Important Public Services (Border Security) Regulations 2017

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Tuesday 24th January 2017 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I am pleased to join in this debate. I was involved in the original proceedings on the Act. A number of points have already been made which I do not need to repeat. I should like to concentrate on a couple of aspects, taking through some of the thinking that has already been displayed in this debate.

As the Government’s own record on contingency planning is very poor—as shown in the European issue—we have to ask whether they have prepared for some of the implications of these regulations. I hope that the Government have consulted ACAS on whether it has sufficient resources to deal with some of the problems to which these regulations will give rise. In the coming year, with inflation rising probably ahead of earnings, the Government are going to experience quite a lot of problems in the public sector. Resolving them will be further complicated by these regulations. They are going to have quite turbulent times. My noble friend Lord Foster quoted what I said in the original debate—that trade unions will have to invest extra resources into getting appropriate support in ballots. That has a danger in respect of strikes. As the Minister will have seen in the doctors’ dispute, where 90% support was achieved in the ballot, it was extremely difficult to get it settled and prolonged negotiations were needed. We will have much more of that in the public sector.

A further issue is bargaining units. I mentioned in the original debates what I called the winding-engine men syndrome. Those were the people in the coal mining industry who used to work the lifts. They had immense bargaining power. If you have all sorts of legal restrictions on thresholds for strike ballots, all that will happen is that you will have smaller bargaining units and therefore a greater ability to manipulate strike ballots to get the results that you want. It will be more difficult to resolve those sorts of disputes. I hope that the Government have looked at the consequences of what they are doing.

The noble Lord, Lord Kerslake, mentioned electronic ballots. It is in the Act; we passed an amendment that we would have an independent review of electronic balloting. I do not think that anybody who was involved in the debates at that time ever thought that we would implement those regulations. The understanding was that they would not be implemented until we had had the outcome of the electronic balloting review. What is the Government’s thinking on this? What is the purpose of the review and when exactly are we going to see the details of it?

I should like to re-emphasise—and it is important coming from our party—that this is a very partisan act, certainly on political funding. We deserve to hear from the Government what further action they are going to take on the Burns committee recommendations, which have silently been discarded and forgotten. As we have to agree these regulations, we should know what the Government are going to do. What are they doing on the whole issue of the unfair financing of political parties, in the context of a very one-sided act against the principal opposition party? Everybody knows that this measure is partisan and will lead to a continuing imbalance in our political system.

The Government try to portray themselves as consulting and as a so-called party of one nation but, frankly, is it not incredibly insensitive to implement these regulations? The officials, or whoever did the consultation, must have known that the union conference system runs from April until July. Everyone knows that. To implement regulations that start in March is clearly therefore going to cause upset. That seems to be totally insensitive and unnecessary, and shows the total contempt that the Government have had for the trade union movement in this country in planning this legislation and in the way they are now trying to implement it.

[Lord Mendelsohn (Lab)]

My Lords, I associate myself with the contributions that have been made. They have been pretty outstanding and have got to the very nub of the issues.

I thank the Minister for coming forward. We have had some very engaging discussions on other issues, and it is unfortunate that he has to deal with this issue in this particular way. I hope he is absorbing what we are saying and will respond adequately to it, but we do not hold him personally culpable for what has come before us.

It is important to understand that the conventional wisdom is that the Act was originally in the manifesto merely as some barking mad idea to negotiate away when the coalition was formed and that it would not stand. It is unfortunate that the circumstances evolved as they did and we ended up with something that was so partisan and vengeful. The debates that we had in this House were very significant; indeed, the size of the majorities against the Government’s proposals—certainly, there were calls for some balancing measures for the democratic mandate so accorded—was very large, and expressed the deep concern across the whole House at these measures. We ended up passing legislation not because people were happy or because they understood it but because there was broad agreement in the legislation, in discussions with Ministers and in assurances to the House that, in the spirit of trying to pass this legislation, there would be balancing measures. It is unfortunate that the partisan approach has returned with these instruments. It is important to understand that that is at the very heart of the statutory instruments.

I spent some time—after the Act had been passed, regrettably—looking at the nature of the strikes and what caused them, and analysing some of the strikes that took place in private companies and the public sector. The issue that came up during that time was that in most of these cases it was not that there were a series of workers who just militantly desired to withdraw their labour; there were massive issues of competency of management. In fact, although I did not do an exhaustive piece of research and I cannot say I necessarily had an adequate sample, in 85% of the cases that I looked at you could identify management failures, especially in the public sector, where arbitrary decisions are announced and workers are displaced because there is no consultation or preparation. In those circumstances, we have to understand that measures need balance.

To take the example of disputes at Southern rail, at the heart of that dispute is a contract that does not work. I know the Minister has been in business before. On many occasions we have seen the consequences of poor contracts. A variety of the issues at the very heart of why there is a difficulty in resolving a problem where there are problems of the competency of management are about contracts. It is wrong always to look through the wrong end of the lens. We are looking to the Government to restore the sense of balance that we believe we had when this Act was passed.

