptions. I hope that, in the circumstances, the noble Lord will feel reassured and that he will agree to withdraw the amendment.

[Lord Stevenson of Balmacara]

I thank all those who have contributed to the debate. Perhaps I may make one or two points about it. I would say to the noble Earl, Lord Lindsay, who obviously has great knowledge of and experience in this area, that I can understand why he might think so. However, I draw his attention to the fact that the intention in the second part of the amendment is to select a group of regulators equivalent or similar to the EHRC in the sense that they are required to be taken out of a broader approach. It does not attack all the regulators in a department. If he misunderstood that, I apologise, but it is clear that what we are trying to do here is to say that because we were not involved in drawing up the list of regulators, we are not absolutely clear which are in and which are not. In that sense, it is imperfect and we would have to be quite inventive, if the amendment were to be accepted, to come to the right conclusion. I accept that it is not as well done as it could have been. However, it has provoked a good debate and that is the point. Indeed, the noble Baroness has already accepted that there may be one or two regulators that might well be included in the list of the growth duty within the Deregulation Bill. That might not be appropriate for small businesses—and vice versa. We are in a situation where we are not sure how the lists will bottom out. It is that unease which I was trying to attack, and in that sense I hope that the noble Earl is reassured on the point.

It is worth reflecting on the fact that, to do what is required in the Bill, as I understand it, appointments would need to be made to various regulators at board level. That would have an impact on how these bodies operate. I do not think it is an entirely free-riding champion helping to resolve appeals. These are people who, by their constitutional and statutory position, will have to have an involvement in the day-to-day work of these regulators. By accepting this, we are accepting by implication that there will be a change—perhaps a beneficial one—to the way that some regulators will operate in the future; they will not do so as they were originally set up. Again, that is what I am trying to reflect in this debate.

However, I accept that, as presently drafted, the amendment would not achieve the ambitions we had for it and there may be better ways to approach this. It may be that the rather convoluted process whereby I think the noble Baroness was inviting individual Members of your Lordships’ House to write in with special and favourite regulators to be excluded will mean that we arrive at a resolution in an appropriate way. I am sure that this will come out all right in the wash, but at the moment it seems rather a complicated way of doing it.

I will say again that it will not be possible for either House of this Parliament to pick and mix within the secondary legislation. Either it must be accepted as it stands or we can vote against the whole of the SI. It is not fair to say that we will have a choice at the time when these regulations are going through. The choice will have to be made outside Parliament and before the Government, whichever Government they are, put forward the secondary legislation. We have to be realistic about the fact that there will not be the same level of scrutiny.

I broadly take the points which have been made. It will be interesting to see how they go through. We made it clear in Committee that we are not against the idea of there being appeals business champions, as it were. I think we agreed that we would call them “small business champions” in relation to regulation. It is a good idea but I am not quite sure whether it will work in practice; only time will tell.

Finally, on the EHRC, I am grateful to the noble Lord, Lord Deben, for his consistent support for this issue. If it is so clear in the minds of Ministers that the EHRC is not, will not and never can be part of the processes involved in this Bill or in the Deregulation Bill, why on earth can they not just accept that it would be sensible to table an amendment at Third Reading stating that the EHRC is not involved? That would peradventure put beyond doubt the question of whether the EHRC is ever around. There may be evil forces at work and there may not. We do not think there are, and we are not looking at it with suspicion. However, enough damage has already been done to the EHRC, for heaven’s sake, and what is left of it needs to be protected. It would be a positive and rather a noble thing for the Government to accept at this stage that it would be right to have that line in an amendment, just because the EHRC is so special, as the noble Lord said, and to be super-careful because of the particular nature of the commission. That is for the Minister to reflect on and perhaps to come back at Third Reading.

[Baroness Neville-Rolfe]

I very much take the point that the noble Lord has made. I am happy to consider whether we could put the EHRC into the Bill, but whether I can do that, I am not sure. Giving the commission that clarity seems to be widely supported around the House.

[Lord Stevenson of Balmacara]

That is a very generous offer and I think it would solve an awful lot of problems. Indeed, we have been discussing it week after week for the past two or three months. I would be very pleased if she can do this, but I repeat that I am happy to withdraw the amendment at this stage.

Amendment 20 withdrawn.

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[Baroness Neville-Rolfe]

My Lords, government Amendments 21, 22 and 23 respond directly to our Committee debates regarding the small business appeals champion and the business impact target. Regarding the champion, the noble Lord, Lord Mendelsohn, made a number of helpful observations about how it might work in practice. He was keen to ensure that any guidance issued to the champions should be laid before both Houses as well as published. I made it clear in Committee that this was already our intention and I am pleased to confirm it with Amendments 21 and 22.

I turn now to the business impact target. I thank the noble Lord, Lord Stevenson, for his comments in Committee regarding the scope of the target. In particular, he raised concerns around the clarity of the coverage regarding voluntary and community bodies. I have reflected on this issue and I agree that there is more that we can do in the Bill to clarify it. I have therefore tabled Amendment 23, which is a relatively straightforward provision to simplify Clause 27(5). It will remove the current membership threshold of at least 21 individuals for unincorporated bodies that do not distribute any surplus to their members. As I am sure many noble Lords will be aware from their own work in the voluntary sector, such bodies can be adversely affected by redundant, ineffective or excessively burdensome regulation, just as much as businesses can. Therefore, including them within the scope of the business impact target makes a lot of sense. It will not harm the voluntary sector, but will help to ensure that any burdens from new regulations are minimised and that there is transparent reporting of impacts.

This Government have already made a number of changes that have made it easier to set up and run charities and social enterprises. Those include providing greater legal clarity on volunteer liability and supporting proposals to make criminal record checks simpler and less onerous. The amendment will mean that such bodies are not excluded from the definition of “small” and “micro” businesses in Clauses 33 and 34, meaning that they can benefit from any regulatory exemptions made by reference to that definition. I hope noble Lords will welcome the amendments, and I beg to move.

[Lord Stevenson of Balmacara]

This must be the shortest amendment ever considered in my time in the House. I look to the clerks for further guidance on these matters. The Minister suggested that we might welcome the amendments; we do welcome them.

Amendment 21 agreed.

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Moved by

[Lord Stevenson of Balmacara]

24: Clause 28, page 27, line 23, at end insert—
“( ) The Secretary of State shall conduct a review of the current regulatory machinery used to consider regulatory and deregulatory proposals.
( ) The review should include, but not be limited to, the work of the Regulatory Policy Committee.
( ) Following the findings of the review the Secretary of State shall bring forward regulations to enhance the role of the Regulatory Policy Committee and its recommendations.”

[Lord Stevenson of Balmacara]

My Lords, the amendment is in my name and that of my noble friend Lord Mendelsohn.

The amendment might have been raised within the Deregulation Bill, because it deals with the overall architecture of the regulatory framework. Although I am proposing the amendment to Clause 28, to some extent it is possibly echoed in some other phrases and clauses in the Bill. However, it would be useful to get a response from the Government on the issue. I look forward to hearing what the Minister is able to say in response to my comments.

By way of background, I want to reflect a little on the purposes of regulation. The purpose of the amendment is to probe further the Government’s intentions in the changes that they are making to the regulatory machinery, particularly that bit currently undertaken by the RPC, which reflects on secondary legislation and gives the Government an external view of how that regulation will work in practice, particularly in the business area but not restricted to that.

Regulation is a word that we use extensively in this Bill and the Deregulation Bill. It takes several forms, and we should be careful to try not to mix them up too much. There are things that businesses have to do to be compliant, either with industry standards or with health and safety. But there are, in some senses, different types of regulation, including pre-emptive measures by businesses to reduce the likelihood of being sued, inspection-based regulations for food and hygiene standards, and workplace and financial regulations, particularly health and safety. Many of these will offer benefits to businesses outside of simple compliance, but, in many cases, they are there in generic form and do not specifically help an individual business.

