Lord Stoneham of Droxford
Main Page: Lord Stoneham of Droxford (Liberal Democrat - Life peer)Enterprise Bill [HL]
Lord Stoneham of Droxford Excerpts“(“ 1) Subject to subsection (2), ”
Lord Stoneham of Droxford (LD)
My Lords, our first concern is that this is a blunt instrument to amend the previous legislation. In fact, it brings to my mind the son of Stalin taking up residence in BIS to obliterate all evidence of this institution, so I am grateful to the Minister for saying that the Green Investment Bank has been a great success and was one of the achievements of the last Government. From our side and for the record, we are not going to see it written off, eliminated or wiped clean. There is too much at stake and quite a significant government investment has been made into it.
Let me express our concerns. This is a long-term investment institution. The projects take two to three years to build and begin to earn any operational return, at which point they start to provide a long-term profit stream. We hope that the Government will be trying to take a long-term view and not resort to the short-term thinking which is too common in the City and in the market. It has been very successful. We have already seen £2 billion loaned, matched by £6 billion of private funds, and it is beginning to look as though the bank is a successful operation. But nobody will invest at a premium when we have had less than a year of profit. If the Government are to get their return and the bank is to be put into safe hands, our view is that they should not rush into this. The bank cannot really realise its potential until it has been in operation for at least five years. Having said that, we also recognise that the Government are not really fully committed to it. I suspect that one of the reasons that the executives have been supportive of this proposal is that they have been told that there is no further government funding, so if they do not go down this route they will hit a dead end.
Our final concern is that anybody with the slightest experience of setting up an organisation like this, which has been in place for only three years, will know that it is at its most critical stage when it is trying to approve projects with profitable streams and manage projects that it has already set about investing in. We are now going to have a huge distraction for the executive team over the next six months, as to how it is going to be sold and who is going to buy it. This is another case of where the Government should be setting an example and seeing something through, just as we should be telling the Stock Exchange that it should see more companies through in long-term decision-making and investment, rather than simply trying to get a quick return.
Those are some of our longer-term concerns. Turning to the future, I hope that the Government will confirm that they are going to freeze future funds so that there is no alternative to what they are doing, which is to privatise this organisation. In those situations, we are more understanding: if the Government have limited interest in the green economy then it is better for the bank to go it alone.
There are three objectives in the amendments that we have put forward. We do not think it is good enough simply to amend past legislation without saying what will be in its place, and what restraints on investment there will be in the Green Investment Bank. This organisation has had a central role in promoting green technology, innovation and supply-chain development. How do the Government intend to protect its purposes? The bank has shown that it is sustainable and has long-term objectives. How are we going to make sure that it does not lose its green focus? We do not want it to be like a different organisation, 3i, which was set up by the banks a long time ago. 3i was set up to support businesses but became yet another sort of investment bank. In my view, it lost some of its focus. Are we going to allow that to happen to the Green Investment Bank? We certainly should not when it is there with a specific purpose, set down in the original legislation. We want that protected somehow but it will not be easy.
Inevitably, whoever takes control of the Green Investment Bank—unless there is some controlling shareholding—will find it quite easy to change the articles and objectives. We want to ensure some ongoing green focus which continues the purpose of this organisation, and we have to ensure that the Government get the best return from their investment. There have been some pretty poor examples of this in the past, even in the recent past, and there has been criticism. If necessary, we want the Government to have an ongoing stake in this organisation so that they can get the return and exert some control over an organisation that is only three years old.
We accept that this bank has had real success. It has mobilised investment, shown that green investment can be profitable and set down a marker that we want to see it continuing. We therefore think that before the Government invoke the obliteration of the previous legislation they must set out exactly what they will do, what controls they will insist on and how they will maintain the success of the investment that the Government have already put into this and should see coming forward in future.
Baroness Neville-Rolfe
My Lords, I am in some difficulty because we are still designing the sale process. I know that the noble Lord has been in meetings where we have tried to explain the situation, and he has asked lots of questions. We have to try, with the House’s help, to find a way through. I have tried to explain some of our expectations and what we are trying to achieve, which I do not think is a million miles away from what others here want to achieve.
The noble Lord, Lord Teverson, rightly asked a question about the Royal Mail and whether the controls over it helped us in terms of a precedent. Actually, his comments show how valuable it is that we have introduced this amendment in Committee rather than leaving it until Report because he has asked some very good questions, and the Bill will of course go on to the other place. The simple answer on the Royal Mail is that it is regulated because it is designated as a universal service provided by Ofcom; it is not itself controlled by legislation. The same is true for other utilities, such as water companies, that choose to operate in a specific sector.
I understand that noble Lords will want to reflect on our discussion. The Government too will of course reflect on the discussions raised and on the amendments proposed. I note that noble Lords wish to debate this on the Floor of the House.