I read the Prime Minister’s speech at Davos when she talked about the notion of the rights and the voice of people who had not been adequately covered by these sorts of things, and the importance of strong institutions. In that context, I just do not understand why the institutions that the Government seem continually to want to stress, attack and undermine are those that represent working people. It is just not the right sense of balance.

It is our belief that trade unions are a force for good and equality in our society, especially in the increasingly insecure world of work. We remain fundamentally opposed to an approach that establishes restrictions on industrial action without balancing provisions to ensure that participation can be increased.

Trade Union Bill

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Thursday 25th February 2016 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I too hope that this session provides a little light relief for the Minister, who has had quite a hard time through various sessions of the Bill. It has been a bit like a series of one-sided OK Corrals. Over lunch, I thought I might ask the Minister whether she has any genes from Stonewall Jackson, that great Confederate general. The other metaphorical point I would make is that he ended up being shot by his own side—accidentally. I hope the Government at least allow the Minister to make the concessions in the Bill which will be her salvation.

Amendment 97A is welcome in providing a wider debate on where we are going and I would like to make a number of points. Employment engagement is very important to improving the country’s competitive position, and to improving services in the public sector. As someone who has been in industry, I certainly feel that we have far too much dependence on adversarial systems and processes—I sense this in our politics as well—when engagement and working together on problems normally provides much better solutions.

I am certainly one of those who welcomes unions and sees their important role in society and industry but, sadly, the reality is that although the unions remain strong in the public sector they have become weak in the private sector. However we may regret that, we have to make the point that although unions are important there has also to be a diversity of systems that can work well. We see that in companies such as Marks & Spencer and John Lewis, and many foreign-owned companies where processes have been developed not necessarily strictly through recognised trade unions. This is very important in the public sector, where we in this country will no longer have a great and dominant manufacturing sector—although we might like to aspire to that—but will be much more dependent on services. That requires the motivation of employees and will be especially important in the public sector; it is certainly important in the private sector. That is why an adversarial system is no longer totally relevant to improving industrial relations.

I welcome the spirit of this amendment, the thinking behind it and the opportunity to have a general debate, however briefly, on this important subject.

[Lord Mendelsohn (Lab)]

I congratulate and thank my noble friend Lady Prosser for introducing this amendment and will set out why it is particularly important. It was a sheer pleasure in the previous debate to listen to the contribution of the noble Lord, Lord Balfe, and to the good sense that came from all parts of the Chamber. I hope that the Government are very much in listening mode and can perhaps hear a case for change. I will set out why the Bill merits some sort of change.

An interesting feature of the coalition Government was that every year, we would read in the papers and in blogs that Conservative Ministers would present this very Bill to Liberal Democrat Ministers. Each year, they would say, “Together, we could do in the Labour Party, which would undoubtedly be to our benefit”. Each year, to their considerable credit, the Liberal Democrats would block the Bill. I am sure that some noble Lords present today were witnesses to this annual event. It was no surprise that the Government, given the opportunity, chose to use a huge legislative sledgehammer to target—and in some ways to torture and weaken—their perceived enemies or to make life a little difficult.

This is unfortunate, not just for the well-being of those who are perceived to be the enemies but because it highlights that the Bill has yet to pass a strong public interest test. During our debates, we looked at the “will the sky fall in?” test. It probably will not, but we have certainly not met the “unattractive consequences” test. We have had a good debate about the impact on the regions and on devolution, and whether or not this will weaken the union; I do not think it has met the test that it will not. We also had a debate about what the point of this is, and looked at whether it passes the test of minimising the harm it might cause.

However, the Bill does need to pass the “making a positive difference” test—not just to trade union members but to the public and the national interest. This is what this amendment is about: the role and work of trade unions in a modern society. As a businessman, I would say that this is also about the massive opportunity we have to use workforces and trade unions for better purposes. The Bill has a stunning lack of meaningful objectives, such as targets, goals or definable and provable outcomes. We have seen repeatedly that there is no evidence to establish that there is a problem to justify the solutions. There is no cost-benefit analysis and no meaningful consideration of the consequences of its measures. It lays regulation on obligation on cost on restriction on complication on Whitehall centralisation. It really is time for a bit of light.

The amendment also passes a very important legislative test, which is that it tempers the Bill with proportionality, purpose, principle and practicality. I strongly believe that government Front-Benchers in this House have clean fingerprints on the design of this Bill. They are respected in this House and do credit to a tradition in their political party and to our country’s political culture and traditions—the debate we had earlier attests to that. I have been very encouraged by the debates during Committee and the strong consensus for changes to the Bill in so many areas, but I fear that the dull hand of the other House will compress the capacity of our House to ameliorate the Bill and that the power of the arguments made so ably by so many will not receive the proper response. I hope Members there are listening not just to what we say about the measures they have introduced but to this very welcome addition.