It is important to bear in mind that the culture and context within which businesses operate, which we talked about a lot in earlier amendments, results from a combination of legislation and regulation. The two go together and cannot be distinguished, but where they are coming from and what they are trying to achieve must be carefully thought through.

I say all that because the Government have made a virtue of their one-in, one-out approach—now one in, two out. Doing it by numbers has rather taken the eye, rather than trying to lead into proper consideration of what the regulation is about. In some senses, it is a good thing. Simply saying that there has to be a reduction in regulation does focus the mind. But, and I offer this simply by way of observation, I feel that, in the Deregulation Bill, we got a response by numbers and not by intention or principle, which is not necessarily the right way. There may be a better approach, which might be to think harder about what it is that regulation is attempting to do and try to work out, across the various aspects of it, how it could be made more appropriate to the job.

Such an approach really has to answer questions about whether regulation is the right approach or there is some other solution; whether the regulations come from an external force, such as European Union requirements; and whether it will be easy to comply with. These are all areas that follow on from the need that one has. One hopes that, in doing that, the assessments that are made in the preparation of regulation answer those questions and, in aggregate, provide a better environment in which regulation operates. As part of that arrangement, the Government have set up and use an independent body, the RPC, to look at regulations put forward. It provides a kind of “traffic light” solution, which is relatively crude in its outline, as well as some detailed comments about whether the regulations are fit for purpose, whether they will achieve what is intended and whether they need to be rethought in terms of their impact.

If we are to continue to have the approach that I have outlined, which is not just a by-numbers approach but one which reflects the kind of economy that we are trying to build, supporting high-quality skills and other things, and where regulation in totality is fit for purpose and is as good as can be got, there is a role for a body which looks across the totality of government and considers more than just how the Government are proposing regulations but how they will apply. It is a two-sided approach: both looking at the words in the regulations and the impact that they will have, not just on business but on society more generally. One then has to ask what needs to be set up in order to do that.

As I understand it, Clause 28 requires departments to review secondary legislation that they propose. In our earlier exchanges in Committee, the impression was gained—I would like the Minister to confirm or deny it—that this would affect the work of the existing RPC, which is very well regarded. It is not entirely clear from Clause 28 what exactly is happening here, so I would be grateful if we could have more detail on that. Will the RPC be made statutory? Will there be more bodies that each department will have? Will the new arrangements being introduced be limited to secondary legislation or will they have a wider remit, as has the RPC, for all regulation, including regulation that impacts on other groups such as consumers, charities and other bodies?

Where will responsibility for the new system lie within government? Will it be within BIS or will it go to the Cabinet Office? That would be a more logical place to locate it, because the arrangements have to apply around Whitehall and not just within the business department.

The primary purpose of the amendment is to add some more detail to what was said in Committee and to enable us to reflect more carefully on the position of the RPC. I beg to move.

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[Lord Popat (Con)]

I thank the noble Lord, Lord Stevenson, for his amendment and for his comments on the work of the Regulatory Policy Committee. I liked his comment on the “traffic light” solution. Indeed, I give credit to the party opposite for its decision to establish the RPC in the first place. That created an important and enduring cornerstone for the regulatory machinery—one which this Government have continued to develop and improve.

The amendment requires the Secretary of State to review the current regulatory machinery used to consider regulatory and deregulatory proposals. Of course, such reviews already take place from time to time. They look both at the distribution of responsibilities between different bodies, and at the specific rules and requirements. When this Government came into office, they carried out their own review as to what arrangements were required to deliver their key policy priorities for better regulation. Critically, that involved a strengthening of the RPC’s independent scrutiny role.

The Government carried out a further review in 2012, when some useful changes were made, including a “fast track” route for proposals whose impact on business is modest. That change has helped make the system more efficient for both departments and the RPC. I am sure that the Government will ensure that reviews of the system will continue to take place as and when necessary. Given the terms of the amendment, I am equally sure that the Opposition, were they to be in our place, would do the same.

However, the benefit of reviews needs to be balanced against the need for stability in the system. This is why, for example, the appointment of the verification body under the business impact target in Clause 25 is required to be for the duration of a Parliament. An open-ended duty to review, as proposed in this amendment, could potentially undermine that stability and as a consequence put at risk a future Administration’s ability to deliver against the business impact target. It would also generate uncertainty for stakeholders about the wider regulatory system.

The amendment also requires that once a review of the machinery has been completed the Secretary of State must bring forward proposals to enhance the role of the RPC. The Government are by no means opposed to expanding the role of the RPC where it can add value—in 2013, we asked the RPC to scrutinise the new small and micro-business assessment—but it is very odd to create a statutory commitment to a further expansion of the RPC’s role in advance of the review that the amendment envisages.

The noble Lord, Lord Stevenson, asked whether the Government were legislating for the RPC. We are legislating to underpin the business impact target with robust independent scrutiny. Clause 25 requires the Secretary of State to appoint an independent body to perform that verification function. The proposals in the Bill entrench in legislation the verification role currently performed by the RPC but do not change the status or independence of the RPC. As regards the status of the RPC, it is an advisory non-departmental public body of BIS. It is not established in statute and does not have a separate legal personality. Its members are independent from the Government.

There is cross-party support for the RPC, the wider framework within which it operates and the principle that, from time to time, that framework should be reviewed. We can rely on that consensus to secure such reviews when they are needed. We do not need a statutory provision to do so. I hope that the noble Lord will be persuaded by my explanations and will agree to withdraw his amendment.

[Lord Stevenson of Balmacara]

I thank the Minister for that response and also the noble Earl, Lord Lindsay, for his comments. We are at exactly the same place on this. I was only a bit sad that I got caught out trying to have my cake and eat it by sketching out the work which I think we agree is continuing and necessary, which will be to think harder about the regulatory functions, how best they can be delivered and—constructively and creatively—how best to do that work of review and scrutiny. On the other hand, I was taken by the “best show in town” argument: since we need something like this, why not just build on what we have, because it seems to be the best version of the body we all seem to think is necessary?

The Minister is right: the ecology of regulation needs a bit more scrutiny than it sometimes gets. Of course, his work and experience here were instrumental in our thinking on this. Without that scrutiny, we will not be in a very strong place to build on the policy issues we are talking about, and to think harder about the way in which legislation and regulation will bite on individuals, companies and society as a whole. There is not an easy solution. We must just keep it under review.

I note what the Minister said in his response. Maybe we should leave things as they are for the moment, but the lessons need to be taken back to all departments, not just BIS. There may be some argument for BIS perhaps loosening its hold on this and encouraging other departments to have a bigger share of it. Although in some senses that makes it less likely to be effective because there is no champion within government, it might have the impact of raising other people’s game, which would be good. We need more thinking around that—I am not saying that we would necessarily do it at this stage.