I said that I would respond on the question asked by the noble Lord, Lord Mendelsohn, about public interest in the GIB. The public interest lies in the GIB having a strong and secure future in the private sector as a green institution, and securing the best value for money for UK taxpayers.
I agree with my noble friend Lord Cope of Berkeley that it was right to raise this in Committee. In view of today’s discussion and the points made by noble Lords, I will withdraw my amendment for now and the Government will retable it on Report.
Lord Stoneham of Droxford
Can I just clarify one thing? I accept that the Minister says that she will withdraw her amendment. She said that she agreed with most of the points in my amendment, and that Parliament will be properly consulted. Given the uncertainty, what is the problem with putting some procedural amendment—I took my drafting from the Postal Services Act—in the Bill? Why cannot something like this be considered? I ask her, with due respect, please to consider coming back with a fuller amendment rather than something that gives the Government a complete blank cheque, which will not be acceptable in this House or the other.
Lord Teverson
I agree with the noble Lord, Lord Cope; he was absolutely right that this debate should have come to this Grand Committee. What concerned me was that the Government might try to make us agree the amendment, and I am grateful to the Minister for not doing that. It is an excellent step that I fully welcome.
Lord Snape
Does the noble Lord realise that he has just made a very effective case for the argument we are putting from this side of the Committee?
Lord Stoneham of Droxford
My Lords, the arguments have been very well put by the noble Lord, Lord Whitty. I support them and there is no point repeating them. These provisions are largely probing because the events of the last week mean that we are going to have to give greater attention to this. I had the inevitable job of dealing with the Member for Leeds North West on the basis of the assurances I had from the Minister. I hope she will be helpful in her reply so that when I go back to him he will not tell me, “I told you so”.
Lord Mendelsohn
My Lords, we first intended to introduce these amendments as an expression of our happiness at the collaboration and assurances that we had had. Our intention was to give the Minister a full toss, applaud her from the rafters, and say how wonderful it was that the Government were progressing with the work, because it was not contained in the Bill. This was a free hit for applause and I thought that it would compensate for many of the things we had said on other provisions, where we had taken a more questioning view. There are, of course, issues with some of the actions of companies, which I will come to in a second. To be in this position is a massive source of regret. The noble Lord, Lord Whitty, gave an outstanding oration on the issues in speaking to the amendment; the noble Lord, Lord Snape, too, gave an outstanding recitation of what is important about it. I also share the view of the noble Lord, Lord Stoneham.
I have agreed with the noble Lord, Lord Hodgson, on quite a bit of the Bill, but on this issue I feel an extraordinary sense of profound disagreement. I simply cannot believe that, in this day and age, someone is suggesting that there should be some sort of state meddling to maintain a market and that we should set ourselves completely against the operations of the free market, changing consumer tastes and increased competition. That is the wrong approach.
There is a problem with the pub sector. As the noble Lord rightly says, the causes of that are, more than anything else, changing consumer tastes and supermarket prices. Closures have come as a direct result of the choice of business model to go for unsustainable levels of leverage. I hope that, in my professional practice, we advise companies on what are sustainable levels of leverage. It was always clear that these would be very aggressive business models. It is important that we should not accept the beating-up of small businesses to maintain the capacity of large businesses. That is utterly wrong, but it is what we have to deal with.
The source of most regret relates to the fact that, over the last period, as companies were announcing their results, I was seeing some encouraging signs, unlike the noble Lord, Lord Hodgson. One company identified like-for-like growth over the year. It reported higher levels of underlying EBITDA. One company was able, on revenues of around £450 million, to look at levels of underlying EBITDA approaching £200 million. That is a fantastic achievement and it has allowed it to pay down debt. It is encouraging to see, in interim statements, companies saying that actions have already been taken to provide a more flexible business model “in light of the anticipated reduction of the market rent only option in 2016”. Companies have taken proper account of what was said and they have adapted their models. This is a case of the Government putting a cost on business by totally going against what they said before.
It is not enough to say that this is just a consultation. There is a sense of bad faith, which I will express in these terms. In commercial arrangements, when you have two positions, you come to a deal called a “heads of terms”, which is the overarching structure under which you define the agreement. I suspected that the Act, as the overarching heads of terms, accepted by all sides of the House, would be followed, but this consultation follows nothing like it in how it deals with conditions on the market rent only option and the parallel rent assessment—all that has changed. Even where there are provisions on market rent only options, they are not consistent with the terms that were there before. This is wrong. It is not unfair to say that we expected better.