In that capacity, I am very pleased to see the noble Baroness, Lady Finn, in her place. She of course plays a very important role as a special adviser with a particular responsibility supporting the Minister of State for Skills in the Department for Business, Innovation and Skills on trade union reform—a kind of facility time for the Conservative Party. It is very important for the message to be conveyed to the Minister and to those who have held the debates in the other House that there is an opportunity here to do something which restores a bit of balance and addresses the great tragedy of the Bill, which is that it is not about reform for a great purpose.

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[Lord Mendelsohn]

I accept the last point, but the report itself demonstrates that there are no problems with that. What is the case for any additional intervention? Can the Minister present me with evidence of any particular case or circumstance—anything, a report or a press cutting? I shall go on for a bit longer to give her the chance to respond on that point.

[Lord Stoneham of Droxford]

May I assist the noble Lord by pointing out that one area in which we will have more disputes is ballots, because of the Government’s determination to get rid of check-off?

[Lord Mendelsohn]

That is another extremely good point from the noble Lord, Lord Stoneham.

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[Lord Stoneham of Droxford]

I shall speak also to Amendment 107. Both amendments stand in my name and in the names of my noble friends Lady Burt and Lord Mendelsohn. I do not want to detain the Committee for long on these amendments because, in many respects, we have already dealt with the issues in principle. This is obviously a further initiative to try to restrict the amount of intervention—in this case, by the Certification Officer.

I just want to remind the Committee that the original trade union Certification Officer was appointed in 1975. From memory—I was brought up on the Donovan report, so I think I am right in this—the intention was to try to eliminate disputes, particularly about union membership, within and between unions. Therefore, it was thought that there was a need for better records and the recording of membership and finances to reduce the scope for disputes.

I re-emphasise that the Certification Officer is there primarily to protect the members of individual unions, particularly when they are in some form of dispute or disagreement with their own union. Their complaints are absolutely key. I accept that an investigation initiated by the Certification Officer, particularly if it is a public servant with the experience of the current Certification Officer, is the least-worst incursion that we are seeing in this Bill. Certainly, it is much better than the third-party initiative, which I think is a charter for cranks and would lead to all sorts of muddle and unnecessary bureaucracy. I have already said that there is no evidence that there is pressure or a burden of complaints that need to be answered, particularly from third parties, let alone from union members themselves.

Given that the Government have now started to consult the Certification Officer, can we ask him whether he wants these powers to investigate himself? Does he think these powers are needed? Those are two questions the Minister has to ask in relation to these amendments. It is clear from the oral evidence the Certification Officer gave to the Select Committee that he sees problems with the complications that have now been caused. There are those who say that this is common for regulators, but there are now four distinct areas of requirement for the Certification Officer. He is going to be an initiator of inquiries, if he wants to be, in the form of a policeman; he is going to be an investigator; he is going to be an adjudicator; he is going to be an enforcer. There are quite a lot of complications there, given that this is a semi-legal process. I wonder whether the Government have really consulted the Certification Officer on what he thinks those problems are.

Finally, let us remind ourselves that the great tradition set by the Donovan report—and we have accepted that, as experience has gone on, that was ameliorated by further Acts—was that, wherever possible, where there are disputes within unions, whether a member organisation or voluntary organisation, the emphasis should be on voluntarily resolving them. Trying to set up a semi-legal process that becomes increasingly complicated and does not emphasise the voluntary nature of what you are seeking to do will make it more difficult and more expensive to resolve. That is precisely why, amazingly, a Conservative Government are causing the expenditure on this regulator to go up from £500,000 to £2 million—what an indictment.

[Lord Mendelsohn]

My Lords, I will speak very briefly as we have spoken to the principle of the amendment and the noble Lord, Lord Stoneham, made a very powerful case and asked some very important questions. I just want to address a couple of points on which I would be grateful if the Minister could give us more detail. If she is not in a position to do so tonight, perhaps she will write to me.

My questions are on the financial components of this. In the Certification Officer’s evidence, he said:

“Our provisional thinking on all this is to recruit some new members of staff and then to play it by ear and recruit as we go along”.

The increase that he talked about is his,

“provisional view, but we are warning our funders, ACAS, that we may ask for more money”.

Within the context of the impact assessment, additional inspectors will cost between £250,000 and £500,000 and will look at an increased number of investigations. The impact assessment also talks about a likely 10 additional enforcement decisions being issued against trade unions every five years. There is very little behind the assumption of how you get to the first cost or the second cost and how the two relate to each other. What are the anticipated number of inquiries and how many of those will go to determination or other sorts of things if we open this up to third parties? I would be very grateful if the Minister could provide more detail on that. As I said, if she is not able to do that now, I am more than happy to receive a letter.