The annual report of the RPC is very impressive, as the noble Lord said. The volume of work it does is astonishing, given that it is independent, non-statutory and has no particular locus within government. I do not know how we get these people to do the work they do, but it is a message we might pick up in other areas. With that, I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

Small Business, Enterprise and Employment Bill

Lord Stevenson of Balmacara Excerpts

Wednesday 7th January 2015 Grand Committee

Moved by

[Lord Stevenson of Balmacara]

12: After Clause 3, insert the following new Clause—
“Payment practices: retention of monies
(1) The Secretary of State may by regulations impose requirements on certain companies to publish information about their policies, practices and performance in holding, safeguarding and releasing sums withheld by, or in behalf of, a payer from monies which would otherwise be due under a contract, the effect of which would provide the payer with security for the current and future performance by the payee of any or all of the payee’s obligations under the contract (“retention monies”).
(2) The regulations under subsection (1) may prescribe—
(a) the companies or type of companies to which the regulations apply;(b) the information required to be published;(c) the intervals at which, and format and manner in which, publication must take place; and(d) the type of description of contractual provision to which the regulations apply.(3) The restrictions on regulations in section 3(3) shall apply to regulations made under subsection (1) of this section.
(4) The Secretary of State shall arrange a review of the operation of the type of contractual provisions mentioned in subsection (1) after a period of 18 months following the coming into force of the first regulations made under subsection (1), and shall lay a copy of the report of the review before each House of Parliament.
(5) The review provided for under subsection (4) may make recommendations for requirements and obligations to be imposed upon certain types or descriptions of companies in relation to the practice of retaining monies as described in subsection (1).
(6) After public consultation, the Secretary of State may by regulations impose such requirements and obligations on prescribed companies as were recommended by the review, in whole or in part and with such amendments as the Secretary of State believes to be required in order to—
(a) ensure that the practice of withholding retention monies does not give rise to unfair treatment of payees;(b) provide assurance that retention monies are held securely; and(c) ensure that the position of a payee company from whom retention monies are being withheld is protected when a payer company becomes insolvent.”

[Lord Stevenson of Balmacara (Lab)]

My Lords, I rise to move Amendment 12, which is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a solicitor who deals with construction contracts.

It was a surprise to me to discover that at any one time, according to recently released figures, about £3 billion is outstanding within the construction industry by way of cash retentions. This figure represents the aggregate of monies which have ultimately been provided by small businesses, ostensibly as security in the event they do not return to remedy any defects in their work. I suspect that this process is taken from domestic situations; we are all aware of the problems that can be caused when one tries to get a rogue trader or contractor back to remedy faulty work.

However, in a commercial setting, the situation is surely different. It appears that the main motive for deducting retentions is to enhance the working capital of the party deducting them. Using the FOI Act, the Specialist Engineering Contractors’ Group recently carried out research among public bodies of the use made of cash retentions. It found that 71% of those surveyed added cash retentions to their working capital or admitted that they actually reinvested them while they waited for the evolution of the work process being undertaken by the contractor. The effect is that bodies that are commissioning work are also borrowing from the small firms that are carrying out the work. That is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.

The key issue is that cash retentions are being deducted from payments already earned. They are handed over on condition that they are returned only unless they are used to remedy defects in the event that the firm does not do so. However, this is a very unsatisfactory situation, as in the mean time there is no protection for the retained money that will ensure that they will be available for release if, in the event, there are no uncompleted remedial works. We think that there is a good case for any retention funds to be kept separate from working capital and we suggest that there should be some form of trust in which these amounts are held.

These issues apply of course all the way down the supply chain. It is obviously true that for public sector works, small firms operating directly with the public sector are unlikely to see that body go bust, although it is not unknown. However, if they are dealing with private companies that are themselves contracted by the public sector, the firms further down the supply chain are at risk of losing their retentions if their top supplier, for instance, becomes insolvent. On the other hand, a tier-one supplier at the top level does not carry this risk because it will be working with bodies that are unlikely to become insolvent.

Of course, the business department has a construction supply chain payment charter, which was launched on 22 April 2014. In it is expressed the wish that these retentions should be abolished, which, I think, is good news. However, unfortunately the proposal is to wait until 2025. Governments have long aspirations and wide horizons but to wait another 10 years for such an obvious piece of legislation seems a little otiose. I hope that when the Minister comes to respond she can explain exactly why the delay is there and what it is for.

If it were possible for the Government to accept our amendment, this would begin to move us down the process. In particular, if it were appropriate to ensure that money held on retention was, in fact, placed in trust, separate from the working capital of the companies that were involved in it, that would certainly have the advantage of reducing the risk to those lending their money to those commissioning it. The amendment would enable the Secretary of State, through regulation, to be better informed about the extent of the problem and then to issue regulations when the appropriate time came. In this case, we are quite happy for this to be a “may” and not a “shall” provision.

If the amendment is accepted, it will have far-reaching benefits for small businesses throughout the construction industry. It will enable them to provide more jobs and increase their training provisions, and investees in resources will help to improve policy and the timeliness of delivery. How could we be against that? I beg to move.

[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.

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[Lord Stevenson of Balmacara]

I thank the Minister for her response, although I am a bit disappointed by her willingness to take on board some of the issues. I thought that my noble friend Lord O’Neill made an excellent contribution that endorsed and fleshed out some of the issues. Likewise, my noble friend Lady Donaghy raised them from a different perspective, but with very much a similar line. This is clearly a pernicious activity with medieval origins, possibly even back as far as Damascus, which needs to be looked at very hard. To set a timetable of 2025 will cause flames to emerge from those who are trying to deal with it—but that metaphor is running out fast.

Two things struck me. I do not often hear the words “government” and “innovative practices” coupled together, but I am delighted to hear them. I think that my noble friend Lord O’Neill was right to suggest that we need a bit more evidence of that, and I look forward to the letter being more widely copied than just to him.

The other aspiration mentioned was the wish to see defect-free work. Well, pigs do fly and I have occasionally seen one or two, but I do not think that we are talking about that. Is not the answer, more seriously, that we are trying to get out of this a more robust and resilient construction practice activity within which good clients contract with good suppliers on a basis of mutual trust and organisation? The idea of having a separate escrow account or retentions thing really plays to a lack of confidence and the ability to take action through the courts, which the Government often pray in aid as the answer to all difficulties. Is that really the way forward? If you have good clients and a good contractor and there is a problem, there are arbitration and other systems that well exercise those on their way through. I do not see the case for retaining the retentions system as a way of trying to bolster this up. The Government may want to reflect on that, but I shall read carefully through the Minister’s response and think again about the issue. There is something here that perhaps needs a little more attention but, in the mean time, I beg leave to withdraw the amendment.

Amendment 12 withdrawn.

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[Lord Newby]

My Lords, these amendments make a number of technical changes to Clauses 4, 6 and 7 to ensure that the credit data and finance platforms measures work as the Government intended. The amendments also specify the commencement date for the Government’s cheque-imaging provisions.

Beginning with the amendments to credit data and finance platforms, Amendment 16 is a clarificatory amendment to Clause 4 to ensure that banks do not deliberately circumvent their obligations to share credit data with credit reference agencies. Amendment 20 would ensure that the regulations under Clause 4 may require credit reference agencies to provide all the data obtained by them under the credit data measure to the Bank of England, not only data provided by designated banks.

Amendments 22, 23 and 29 would allow the Government to accept the recommendations of the Delegated Powers and Regulatory Reform Committee that any future change to the regulations made under Clauses 4, 5 or 7 be subject to the affirmative rather than negative procedure.

Amendments 27 and 28 would ensure that providers of invoice discounting and factoring services are covered by the definition of “finance provider”. This allows them to benefit from government measures to improve access to credit data and to implement platforms for rejected small business finance applications. Providers of invoice discounting and factoring are a key part of the financing landscape for smaller businesses and it is essential that they are able to benefit from these measures.

Finally, Amendment 103 specifies the date for the commencement of the provisions enabling cheque imaging in the UK as 31 July 2016. This amendment will therefore help ensure the banking industry delivers this payments innovation to customers as quickly and ambitiously as possible. The Government are tabling this amendment to help ensure that the benefits of cheque imaging are delivered to a clear, fixed and timely schedule. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, the Opposition are happy to accept the great majority of what has been produced in this group. We see the logic of the amendments and understand their rationale. It is sometimes amusing to find the Treasury in a situation in which it appears not to have been quite as convincing as it ought to have been in its submissions to the DPRRC. The noble Lord made a good fist of it but it must have been a bit galling to realise that in some ways the mighty writ of the Treasury, which normally runs everywhere, got washed away by the firm rebuttal of the idea that somehow a Henry VIII clause, when introduced by the Treasury, was okay but not when it was introduced by others. I am glad to see that the changes made here bring back a more coherent and consistent approach. Other than that, this is a welcome step forward.