I do not want to detain the Committee, but I have a few pages of this. The Minister previously expressed strongly the points on which we came to agreement on all sides of the House. There is even a complimentary reference to the noble Lord, Lord Hodgson, which I draw to his attention—I do not say that it is all bad. The noble Baroness said on Report, on 9 March 2015:
“I come to the parallel rent assessment itself. Following the introduction of market rent only in the other place, the Government sought to restrict the scope of this assessment so that it applied only to prospective tenants, as they will not have the right to market rent only. This was an attempt on our part to reduce bureaucracy and increase simplicity. However, it is clear from discussions since Committee that tenant stakeholders actually like the parallel rent assessment and feel strongly that it should be retained for existing tenants. There are tenants who have no wish to exercise market rent only but who want to ensure that they have a fair tied deal. They would far prefer to gain this reassurance by requesting a parallel rent assessment, rather than by starting the market rent only process. There are also arguments that the transparency of the PRA may help a tied tenant to decide whether market rent only is for them.”
The noble Baroness continued:
“Therefore, Amendment 33J”—
a government amendment—
“seeks to reinstate the parallel rent assessment. We will consult on how best to streamline this with the market rent only provisions so that, as far as possible, the processes are integrated to help both pub companies and their tenants and to minimise bureaucracy. I know this is something that my noble friend Lord Hodgson is very keen to ensure.”—[Official Report, 9 March 2015; col. 451.]
I have four or five pages of this. It was really a summary of where everyone was, and it was said not just in this House. Jo Swinson made comments in another place that were very similar. Something has clearly gone wrong.
Lord Mendelsohn
I am going to go for the record for the briefest-ever introduction of an amendment. This amendment seeks to set stronger targets for the rollout to businesses of basic broadband. There is a range of issues concerning broadband, not least in the UK. One area that we are most concerned about is allowing companies to market speeds that they can never attain or sustain—they are unable to do the work to achieve that. However, we have a whole range of concerns about how the market works, and I would set them out if I had more time. Some very effective comments were made in the Chamber by someone who occupies an exulted position here today. That person has been a doughty champion of broadband.
I want to focus on one element here. Most of this is really about trying to find additional funds to supplement the rural broadband rollout. In that regard, our main question is: is what has already been developed a failure? Are the providers that have been entrusted to do this, and which have previously assured us that the funds were available, wrong? Has there been a mistake? What would be the benefit of being able to do this? Has money been apportioned to this purpose, or will we be waiting for the spending review to find out what it is?
Lastly, I think that we will return to this on Report but I feel rather foolish as I spent too little time reading about the Industrial Development Act and these amendments are consequential to it. In this year’s annual report on that Act, under this wonderful gem, “Other Current Section 8 Schemes and Miscellaneous Section 8 Awards”, I notice that the Industrial Development Act, which we are essentially amending, was used to support the Prompt Payment Code. That was a rich treasure that I failed to fathom, and I hope to return to it on Report. I beg to move.
Lord Stoneham of Droxford
I do not want to delay the Committee. I think the Minister knows of my ongoing interest in the subject, and indeed she herself has shown great interest over the years. I must declare my interest as someone who has inadequate broadband; only one mobile company operates in my area, and the parliamentary system operates only upstairs in my house. As I do not live too far from two quite important industrial city centres, I regard this as completely inadequate.
I simply do not believe some of the figures that we have supposedly achieved with super broadband. Obviously, though, the big issue coming is what happens after 2016. The Government have to address that because it is very important, particularly to remote rural areas where quite important businesses can operate and must have access to these facilities. I look forward to the Minister’s reply.
Lord Stoneham of Droxford
My Lords, as housing associations have been designated as part of the public sector, I ought to declare my interest as the chairman of Housing and Care 21. I will refer to the housing sector in the course of my remarks on these amendments. Personally, I have deep concerns about this. We know that it was a manifesto commitment of the governing party. It was a good selling point for them because it was populist, but I fear and know that it will result in poor legislation and will have unintended consequences.
I am one of those who is immensely worried about management capability in the public sector with all the demands to reform, change and improve it. But here we are, again putting public sector staff at a disadvantage as against the private sector at a time when, frankly, that sector remains rampant in terms of its conditions, benefits and even its pay-offs, certainly for high-level staff. We will find as a result of this change that we have further difficulties getting the managers that we want for these very difficult jobs, where we are trying to get change and reform. It is not easy and the very best people are needed. I have said this before but 100 good managers are worth £1 billion in public spending. This puts them at a disadvantage.
The noble Baroness, Lady Donaghy, said that this does not affect just the high paid. It also affects some of the lowest paid in the public sector, for all the reasons she set out. This is not simply a populist measure because it deals with the high paid; it affects others. Pensions are the main problem here. There are generous aspects of public sector schemes but we have recently been through a renegotiation on a lot of these and we are now going to break them once again. What is the Government’s word going to be worth in these situations where contractual obligations are being overruled by legislation?