My final point is to clarify the position and probe whether there is a way of ameliorating this. There are of course fears and concerns that the Certification Officer could be pressured into carrying out investigations in response to a request from employers, campaign groups or a variety of people. Will the Minister confirm that the failure to act on submissions from third parties could expose the Certification Officer to risks of judicial review? Are there any safeguards in the Bill to prevent the Certification Officer being pressured by malicious motives?

I am a great believer that legislation rarely changes the heart and is there to restrain the heartless. In the circumstances that there are heartless people who have ill intent against the trade unions—and I believe there are—how can the Certification Officer be protected from these sorts of vexatious complaints, the racking-up of costs and the problems associated with allowing judicial review to be a mechanism available to third parties on spurious claims? I would be grateful if the Minister could give us some sense of how that could be dealt with.

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[Lord Mendelsohn]

My Lords, I think that we have gained a bit of momentum and I hope not to interrupt it.

We move on to a group of amendments which examines what happens to a union when it is unable to comply with the Certification Officer’s enforcement order. Clause 17 of the Bill provides the Certification Officer with a new power to impose substantial financial penalties on unions. Schedule 3 states that the maximum and minimum penalty amounts can be set in regulations but they cannot be less than £200 and cannot exceed £20,000.

The Secretary of State is given a power to issue regulations setting different amounts in relation to different enforcement orders and to reference penalties by whether the person in default is an individual or an organisation and by the number of members that a trade union has. We would be very grateful if the Minister could provide us with the Government’s thinking on those areas and how they are looking at setting those fines and how they are likely to operate. Given the momentum we have now achieved, it may be better if that information were provided in writing rather than from the Dispatch Box. However, if the Minister already has the relevant details, they would be gratefully received.

I return to an important issue. At present, the Certification Officer cannot impose financial penalties. I know that this is a repetitive line of questioning but I will ask the Minister again: what evidence has been provided as the basis for the Government to introduce these measures? From reading the Certification Officer’s evidence at the Select Committee and his annual reports, there was no sign of the need for a serious measure such as financial penalties for him to be able to exercise his powers effectively. The Government’s impact assessment predicts that if the Bill comes into effect, the Certification Officer will on average issue 50 declarations and enforcement notices during every five-year period. This is an increase of 10 declarations every five years. On each occasion, the Certification Officer is expected to impose a financial penalty, and a figure has been identified in relation to income from fines. As a result, it is anticipated that the Exchequer will benefit from fine revenue of £275,000 every five years. I would be very grateful to the Minister to be told how the Government have arrived at that figure. I am reminded that when you look at your credit card statement and it says that you have a credit card limit, it is a limit, not a target. An assumption that there is a £275,000 benefit to the Exchequer starts to create a target or underlines a series of assumptions which I think we should know more about.

There is no evidence of union non-compliance with the Certification Officer’s orders or any evidence of the Certification Officer raising concerns with government around the current enforcement regime. Therefore, the idea that there will be fines seems to underline a different series of assumptions or a different evidence base. I would be grateful if the Minister would indicate whether that is the case as regards either of those scenarios. I beg to move.

[Lord Stoneham of Droxford]

I will be brief because, frankly, discussing this issue will almost cost more—given all the noble Lords around the Chamber and all the people supporting us with the discussion going on until late at night—than this provision will raise in a year. The relevant figure is about £55,000. The impact assessment refers to five-year periods. I wonder why that is the case. The figures are so low. I could not find any evidence of enforcements in last year’s report, but, apparently, we have had eight enforcements per year on average. I am sure that the political advisers, the Minister, or whoever saw the impact assessment, thought that they had better talk in five-year periods because it makes the figure—40—sound bigger. If we put in these new powers, we will spend another £1.5 million and we will get two more enforcement orders a year. Goodness me, what is this? It is ridiculous. The Government are clearly contriving an issue out of nothing.

That goes back to my earlier point. The impact assessment says there is scope to increase the powers, but actually the Government have provided no evidence that it is necessary. The great sadness is that, as everyone knows, once you start having fines, interests become entrenched. Pride is at stake—nobody likes to be fined—so it becomes a legal process, it becomes drawn out and the poor old Certification Officer, who at the moment is doing a very good job trying to reach voluntary agreements, finds it more difficult because the parties become more intractable. And for what? For eight or 10 enforcement orders a year—goodness me!

Enterprise Bill [HL]

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Tuesday 15th December 2015 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I also place on record our thanks to all noble Lords for their contributions. The Bill that now passes to another place is certainly a better Bill than the one that arrived, which reflects the role of your Lordships’ House and the constructive discussions that we have had with the Government and others. On behalf of these Benches, I thank the Bill team for its hard work and its readiness to engage in detailed discussion. I thank in particular a member of the small business team, who made a welcome return to finally sort out a few issues that we had with pubs. Our Benches have been very ably supported by the quite outstanding Nicola Jayawickreme, and I put on record my thanks to her.