Amendment 16 agreed.

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[Lord Leigh of Hurley (Con)]

My Lords, as disclosed on the register of interests, I declare that I am a senior partner at Cavendish Corporate Finance (UK) Limited, and my involvement with BIS, which I shall amplify in a moment. Like the noble Lord, Lord Mitchell, I very much welcome the Bill as further evidence of this Government’s commitment to SMEs, and in particular to providing assistance for SME finance. Unlike the noble Lord, I would say that the Government have done a huge amount to assist SMEs on finance not just in the UK, but overseas as well. I should particularly mention the pleasure of working with BIS, and I actually travelled to China with the Prime Minister on his trade mission. That jumbo jet was full of SME businessmen. The Prime Minister made a point of taking SME businessmen to help their export trade, and as I travel around the country, I have businessmen telling me how dramatically different the Foreign Office is when working in conjunction with BIS to assist SMEs.

This clause in particular should, it is hoped, have a radical effect on assisting SMEs in the procurement of finance in difficult circumstances for them. I welcome the clause. My amendment relates to a particular and specific circumstance where an SME has gone to its local high street bank and, for whatever reason, that bank has rejected the loan. That is, of course, a minority of situations. The proposal suggests that at that point, the high street bank should put the customer on to a finance platform in order to allow other alternative sources of finance to provide the loan. I welcome the regulations that were published just in time for a Christmas read, and in particular that the Treasury has now agreed to consult the British Business Bank specifically on who will be the designated platform. I firmly believe that the BBB understands who would be the appropriate platform.

I do not intend this in a pejorative sense, but my concern is that the use of “may” in Clause 5(4) means that within the terms of paragraphs (a) and (b), only lenders will have access to those finance platforms. I believe that it would be much more helpful to SME businesses to allow them the opportunity to take advice and have access to advisers who can guide them towards the right source of such loans. Indeed, many lenders to SMEs, because of the nature of the small amount of money involved, will look at loans only if they are packaged in a particular prescribed format. The SME will not have the skills and expertise, or indeed the time, to package up the proposal in a format that suits each possible financial provider. Furthermore, some financial platforms have in mind a large number of lenders, as many as 130, while others have only four or five in mind. If the potential borrower finds himself on the wrong financial platform, he will either be too restricted in the number of lenders he can talk to or possibly overwhelmed by the number of financial providers who contact him to offer their loans.

We are talking here about businesses that range from wanting a loan to finance a small residential development to one that wants to borrow the money needed to buy a forklift truck. Of course, the nature and type of lender will vary enormously according to the circumstances and, indeed, to the geography. My amendment would allow the potential borrower to have access to an appropriate adviser, which is, of course, an adviser that would be approved by the Treasury—which means, in fact, the British Business Bank—to facilitate greater choice for businesses. Let us not forget that these businesses have just suffered a rejection of their loan application and, sadly, they are probably not blessed with a munificent and successful father along the lines of the example we discussed earlier. They therefore need an appropriate level of advice. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, we have a few amendments in this group and I will speak to just a couple of them. Two of them deal with matters to do with the Regulatory Reform Committee, which I think will be dealt with by the Minister when he comes to respond. The amendments would simply implement the proposals that have not already been dealt with by the previous discussions.

Amendment 19 is a probing amendment. In this set of amendments we deal with the third leg of a three-legged stool that tries to address a set of arrangements around the failure to commit to a financing model for small businesses at the individual level. This is a different attack on the same problem we have talked about throughout the whole of this afternoon: why finance does not flow as well as we would all like to this sector of our economy. The amendment is designed to suggest to the Government that there would be merit if one could extract some lessons from the process, whether or not it also includes the proposals just spoken to. That would add another dimension. We will see how the Government respond to that.

In the context of there being a small business in need of financing, a set of traditional lenders to whom it may or may not have applied, alternative suppliers and others who have expertise and knowledge about that, it would make sense for there to be some lessons learnt from these processes. The suggestion is made in the amendment that the Government might wish to think about providing an annual report to Parliament so that we have a sense of how these things operate. This is to some extent uncharted territory. It may feel like another administrative burden. In some senses, being a probing amendment, the wording is not to be taken at face value. However, this is interesting and new ground. We need to learn the lessons from it and to get the information that we gather out to as wide a group as possible. I hope the sensibility of that would commend it to the Government in some way. I look forward to a response on that.

The converse side of this argument is to be found in Amendment 21. This was slightly touched upon by the noble Baroness, Lady Wheatcroft, who I am afraid is not now in her place. I recognised what she said in her intervention on the last group. We would all be worse off if the credit referencing agencies and those others involved in this stool of three legs that I have talked about were fed information that was wrong. There has to be some means or mechanism for those who feel that the information held on them in these agencies is correctable. The noble Baroness was right to say that this has a sense of the googlisation issue, where you might have the right to correct your own information if you do not like it, but that is not where we are here. We are saying that if it is factually incorrect or in some senses paints a distorted picture, there ought to be some redress mechanism.

There are probably already reasonable direct relationships that could be invoked for that. Of course, there is the Financial Ombudsman Service, which plays a great part in dealing with many issues. I suspect that the people we are talking about in the SMEs, particularly the smaller ones, would find it helpful to have a body like the FOS to which they could pray in aid for help to correct information, question whether information held is correct and iron out any problems. The amendment is there as a suggestion, to the extent that there may even be other systems that would be better able to take this on. If there are not, why should the FOS not be invited to do so? The reason for tabling the amendment was that, in researching this, it turned out that there is a rather low limit for the size of institution that can approach the FOS. It would perhaps be helpful if, as a result of this discussion, the Treasury took this back and looked at it again. It seems wrong to cut off an area that is clearly effective in trying to get things resolved and to get the economy moving and things going. I hope that that is a helpful contribution.

[Lord Flight]

My Lords, as I have already pointed out, Amendment 25 really goes with Amendment 5. Very simply, and hence why it comes up in this section of the Bill, it endeavours to slightly widen the size of SME which can benefit from the provisions on credit information availability by substituting the R&D tax credit definition of an SME for the definition currently pertaining in the Bill.

There is quite an important point here, which is that the crucial measure of the ability of a company to command lending services is really its EBITA. Most companies with an EBITA below £5 million have problems in sourcing capital investment finance. Basically, the argument runs that the definition used for an SME is really too small and that small and medium-sized businesses are in just as much need of assistance in sourcing credit and investment as are smaller companies.

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[Lord Stevenson of Balmacara]

My Lords, I understand the logic of what the noble Lord is saying and the rationale for what the Government are doing, and that there will be consultations around this. However, the point that he has just made surely exposes the gap. If a medium-sized company, not a microbusiness, has a CRA purporting to report on it in a way that is factually incorrect or gives the wrong impression, is the only redress to take it up directly with the CRA?

[Lord Newby]

Going to the CRA is the logical first port of call, is it not? We are talking about cases here where a company believes or knows that the CRA has incorrect information about it on its books, and it will be in the interests of the CRA to correct any mistakes. As I say, the complaints procedure is part of the designation. We are making sure that the CRAs are open to complaints and have a proper way of dealing with them. The other limb to the argument relates to the role of the Financial Ombudsman Service. The noble Lord is suggesting an extension to the remit of the FOS in terms of businesses, which is a considerable change that you would contemplate only as part of a larger possible review of the role of the FOS in terms of businesses more generally. This is a very narrow area, and to extend the remit of the FOS in respect of firms just for this, and to nothing else, would look slightly odd.