I will give one example from the housing sector. The most difficult job in my career is making changes where people have to be made redundant. I always find it painful, but I have always ensured one thing—you have to show other employees that when you make changes you look after the people who are vulnerable in that situation. Whether we like it or not, we are going to face those situations in the next five years. We have never before seen the reform and change that is going to come in the public sector on the scale that is coming. We will know more when we see the public spending commitments but it is huge. At this precise moment we are undermining morale and will increase resistance to change.
In every housing association I have chaired we have had to make changes and we have sometimes had to make payouts in excess of £100,000. However, I have never regretted doing so because we have saved millions in return. If we give up these opportunities for change by putting in inflexibilities which make change more difficult, it will hold up reform and improvements that need to be made.
It is absolutely essential that there is some flexibility here. Normally, there would be a ministerial guideline that all payments above a certain level should be approved. That should be a normal management guideline instruction, and if this was not part of a populist general election commitment, it is what would happen. It would be the best thing for the public sector. It would provide restraint and a guideline on what is appropriate. Above all, it would provide flexibility for those who deserve payment and need to be protected. That is what should happen, so anything we can do in this legislation to provide a loophole and some flexibility must be welcomed. Ministers will regret not doing it in a year or two when they are finding it difficult to get change in the public sector or when they are trying to get people to believe agreements they want to make. People will say, “Well, you made an agreement a year ago and you broke it. It was on pensions, something that is pretty important, and you just it let it go, so why should we trust you now when you are trying to make even bigger changes?”.
Equity, sensitivity and trying to get change are important issues and are going to be very important in the next five years. Any Government that go into these changes wearing these handcuffs will find it very difficult to get change and improvements, nor will they deserve to do so. At the end of the day, change is painful and difficult for the employees in the sector where it is being done. They need to be able to say that the people who are being sacrificed for change are being well protected and that their agreements are being honoured. That will actually help achieve change quicker. I hope the Minister will assure us that on Report they will look at giving themselves some flexibility. That will be welcomed.
Baroness Neville-Rolfe
I am grateful to noble Lords for their comments. At the outset, I shall address the point that the noble Baroness, Lady Hayter, made about whether the cap had been extended deliberately. First, £95,000 is a large exit payment, whatever the level of an individual’s former salary. The Government do not believe that the taxpayer should continue to fund exit payments larger than that. The clause allows for the cap to be relaxed, including to take account of exceptional individual circumstances. The large majority of workers are not affected by these arrangements; for example, less than 2% of recent exits in local government would have exceeded the cap. But where generous early retirement provisions are offered that include immediate payment of unreduced pensions, some lower-paid staff with very long service can currently be eligible for exit packages above the level of the cap.
The Government recognise the importance of exit payments in providing workers with support as they get back into employment or enter retirement. However, the fundamental point is that the Government do not believe that it is fair for taxpayers to continue funding the small minority of exit packages that cost over £95,000. The Government made a clear commitment in their manifesto—the source of the figure—to end six-figure exit payouts for public workers.
The noble Baroness, Lady Donaghy, asked about consultation; she said that it had been inadequate. The measure has been public for a long time. We announced the intention to legislate in May, I think, in the Queen’s Speech. We received over 4,000 responses, and do not believe that that suggests that there has been insufficient time to comment. Obviously, the measure will go through full parliamentary scrutiny during the passage of this Bill; we discussed it at Second Reading, are discussing it today, and I am sure that it will be discussed again. I express my thanks to the noble Baroness for her positive comments about some of the exclusions, which she has rightly highlighted. She also asked about the impact assessment. It is not a private sector impact, so it does not go through the RPC. There was an impact assessment as part of the consultation, which followed the usual criteria set out in government guidance. I do not know whether she has seen that; if not, obviously I will send it to her. I understand that the public had an opportunity to comment on it.
It is currently possible for employers to use taxpayers’ money to fund excessive exit payment, as a substitute for good management practice. I remember the noble Lord, Lord Stoneham, saying at Second Reading how important management was. I think he said that 100 good managers were worth a billion pounds. The availability of very large payments can lead to issues of poor performance. The possibility of redeployment is not always given adequate consideration, which we would all like to see. The cap and the additional scrutiny it brings to payments will encourage employers to act with discipline and proportionality in considering public sector exits, and will help to ensure that good management practices are embedded in decision-making.
Amendment 53A seeks to increase the value of the cap to £145,000, a much higher figure. It would require taxpayers to continue to fund six-figure exit payments for public sector workers. Statutory redundancy pay is of course capped at £14,250. Exit payments of £145,000 would of course represent payouts of 10 times that amount. A cap even at the level proposed by the Government will not affect the large majority of public sector workers, as I have said. For the few who receive such payments, the cap does not reduce their compensation to an unreasonable amount and still compares favourably to the private sector. In addition, as I have said, the clause applies for a waiver power to allow the cap to be relaxed in exceptional circumstances.