Our debates have certainly been wide ranging, covering many detailed issues. Of course on our Benches, my formidable noble friends Lord Stevenson and Lady Hayter have made quite outstanding contributions and taught me everything that I know. It has been exceptionally helpful to have many colleagues from outside add some quite outstanding contributions and raise issues which have helped our discussions—including my noble friends Lady Donaghy, Lord Snape, Lord Whitty and Lord Wills. I also pay tribute to the noble Lords, Lord Stoneham and Lord Teverson, and the noble Baroness, Lady Burt, on the Liberal Democrat Benches. We found a very good way of working with them and with the Government to improve the Bill in relation to a number of measures.

Across the House, the noble Earl, Lord Lindsay, has always been an expert on regulation; the noble Earl, Lord Lytton, made some outstanding contributions on non-domestic rates; the noble Lord, Lord Aberdare, raised retentions very ably; the noble Lord, Lord Low, dealt with public sector exit payments and matters relating to whistleblowing. Many other noble Lords contributed, too. I place on record my deep thanks to the noble Lord, Lord Hodgson, for at least agreeing with me once during the course of our discussions.

Finally, I pay tribute to and thank the noble Baroness, Lady Neville-Rolfe. It is always a pleasure to engage constructively with her. She is someone with whom you can always find at least some ground to work with, even when her hands are tied firmly behind her back by those in the Treasury and elsewhere. She is extremely inventive and courteous, and we thank her for the way in which she has handled this measure.

[Lord Stoneham of Droxford (LD)]

My Lords, I do not wish to detain the House, but I must join in the thanks to those on the Bill team for their patience, particularly on the Green Investment Bank, and all colleagues who have taken part on the Bill. I also join in thanking the Minister for her understanding, diligence, very good communications and patience throughout our proceedings.

Enterprise Bill [HL]

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Wednesday 25th November 2015 Lords Chamber

[Lord Stoneham of Droxford]

My Lords, I somewhat regret that we are down to the last 10 people standing in the Chamber on what I regard as probably the most important issue to involve small businesses that we have looked at tonight. This amendment deserves some consideration because it is important. I think that the Government are going off in completely the wrong direction.

Clause 22 opens up information for local authorities and the Valuation Office Agency, but it does not go back to the legislation of 2005 and open up that information for ratepayers. That is the simple issue. The problem is that the Government are trying to overcome a large number of appeals made against rate assessments. There have so far been more than 850,000 challenging the 2010 rateable values. It is no wonder that the Government want to do something about it. We know that this ties up resources dealing with what the Government consider to be some unnecessary and frivolous claims, given that 70% of appeals lead to no change, but why is this happening? All the experts tell us that it is mainly because the only method to extract information from the Valuation Office Agency is to appeal. We ought to listen to them. I think the assertion—which I agree with—is that if the Valuation Office Agency shared more of this information up front, it would deal with much of this problem, and the ratepayers and small businesses would be much more satisfied with their clarifications.

We have a consultation at the moment, with the Government looking to set up a three-stage appeal procedure: check, challenge and appeal. The check stage ought to be where businesses can check the evidence that the Valuation Office Agency is using, but all they are allowed to validate is information that they already have about their property and the current occupier’s rent. They will know that themselves, so that is hardly very helpful. This stage can take up to 12 months, and it then takes three years to complete the process for making an appeal. There are even more requirements on ratepayers to provide even more information and more grounds for appeal. It is very bureaucratic.

The Minister told us in Committee that the information that the ratepayer wants is confidential and therefore difficult to provide. But this information is known to landlords and their agents; it is simply information that is not available to the small businesses and the ratepayers, who do not have the resources to get it. We heard the quote from Graham Zellick, the recently retired president of the Valuation Tribunal for England, but it is worth quoting him again in this debate on this very important issue, because we think the Government are heading off in the wrong direction. According to the Estates Gazette, to which he gave an interview recently:

“The problem, he explains, is that the ratepayer is never given the full explanation for the valuation. As a result, every time there is a new rating list, ratepayers initiate a challenge … partly to protect their position but chiefly to ‘flush out’ more information”.

He says in that interview:

“Unless information is given up front, the system will remain defective and unsatisfactory and unjust. I don’t know any other tax that can be levied where the taxpayer doesn’t understand in full down to the last detail the basis on which the taxman has calculated the tax due. It’s unprecedented, it’s unique and it’s wrong.”

What are the Government doing? They are doggedly refusing to require the Valuation Office Agency to help businesses by making this information available. Instead, the entire burden of proof is being shifted back on to businesses. We have a cumbersome series of administrative steps, with targets and timescales in the way, failure to meet any of which can invalidate the whole appeal. This is not the direction in which the Government should be going. They need to have a good look at the direction they are taking: they are not helping small business and they need to change course. It may be too late now to do it in this House, but by goodness, if anybody is interested in small businesses, they ought to address this in the Commons.