Amendment 25 relates to the definition of small and medium-sized businesses. I apologise to the noble Lord, Lord Flight, that I was unable to be here for the earlier discussion broadly around this issue. The definition that he is suggesting is the one used by Her Majesty’s Revenue and Customs for the purposes of the research and development tax credit. Although I hear his arguments, I would point out that the £100 million figure is very much the outlier in terms of accepted definitions of SMEs. The definition used by HMRC for R&D tax credits is tailored to that one specific policy and flows from the fact that most research and development is done by larger companies. I do not believe that it would be appropriate here.

The turnover figure used in the current definition in Clause 7 is widely accepted as the threshold for an SME. It is used in the Companies Act, by the Bank of England for reporting purposes, and for the Funding for Lending scheme. It is used by various government schemes such as the lending appeals process and is used by the British Business Bank. There is no rationale for dramatically expanding it to businesses with a turnover of up to £100 million. As noble Lords will be aware, these measures are designed to address market failures that disproportionately affect the smallest businesses: namely, a lack of credit information and a lack of awareness of alternatives. These problems do not affect larger companies in the same way. The Government have proposed and consulted on a measure aimed at small and medium-sized businesses. This amendment would go considerably beyond that.

The existing simpler definition in the Bill, based on turnover, mirrors that used by the Bank of England. We believe that it is the most appropriate definition for legislation that applies to banks as they have visibility of the turnover through the company’s primary account and are already used to applying the similar definition used for the Funding for Lending scheme. I would note, however, that even larger companies outside the definition of SME businesses will benefit from the measures in the Bill. For example, a larger company will still be able to apply directly to a designated platform to seek a finance provider. The Government therefore consider that the existing turnover threshold of £25 million is the appropriate place to draw the line for the legislation. I hope, therefore, that the noble Lord will be willing to withdraw his amendment.

--- Later in debate ---

Moved by

[Lord Stevenson of Balmacara]

30: Clause 10, page 12, line 4, leave out “negative” and insert “affirmative”

--- Later in debate ---

Moved by

[Lord Stevenson of Balmacara]

31: Clause 11, page 12, line 17, at end insert—
“( ) Prior to the commencement of this section, the Secretary of State shall—
(a) commission an independent assessment of the functions and powers of UK Export Finance (“UKEF”) and UK Trade and Investment (“UKTI”);(b) make a report to Parliament of steps to be taken in response to the findings of the assessment referred to in paragraph (a);(c) commission an assessment to determine actions to improve the awareness of UKEF and UKTI to small and medium sized enterprises.”

[Lord Stevenson of Balmacara]

My Lords, in moving Amendment 31, I will also speak to Amendment 32. Together, they relate to UKTI and UKEF.

The UK is subject to international human rights obligations under customary international law and as a result of the international legal instruments we have signed and ratified. Human rights obligations generally apply only within a state’s territory and jurisdiction. Accordingly, there is no general requirement for states to regulate the extraterritorial activities of business enterprises domiciled in their jurisdiction, although there are limited exceptions to this, for instance under treaty regimes. The UK may also choose as a matter of policy in certain instances to regulate the overseas conduct of British businesses.

The UK has specific laws protecting human rights and governing business activities. As with all UK law, these are set out in legislation and are sometimes protected by common law rules as well which, taken together, ensure certain rights and liberties. Some of these provisions have been in place for many years, will be familiar to business and are well respected by it.

Like all states, we need to continually reassess whether the current mix is right, what gaps there might be and what improvements we can make. The UK has ratified a series of international treaties and agreements—the ILO eight core conventions, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and the European Convention on Human Rights, which enshrine human rights and fundamental freedoms and have been given effect through the law of this country.

The Human Rights Act 1998 ensures that individuals in the UK have a remedy for the breach of rights which are protected by the European Convention on Human Rights. It applies to all public authorities and other bodies performing public functions, as private companies sometimes do. The relevant legal framework in the UK includes employment regulations—requiring companies not to discriminate against employees on grounds of sex, race, sexual orientation and religious belief—and environmental regulations. Examples of wide-ranging legislation protecting human rights in the business context include the Health and Safety at Work etc. Act, and the Data Protection Act, which applies to companies and ensures respect for the privacy of individuals. Legislation has also been passed to plug specific gaps in the protection of workers under the law such as the Gangmasters (Licensing) Act 2004, which created an agency to prevent the exploitation of workers in agricultural work et cetera.

The UK has created or endorsed a number of instruments that motivate different aspects of good corporate behaviour and respect for human rights. These include: the UK Bribery Act where, in line with our OECD commitments, UK companies are now liable in the UK for acts of bribery committed anywhere in the world; the Declaration on Fundamental Principles and Rights at Work adopted in 1998 and the eight core ILO conventions ratified by the UK on labour standards; the OECD Guidelines for Multinational Enterprises, where the UK has established a national contact point; and Section 172 of the Companies Act 2006, which makes clear that, in fulfilling their duty to act in a way which they consider would be most likely to promote the success of the company, directors must have regard, among other matters, to the impact of the company’s operations on the community and the environment, and the desirability of the company maintaining a reputation for high standards of business conduct.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord for setting out his thinking on these amendments. I shall comment in turn on the two amendments, taking Amendment 31 first.

The powers in Clause 11 are deliberately drawn as widely as possible to enable UK Export Finance to provide wide-ranging and flexible support, and to respond quickly and imaginatively to changes in market conditions. Our intention is for UK Export Finance to have the widest possible ability to support UK-based firms in their involvement with exporting, whether these firms are existing exporters, those in exporting supply chains or aspiring exporters.

The current requirement for a connection between the department’s support and an actual or contemplated export has made it difficult for the department to respond to the needs of exporters in certain cases, especially in relation to support for the general business of an exporter or a supply chain company. We share the aim that has been expressed today of maximising government support for exports and of maximising the awareness of that support among UK businesses. However, by delaying commencement, this amendment could serve to delay the introduction of new facilities for UK businesses to seek new opportunities and win export contracts that would help us increase UK trade, the aim set out in the Britain Open for Business update announced by the Prime Minister last year.

In view of the points that were made earlier by the noble Lord, Lord Mitchell, I should say that when it comes to promoting British exports, this Government have done an enormous amount. I pay tribute to my noble friend Lord Popat, who is playing an important part in the passage of this Bill. It was on his recommendation that your Lordships’ House established a Select Committee under the chairmanship of my noble friend Lord Cope, who spoke earlier, examining the ways that the Government could support and encourage SMEs to export. That was a very valuable initiative, which reported in March 2013. The Government accepted all 23 of its recommendations, including measures on credit risks for SME exporters and better publicity for services provided by the Government.

We are absolutely committed to increasing British exports to rebalance our economy. As recently as the Autumn Statement, the Chancellor outlined a £45 million package to increase exports, including £20 million for first-time investors. That is in addition to work to increase UKTI’s presence in emerging markets and our work since 2010 to put a much greater emphasis on trade and economic growth in our diplomatic relations. The additional funding that this Government have provided for UKTI has allowed it to double the number of businesses helped since 2010, and we are on track to support more than 50,000 businesses this year. I echo the points made by my noble friend Lord Leigh of Hurley about the export effort for SMEs that he observed on his trip to China with the Prime Minister. Less glamorously, I saw the results for myself on a week’s visit to China in September. I was impressed both by the programme and performance of UKTI and by the scale of business involvement. Again, it was a mixture of SMEs, larger businesses and legal experts.