[Lord Mendelsohn]

My Lords, I express our side’s strong support for Amendment 64 and will also speak to Amendments 66 and 67. This is one of those issues which seems small when it is first presented but then grows and grows as the significance of it becomes ever more apparent and as the voice of the people whom it impacts starts to find its full volume. I strongly associate myself with the speech of the noble Earl, Lord Lytton, which I thought was absolutely outstanding. It set out all these issues extremely clearly and demonstrated the quite extraordinary consensus that there is on this subject in every quarter—except in the Valuation Office Agency and, it would seem, in the Government. I also congratulate the noble Lord, Lord Stoneham, on an extremely impressive speech and a great summation of the issues, including a view on how check, challenge and appeal could actually work more sensibly.

I also declare an interest and an experience. Recently, at the business that I set up and where I spend a lot of time, surprised that our rates were significantly in excess of our rent, we decided that we would try to see why that was and what the situation was. I had never really dealt with this issue in any of my other businesses, and I did not know the answer. So we tried to find out what it was. We were given short shrift by pretty much everybody and were set the challenge that we would not find anything until we appealed. So we were invited to appeal by the very agency that is not happy about the level of appeals, because that was the only way we could find out information. We thought about whether we should do it. The hurdles were considerable—I do not think anyone does it particularly lightly in the first place—and we took the view that we had better things to do and that a full calculation of time and value would probably show that it was not worth it. So we left it.

Along came a chap knocking door to door in our building who said to us, “We do rating appeals. In fact, we have done most of the area and you, I am sure, are eligible to pay less”. We asked how he could be so sure. He said, “I will tell you what everyone else is paying”—and he did. He said, “I have done most of their appeals and I have won. I think that you and others in this block should appeal. I’ll tell you what: I am so confident, I’m not going to charge you anything; I will just take part of the upside”. We thought that sounded fantastic. So I am one of those people currently in the queue waiting for an appeal. I am coming up to my one-year anniversary of absolutely nothing happening, except that I have now found out that there is a whole group of us who have either been through or are going through the experience in a particular geography.

In fact, I met someone who is in a block that I consider to be considerably plusher than mine—underground car park, very fancy and much, much newer—and who is paying less than I am, in what I consider to be a somewhat rum building but we call it our office. They said to me that they appealed because someone else in another building who was paying more thought that they were due to pay less. It seems that a lot of people have a certain level of knowledge and a lot of appeals are generated as a result.

I have experienced that myself. I know that a huge number of people—the noble Earl, Lord Lytton, said that it is 250,000—are waiting for an appeal. That is a considerable number given the overall number of business premises. I would be very interested if the noble Baroness could give us more detail about the people waiting for an appeal, particularly the ageing profile—that is, how long they have been waiting for their appeal to come through.

There is a complete misapprehension that 70% of cases lead to no change and that therefore there is a problem with vexatious appeals. You do not find out any information until you appeal and then you make a judgment as to whether it is worth pursuing. The system has created the wrong question, which has then been given the wrong answer. That is where we stand.

Non-domestic rating is a highly significant form of revenue for the public sector, as well as having a high impact on business. Naturally, in the new digital economy it is easier to tax anything with a physical presence. Retailers alone are paying £2.40 in business rates for every £1 in corporation tax.

However, our question is about who benefits at what level and whether it is the right system; it is also about the operation of the current system. Some experts have concisely highlighted the problem facing non-domestic ratepayers. Individual valuation officers are the sole judge of what is proportionate. Ratepayers are still denied the details of how their valuations are calculated for classes of property, and they lack the capacity to make a proper, sensible judgment through a denial of information.

I am very tempted to add to those noble Lords who have quoted the distinguished professor and Queen’s Counsel, Graham Zellick, who, as the former president of the Valuation Tribunal for England, provided the best possible quote to summarise the situation. I have such a high regard for Professor Zellick that I agree with it without much hesitation, but the evidence of my personal experience is also strong.

Not only is the existing system unfair but it is hugely counterproductive. The lack of transparency has only resulted in more appeals, further burdening an overstretched process and creating a backlog which delays appeal results. In its current form, the Bill does not address the information deficiency between the ratepayer and the Valuation Office Agency.

The noble Baroness has previously stated that information cannot be shared with the ratepayer because assessments of other ratepayers are confidential commercial information. Let me be clear that we do not advocate the Valuation Office Agency sharing commercially sensitive information which may create some competitive or other advantage—or lead to the collapse of Western civilisation. We are not calling for the disclosure of individual commercial assessments which will never see the light of day in any other circumstances, but the information to contextualise a decision about the rate paid is important for the tenant.

As it happens, I do not agree with the assessment that there is such a thing as confidential information in this situation. The person who is deficient in information is usually the small business, the tenant, because larger companies and landlords can be provided with details of almost all the other deals in the area—a fact that I did not know until recently. I now declare another interest: I chair an advisory board of a property investment business. It specialises in residential property. I was shown a building needing refurbishment and we were able to get from all the agents—the estate agents and the large valuation agents—every detail of every deal in the surrounding area to make our commercial calculations. If it is good enough for other interests—particularly the landlords—why is it not good enough for the tenants? I really do not understand.