UK Export Finance is referred to several times in these amendments. In 2011, the Government reintroduced, after 20 years, UK Export Finance support for goods usually sold on shorter terms of credit—mainly those supplied by smaller companies. So far in this financial year, around 120 companies have benefited from direct UK Export Finance support, and almost 80% of them are smaller firms. Companies in the supply chains of exporters benefit indirectly from UK Export Finance support. We want them to benefit directly, hence the provisions in the Bill. UKEF is keenly aware of the need to improve awareness of it among smaller exporters. Last year, the British Exporters Association scored the product range of UK Export Finance at nine out of 10, while the Global Trade Review voted UK Export Finance the world’s best export credit agency. So we are making progress. Awareness of UKTI has also increased significantly over four years, from an average of 51% in 2010 to 65% now.

The noble Lord spoke at greater length to Amendment 32, touching on a very important area. It is of course government policy, informed by an extensive public consultation conducted in 2009-10, that UK Export Finance will comply with international agreements which apply to export credit agencies. UK Export Finance complies with the OECD common approaches, which set out how export credit agencies should undertake due diligence on the environmental and human rights impacts of projects falling within their scope. The OECD common approaches make reference to the UN guiding principles. In undertaking environmental and human rights due diligence in line with the common approaches, it is the practice of UK Export Finance to apply the 2012 performance standards of the International Finance Corporation. These are recognised as comprehensive standards. UK Export Finance is taking an active and leading role in further OECD consideration of human rights issues, which will inform possible changes to the OECD common approaches, should they be agreed.

I pause to comment on the example of fossil fuels given by the noble Lord, Lord Stevenson. UK Export Finance has not supported any transactions in violation of the coalition agreement’s pledge to support green technologies rather than invest in dirty fossil fuel energy production. The Secretary of State made it clear in a Written Ministerial Statement in July that “dirty fossil fuel” should be taken as referring to projects that produce pollution in excess of international environmental standards. The practice of UK Export Finance is not to support such projects.

As I have already said, UK Export Finance complies with the OECD common approaches and has a dedicated environment advisory team that reviews the environmental, social and human rights issues of projects covered by the common approaches prior to the department agreeing to provide support. I hope that gives some comfort. Against this background, the Government consider it neither necessary nor appropriate to impose a statutory duty on the Secretary of State to have regard to only one set of principles—which are, in any case, already taken into account through UKEF’s adherence to the common approaches.

On the second part of the amendment, the common approaches set out how export credit agencies such as UK Export Finance must take account of environmental, social and human rights issues. In line with this, UKEF requires that projects with significant ethical risks are subject to a full impact assessment and that international standards regarding environmental, social and human rights issues are complied with before it provides export credit finance support. UKEF will also monitor these issues throughout the life of projects where relevant, sometimes over periods as long as 10 years.

I was glad to hear the noble Lord, Lord Stevenson, make reference to various changes and improvements made in recent years, including the Bribery Act. That has been pivotal in clamping down on corruption. UK Export Finance also conducts due diligence on the contracts it supports to ensure that they are not tainted by corruption and that the risks associated with dealing with the parties are acceptable. This includes but is not limited to warranties from exporters and checks against prohibition lists maintained by multilateral development organisations such as the World Bank.

The Secretary of State also benefits from the advice of the independent Export Guarantees Advisory Council, whose remit is to advise on UKEF’s application of its ethical policies. The annual report of the chair of the Export Guarantees Advisory Council is published alongside UKEF’s own annual report, which lists the transactions supported by UKEF each year.

I hope that noble Lords are reassured that UKEF takes appropriate consideration of ethical issues in its decision-making and therefore will agree that it is not necessary to place a new statutory requirement upon the Secretary of State. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Stevenson of Balmacara]

I thank the Minister for her very expansive response. I appreciate the effort that went into it. I know it is not her direct area of responsibility and I am sure that she received assistance from others. They put together a good response and I appreciated listening to it. I was also remiss in not paying tribute to the work of the noble Lord, Lord Popat, which has been referred to in the Committee before and is worthy of further comment. His is a terrific initiative and is doing well. The noble Lord, Lord Livingston, and his predecessor have also done a terrific job, which we support. The export champions, many of whom sit in this House, do a great job right across the world.

We are all on the same side here. Obviously, we recognise that we need more exports. We cannot become the nation that we want to be or enjoy the economic success that we all think we should have if we do not radically increase the amount and volume of our exports. We can take that as common ground. But—there is always a “but”—while I agree that we need to maximise support for exports and we accept that there is a long way to go, it does not have to be a zero-sum game. It is possible—many countries do this—to have regard to the terrible impacts of extractive industries, the difficulty of ensuring responsible trading and the respect for human rights in all aspects of activity, and not to be guided always by, in some senses, the lure of more arms sales. Of course, we have special regimes for them, but it is still very difficult to get a proper sense of what is happening there because they tend so much to dominate the work of both UKTI and UKEF.

Issues were brought up by my brief example, and there are many others. I accept the fact that since 2012, although that is not a long time ago, UKEF has not been involved in supporting the export of dirty fossil fuels—although I note that the quotation we were both referring to states that the situation is that it has not publicly financed new coal-fired plant overseas,

“except in rare circumstances in which the poorest countries have no feasible alternative”.

That seems to me to be a large door through which many rather undesirable practices may have taken place, but I have no evidence of that. However, it makes the point again that it may be that how we are interpreting things is good at the moment, but without statutory underpinning, how can we give sufficient support to people in order to ensure that good practice continues in the long run?

The proposals set out in Amendment 32 are not onerous. The Minister said that she felt that the amendment simply sets out what is common practice now in relation to promoting UK government adherence to the UN guiding principles. That is fine, so why not let us have that in legislation and all agree on it? Further, preparing a report for both Houses of Parliament might well be a way of bringing up some of the issues that do bear on this debate: for example, what exactly is the interaction between the moral and ethical standards we are looking at on the one side and the success or otherwise of exporting around the world?

However, I hear what has been said and I know that this is a complex and difficult area. The work that is going on in government is in some sense at the right level and indeed is of a standard that the rest of the world could easily emulate. However, we must not lose sight of this because it is important and it will have long-term consequences, both good and bad, if we do not get it right. With that, I beg leave to withdraw the amendment.

Amendment 31 withdrawn.

Debt Management Organisations

Lord Stevenson of Balmacara Excerpts

Monday 28th July 2014 Lords Chamber

[Lord Newby]

My Lords, it is clear that many noble Lords share my noble friend’s view that unsolicited cold calling is a nuisance. I think that people find this in a whole raft of areas, whether it is double glazing salesmen or this one. The absolutely crucial thing about cold calling is that, certainly for financial services products, those making the calls should be absolutely clear who they are calling from and why they are calling so that people have the opportunity to put the phone down quickly.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I declare an interest as chair of StepChange, the debt charity. Is not the problem with debt management companies that the regulatory functions, as the Minister said, have only just started and that we are not taking advantage of some of the measures that already exist in the United Kingdom? Has the Minister looked at the situation in Scotland, where statutory relief is available to those who get involved in free debt advice schemes so that they are not charged additional interest and the pressure from people such as cold callers and others is reduced?

[Lord Newby]

My Lords, I am not aware of the situation in Scotland but I will willingly look into it.

Industrial Strategy: British Business Bank

Lord Stevenson of Balmacara Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Baroness for securing this debate. I very much enjoyed listening to her comments. She is someone to whom the House always listens carefully because she knows a lot about the subjects she discusses. I am sure the Minister will reflect on her comments as he prepares to respond to the debate.

However, like my noble friend Lord Haskel, I found the noble Baroness’s somewhat unrelenting optimism about what she called the industrial strategy a little hard to take. I liked it better when she talked about some of the problems that still remain to be solved, including rebalancing the economy and trying to get more of a regional spread. That, I felt, was the more authentic voice which I have come to enjoy listening to. However, we look forward to what the Minister will say in response to the important points that she made.