The inclusion of Amendment 65 is a matter for concern. I am grateful to the Minister for giving me an indication of why it is there, but I am rather more persuaded by the assessment that it prevents a sensible flow of information. It creates a new statutory bar to apply to identifiable taxpayer information that has been shared by the Valuation Office Agency under Clause 22, so the protection from disclosure under FoI is not lost with transmission. I am very concerned that we are just adding hurdles for the individual ratepayer.

I am inclined to believe that the check-stage process has some positive features—such as offering opportunities for more dialogue between stakeholders—but it does nothing to resolve the underlying issue that ratepayers enter into discussions with the deck stacked against them. They are expected to enter into a time-consuming and potentially costly endeavour with little knowledge of where they stand—unless they are fortunate enough to meet someone so confident and with such a strong record that they will do it for free. The amendment resolves the information asymmetry, enhancing considerably the check stage while protecting commercially sensitive ratepayer information.

Amendment 66 is designed to establish performance targets for the Valuation Office Agency. The timescales for the check, challenge and appeal process are unclear, and this ongoing lack of precision will further entrench a climate of uncertainty into the rate review and appeal process.

In Amendment 67, we are firmly against the imposition of any upfront fee for appeals. If the rationale for that is to discourage ratepayers from making appeals, penalising businesses and diminishing their access to justice is surely the wrong way to go about it; providing information seems much more sensible.

At its very core, in business rates, your liability depends not on your property but what is being paid by lots of other people, and you have no right to obtain that information or the context of their deals, while others have ready access to it. It is clear that there is a beneficiary from the measures—and we should play “hunt the beneficiary”. The Local Government Association and the treasurers in local government see benefits neither for themselves nor for business. Experts and commentators suggest that these measures achieve little and do nothing to help enterprise or business, so who do they help? They help the Valuation Office Agency by making its exchange of information easier within government and by raising the bar on appeals. Surely this is not right. If the Bill was called, “Making the Valuation Office Agency’s Life Easier at the Expense of Enterprise” then I would understand it. But this is the Enterprise Bill and it is meant to help businesses.

What is the calculable benefit to enterprise of any of these measures? If it is filling in one form, which has previously been suggested, then what we now have is a procedure that will require much more work, time, effort and resource—including cost—for businesses to pursue. Given that we have strong support for Amendments 66 and 67 from the Federation of Small Businesses—from the experience of small businesses— I hope that the Government will take these matters seriously.

Enterprise Bill [HL]

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Wednesday 4th November 2015 Grand 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.

--- Later in debate ---

[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.

Enterprise Bill [HL]

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Wednesday 28th October 2015 Grand Committee

[Lord Mendelsohn (Lab)]

In moving this amendment, I will also speak to Amendment 33. I will also express support for Amendment 19, from the noble Lord, Lord Stoneham. These amendments relate to confidentiality and how the Small Business Commissioner should act in relation to such matters. Amendment 16 ensures that complaints to the commissioner are made anonymously and Amendment 33 governs the conduct of the commissioner in relation to the confidentiality of discussions, documents and other matters relating to complaints. Of course, this assumes a degree of discretion—which is difficult to see, given the tight drafting of the current legislation—and indeed judgment from whoever is the Small Business Commissioner. On this side of Room, we are still reeling from the news that even people in exalted office have considered this role for themselves, so we believe the job will be taken by someone who has a degree of judgment.

These provisions deal with two important situations. The first is where a complaint is made in circumstances where a particular company is unable to pursue it for a variety of reasons, where its particular experience could be interpreted in a variety of ways and where there may be something of a pattern. A Small Business Commissioner can be empowered because small businesses are able to provide details that the commissioner can draw broader lessons from. The second situation is much more pernicious—where there is a real and genuine fear of retribution.

We have a strong evidential base for the proposition that the fear of retribution is causing problems in bringing forward complaints to regulatory authorities and adjudicators, especially about payment terms. The example of the Groceries Code Adjudicator, of course, springs to mind. It has been established for five years and operating for two, and it has a chief executive. It has had an unfortunate mishap with confidential information in recent times.

Following the release of some details, we have been able to identify that such concerns are widespread. In a survey produced for the Groceries Code Adjudicator, the issues that suppliers had could be identified. They were not just about delays in payment, which was a significant problem, but about such things as variations of supply agreement, the terms of supply, unjustified charges for consumer complaints, the obligation to contribute towards marketing costs, and lack of compensation for forecasting errors. The issue of payments as a condition of being a supplier was also remarkably similar to that of late payments. The range of issues that were dealt with covered a multitude of sins, most of which are not covered by the Small Business Commissioner. Even taking account of all those circumstances, the Groceries Code Adjudicator’s public response made it absolutely clear that the fear of reprisal is still the single biggest inhibitor to raising a case; indeed, one-fifth of those surveyed would not raise a case at all for fear of retribution. There are even larger problems when we take into account concerns about the adjudicator’s ability to address asymmetries of power.