I was very struck by what the noble Baroness said about the content of the industrial policy in the sense that she made play, I think, of 11 sectors. It was an interesting little number that I initially fell for, but I do not think that 11 is a particularly magic number. I am not an expert on the magic of Hogwarts, or anything like that, but I do not think that 11 features in that. Why 11? I think it is 11 because it is not 12. It is not 12 because, if you read the document produced by BIS last year, from which that is taken, you will see that it covers the 11 sectors which the noble Baroness listed, which are important and are being picked as winners. That may or may not please some noble Lords. The 12th and most important of these is, of course, the creative industries, but they do not appear in the document because they are not covered by BIS. That seems to me to suggest a fractured approach, meaning that the Government are not joined up about this. There is a danger that the sectors which BIS selects and supports are the ones that it provides for. As the noble Baroness pointed out, that would be rather ridiculous. Therefore, those 11 sectors but not the creative industries may well be in a beneficial place as regards the British Business Bank, export support or UKTI. That would be a terrible shame. I hope that is something the Government have picked up and are working on.

The 2008-09 crash exposed long-standing structural problems in our economy: an economy unbalanced by sector and region; short-termism in our corporate culture leading to low levels of business investment and low productivity; a dysfunctional finance system; and a stubborn and increasing trade deficit. Although some growth has finally arrived, which we certainly welcome, it is not the balanced and sustainable growth that we need. Prices are still rising faster than wages and the continuing cost of living crisis for many means that individuals are, on average, £1,600 a year worse off compared with 2010, so “business as usual” is certainly not good enough. To set the foundations for future success, we need to take a different approach.

Labour has a long-term plan to earn and grow our way to higher living standards. Our goal is a high-productivity, high-skilled, innovation-led economy. To get there, we need more British-based businesses creating good jobs, investing, innovating and exporting. If elected in May 2015, we will deliver an economy creating good jobs and opportunities, offering people a ladder up and the best chance to make the most of their potential. We will take action on immediate pressures that businesses face and cut business rates. We will reform the energy market and boost competition in the banking sector. To lay the foundations for long-term success, Labour’s plans already include: radically reforming vocational education and apprenticeships; creating a proper, independent British investment bank and a network of regional banks with a responsibility to boost lending in their areas; supporting green growth by backing the 2030 decarbonisation target; and establishing a small business administration to champion small businesses at the heart of government. Some of these points were raised by the noble Lord, Lord Stoneham. When we come to power, I hope that we can count on his support for these measures. I think that he wants to see an all-party approach to ensuring that our economy is sustainably supported over the long term.

What is the problem that the British Business Bank is trying to solve? I agree with the noble Lord, Lord Leigh, who said that in some senses it is a misnomer. I think that point was also picked up by the noble Lord, Lord Wrigglesworth. Indeed, it is more of a wholesale operation. The bank picks up that point in its strategy document and says that it is not a bank in the conventional sense. We understand that. According to the business bank’s new strategic plan, which was published only last month, its goal is to,

“change the structure of finance markets for smaller businesses, so these markets work more effectively and dynamically”.

Any scheme that helps small businesses to access finance is clearly welcome but the record of the Government in getting the clearing banks to lend to small businesses is one of complete failure. This, presumably, is a statement endorsed by the Government confirming what we have been saying to the Government for some time: every scheme, from Project Merlin—remember that one?—to Funding for Lending, has completely failed to deliver to the small and medium-sized businesses.

Indeed, as was quoted by the noble Baroness in her opening remarks, according to the Bank of England's most recent Money and Credit statistical release, net lending to SMEs has fallen by £1 billion in the last quarter and is down by £2.2 billion overall compared to last year.

We have a bit of a problem here and it is very interesting to read in the strategic plan of the business bank what it thinks about it. For example it says very early on in its strategic aims:

“We will increase the supply of finance available to smaller businesses where markets don’t work well”.

If we unpick that, this means there is a problem in that the present system is not supplying finance to where it is needed. Markets are not working well and the supply of finance is therefore reduced. The strategic plan also says:

“We will create a more diverse and vibrant finance market for smaller businesses, with a greater choice of options and providers”.

Again, if we duck behind the language, that means that the existing system does not provide the funding, the existing banks are not worth working with and they need to come up with something that will make more of a difference in terms of the flow of funds to those who can use them. I think we would agree with that.

The plan also says:

“We will build confidence in the market by increasing smaller businesses’ understanding of the options available to them”.

That is an interesting point; if you go behind the language, it suggests that the bank is saying that the people who start businesses—the people who are in charge of the small business sector—are untrained in trying to raise finance, probably not very good managers at that either, and do not understand what they need to do in order to get the finance, so they will have to embark on education in order to get to the point where they can even complete all the forms that the noble Lord, Lord Leigh, was saying are very difficult. I enjoyed his riff about the trouble of getting through the website. He mentioned that in an earlier speech to which I was responding. I followed him through it and I had even more trouble than he had in getting to anything. I am glad to say that the British Growth Fund, which he also mentioned, has a much simpler website where you can get to very easy options straightaway. I understand why he recommends that.

I have had a bit of fun with the wording of the strategy document, but I do not think the Minister necessarily needs to go through it. Unless he says anything to the contrary, I will take it to be a validation of what we have been saying. There is a problem and the banks are not solving it. We also have a bigger problem in that people do not really understand what they need to do to get the funding they want.

This section that I have been quoting ends with the proposition:

“We will achieve this whilst managing taxpayer resources efficiently and within a robust risk … framework”.

The noble Baroness, Lady Wheatcroft, was on to that as well. I understand where she was coming from. I too had great difficulties with this section of the report—I do worry about it. Having said that, I want to get the compliments out of the way first. The strategic plan is really good. It is a very good read—and I mean that as a compliment. It gives some interesting figures and background to the context which I have not seen brought together before. For example, there is a little table that shows very clearly that 53% of businesses with up to 50 employees who have applied for a loan from the clearing banks were declined. This is slightly bigger than the figure that the noble Lord, Lord Wrigglesworth, mentioned. It really is a disaster—if nearly 50% of the businesses cannot get the money, there is a problem.

I also liked the direct funding programme that they have in the strategy. The Aspire programme which is up to £1 million for women-led SMEs seems to be a very good proposition. That is an area of the market that has not been looked at in any detail, and I pay tribute to the British Business Bank for picking up the opportunities that are there for women-led SMEs.

I also like the enterprise finance guarantee, which uses the financial strength that is available in the bank to help those who need guarantees to get lending, because they may not have collateral or assets that they can pledge in return for their money.

I also think that there is still a huge opportunity for start-up loans, which used to come from the banks and of course have dried up completely. Throughout the report, which I recommend to noble Lords, the case studies are very interesting about what is happening on the ground and the way in which the bank is operating.

I am, however, concerned about the way the bank operates for the majority of its interventions. In the Written Ministerial Statement, which accompanied the lodging of the strategy in the House of Commons, the Secretary of State draws attention to the fact that 61% of the bank’s activity is channelled through smaller investors and lenders, with only 39% going through the big four banks. He continues:

“Over the coming years, I expect that this bias away from the big banks will continue”.—[Official Report, Commons, 26/6/14; col. 21WS]

I have already explained that I smell where that is coming from. But that 61% going up and being channelled in a wholesale manner through other institutions is interesting and, like the noble Baroness, I worry about that.

My worry is slightly different in practice because examples of what are called “innovative investments” over the past year have included: £7.8 million to the Dawn Capital II venture capital fund; £25 million to the Episode 1 venture capital fund; £30 million committed to the Praesidian Capital Europe debt fund; £15 million to BMS Finance; £40 million invested through Funding Circle, which is a good thing, and £20 million in the Sussex Place Ventures capital fund. These are somewhat opaque titles and giving money to venture capital funds and hedge funds, which already seem to be quite good at gathering cash to reinvest, seems an odd way to supply support. Perhaps the Minister might reflect on that when he comes to respond. For instance, why are those companies not doing their own funding alongside existing sources, including the British Growth Fund?

This will of course raise issues of propriety. I draw the Minister’s attention to a recent report in the Independent on Sunday. It said:

“Millions of pounds of taxpayers’ money is being spent on a venture capital fund overseen by one of the Conservative Party’s biggest donors … The British Business Bank, which is run by the Department for Business, has committed £7.8m to the Dawn Capital II investment fund … Dawn Capital II’s parent company is Dawn Capital, whose chairman is Adrian Beecroft”.

Does the noble Lord wish to intervene?

[Lord Newby (LD)]

I was seeking to draw the noble Lord’s attention to the time.

[Lord Stevenson of Balmacara]

I am sorry; I got carried away and I have overrun. I will not go on, as I think the point is made, but the report asks whether there is a problem about a company drawing money from the state and giving money to an individual who is a well known supporter of the Conservative Party. I would be grateful if the Minister could respond to that.

Children and Vulnerable Adults: Abuse

Lord Stevenson of Balmacara Excerpts

Thursday 26th June 2014 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I apologise to the House for my earlier attempt to speak. It was purely because of my interest in the subject and my wish to engage in the debate that we have been having. The debate has been a very good one, and our thanks are due to the noble Baroness, Lady Walmsley, and other speakers for making it so. I should declare an interest as a deputy chair of a special school, the Chiltern Way school, and have had some responsibility for child protection matters in that.

The noble Baroness asked whether we knew enough and whether we were doing enough prevention work. Those are important issues which I want to position next to that raised by the noble Baroness, Lady Sharp, who also posed the question of whether the Government have willed the ends of policy but not yet the means. Although it is a very old and hoary saw which is often used in matters affecting government policy and action, it seems particularly relevant today.

This debate is timely as it comes on the day of the first tranche of reports on the predatory actions of Jimmy Savile, which will, as the Secretary of State said in another place, shake our country to its very core. The debate comes also during the week when a major new report from the Centre for Social Justice, entitled Enough is Enough, reminds us once again of how we are failing so many vulnerable young people. Some of the case studies are shocking and distressing, and they have been reinforced by many other examples which have been raised today. They include the seven year-old boy feeling forced by his mother to steal milk from his baby sibling and then abandoned by social care following his arrest, and a young girl who was severely neglected and physically abused by her mother and repeatedly seen with her siblings searching for food in rubbish bins. As the noble Lord, Lord Bichard, said, these are things that we should not be seeing in a civilised society.

The report is a wake-up call to those, including me, who thought that these crucial child protection issues, identified in the Munro report of 2011—to which I want to return at the end of my remarks—were finally being understood and addressed by the Government. Sadly, we have heard recurrent themes emerge from the comments made today: countless examples of abused, neglected and traumatised children being failed by statutory services; social workers being overwhelmed by the scale of the task and a lack of resources to intervene; a failure to grasp the necessity of early intervention; professionals lacking the skills, training or experience to deal with complex cases; the lessons that were clearly set out in Every Child Matters being lost in short-term expediency and sticking-plaster solutions; an ability of statutory bodies to share information and collaborate effectively being lost; and a disconnect between the valuable work carried out by voluntary agencies and their interfaces with statutory services.

The result is that we are confronted by too many shocking cases hitting the headlines, but also with the knowledge—graphically illustrated by the Savile reports today—that these cases are just a tiny fraction of the abuse and neglect taking place day by day. Arguably, the role of Ofsted in inspecting children’s services is a significant part of the problem. Unlike with schools, the inspections are not routine and rigorous, but rather crisis-driven. Similar arguments can be made for the inspection of adult care services. In 2010, the Government announced the cessation of annual performance assessments, which has resulted in the Care Quality Commission no longer inspecting the commissioning practices of local authorities. Parallel to this move to lighter-touch regulation, we have seen an increasing number of care home scandals.

We should surely all agree that it is essential to have a strong and effective regulator to protect vulnerable adults. This should be a precondition to enable patients to have confidence in the services they receive, and to allow them to exercise informed choice when choosing services. This is why we think it is essential for the CQC to be allowed to proactively inspect and review the commissioning of adult social care services in local authorities.

One issue which has been picked up during this debate, and highlighted by numerous reports, is that reports are not investigated or charges are not brought because victims are often thought to be “not credible”. It is surely the job of all of us, across government, to try to tackle a culture which consistently fails to give victims—especially child victims—of abuse the status they deserve in the criminal justice system. One way this could be, in some senses, remedied is to improve sex and relationship education in schools. This week the Prime Minister announced that he would allow the guidance given to schools to be updated to reflect the new pressures resulting from the internet, but this still fails to acknowledge that too few schools are teaching proper sex and relationship education.

Sex and relationship education is not just about challenging the attitudes among victims. It is also about changing attitudes among perpetrators. As the noble Baroness, Lady Howarth, reminded us, we need to remember that most child sexual exploitation is done either by a child’s peer or by a young adult. The NSPCC study already mentioned found that 65% of sexual abuse was conducted by the under-18s, while a Child Exploitation and Online Protection Centre sample of 1,200 known perpetrators found that, where the age was known, over half were under 24. Sex education can also be particularly useful in combating new forms of abuse, such as sexting.

As the noble Lord, Lord Bichard, said, the key to protecting children is accurate data sharing between agencies. However, there is concern about the Disclosure and Barring Service, whose job is to stop people who pose a danger to children from working with children. The operation of the DBS has been dramatically changed by the Protection of Freedoms Act 2012, which means that the DBS is barring fewer people. The number of people placed on the barred list in 2009 was over 17,000, and so far this year it is 1,400. Like the noble Lord, Lord Bichard, when the Minister comes to respond I would like to hear from her what the explanation is for this. Perhaps more importantly, the Act dramatically reduced the number of agencies with which the DBS is able to share information. Indeed, in many cases the DBS will be forbidden from sharing intelligence with a school or youth club, even after a DBS check has been requested.

Child protection is an incredibly broad subject, as reflected in today’s contributions. A number of inquiries have taken place, and there are many ongoing. There is an inquiry into Jimmy Savile’s conduct and why action had not been taken by various institutions with which he had a relationship. There is also the Waterhouse inquiry into the North Wales abuse scandal, and the Deputy Children’s Commissioner is in the process of holding an inquiry into the culture of grooming. The NSPCC has conducted a number of excellent pieces of research, as have Barnardo’s and the Children’s Society.

There are so many reports, but all seem to be brought forward in a way which allows those who have commissioned them, or those who have received them, just to leave them and move on to the next one. What we need from these reports is an action plan. As mentioned by other noble Lords, we need either a serious case review which brings together the various inquiries and brings forward clearer recommendations or, as suggested, the sort of qualitative and very narrow investigation prompted by accidents. This type of investigation was referred to by the noble Lord, Lord Bichard, in relation to civil aviation. Whatever the type, there is enough information and evidence around to require us to ensure that we have action plans and for them to be implemented.

At the beginning of my remarks, I mentioned the Munro report. The Munro recommendations were, by general accord, an excellent blueprint for action. When the Government responded, the then Children’s Minister, Tim Loughton, wrote:

“There is now a significant opportunity to build a child-centred system that: values professional expertise; shares responsibility for the provision of early help; develops social work expertise and supports effective social work practice; and strengthens accountabilities and promotes learning”.

What happened to those aspirations? All the evidence seems to be that the situation has got worse, not better, under this Government’s watch, and very few operating in the sector have seen a positive drive for change.

We do not need Jimmy Savile and the reports that have come out today and will be coming out over the next few months to remind us that we need to do more, discover more and work harder at prevention. I hope that we can use this useful debate to make progress on all those points.