This is not just about the fear of retribution, but confidence that the Groceries Code Adjudicator can maintain confidentiality or even do anything, given the strength of the businesses with which she is dealing. This issue came to the public’s attention when the adjudicator admitted recently that fear of retribution was probably her single biggest challenge, the biggest reason why suppliers did not raise issues with her, and that these matters had to be dealt with. Christine Tacon said at a conference in London that building trust with suppliers to encourage them to raise these issues is a major challenge for her. The measures we are discussing would give the Small Business Commissioner much greater ability to address these issues, and the means—or part of the means—to do so. We strongly believe that it is very important that the commissioner be able to gain the confidence of suppliers, maintain confidentiality, use discretion, address these issues and find better ways to resolve them. I beg to move.

[Lord Stoneham of Droxford (LD)]

I do not think there is much more to say than was said by the noble Lord, Lord Mendelsohn, in introducing these amendments. Amendment 19 stands in my name and I support all three amendments in the group. They are all about confidentiality and discretion. I am sure the Minister will support them as well because the principal problem is how you get people to complain, or at least raise problems, if they fear that doing so will affect their business and associated relationships in the future. If we want the office of the Small Business Commissioner to work and to enable them to do their job properly, we need to address this important issue. Confidence and discretion must be maintained unless the complainant agrees otherwise.

Enterprise Bill [HL]

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Monday 26th October 2015 Grand Committee

[Lord Stoneham of Droxford]

I cannot resist the temptation to support the noble Lord, Lord Hodgson, as he was so positive about my amendments. We will see what the Government say on these amendments but I sense that there is a general watering-down of the proposals and they will be slightly reticent about the advisory panel. If there is not a board or whatever supporting the commissioner, clearly a panel is a very good idea because it will widen support. It is related to the regional issue because if this body has only 50 staff, it is difficult to see how it is going to have regional purveyance and credibility around the country. All these points, plus the duty on the commissioner to refer good advice and to deal with regulatory issues, mean that this becomes much more of a one-stop shop where local businesses can come, initially with problems related to payment, but its remit will widen as other issues are seen to be pertinent.

[Lord Mendelsohn]

My Lords, I congratulate the noble Lord, Lord Hodgson, on his excellent presentation of these issues. We are very supportive, although I suspect that we would be less sympathetic to Amendment 6 on the advisory panel and it would not be something that we were wholly in favour of. This is not a formal ombudsman where there is usually an advisory panel to make sure there is some connection with it all. We also believe that the Small Business Commissioner needs a certain amount of discretion. We would not feel entirely comfortable with an advisory panel. However, the noble Lord might be infinitely more successful in persuading the Minister to adopt an advisory panel, and in those circumstances the measure would certainly help rather than hinder the potential progress of unlocking that broader role.

We strongly support the measures that the noble Lord talked about to address the questions of being very London-centric and making sure that the Small Business Commissioner understands the need to operate across the country, and also the noble Lord’s very apposite concerns about where regulation fails. Very briefly, our view is of course that the Small Business Commissioner has a role to work from the bottom up. Some of the problems we address in regulation could be dealt with quite comfortably by focusing on the role of the Small Business Commissioner.

On our Amendment 38, we are very concerned that on occasion the Small Business Commissioner would be able to inform government regulators and other public agencies of where the impact of regulation is far too onerous. In many instances, the easy option for regulators and administrators of all different types is to concentrate effort on enforcement, crackdowns and looking for disciplinary measures to deal with non-compliance. However, that is quite a lazy way to deal with the lee-ways available. Simply issuing infringement notices is not the best mechanism available to regulators to improve the business environment. Businesses want to comply with laws and regulation. Non-compliance, especially in the case of small businesses, is frequently associated with unawareness or even the very simple management challenge of having too little time and, frankly, expertise in the areas dealt with. There are only a small number of people in a small business, ranging from one to a few. It is far too much to believe that someone would be able to spend their time finding—or then understanding—all the regulatory and legislative ins and outs.

It is a responsibility of government, agencies and regulators to inform and educate small businesses about the rules and regulations that they need to comply with. Our proposed measures, together with those of the noble Lord, Lord Hodgson, sensibly address this and look for opportunities where compliance can be streamlined and business interaction reduced. The example that the noble Lord raised is one we can avoid. We need to make sure that the Small Business Commissioner plays his part in ensuring that government agencies and others can be facilitative and educative, can deal with the problems of information and are able to ensure justice, rather than just be crackdown enforcers who impose on the management of businesses the sort of difficulties which we would rather redress. Here are proposals to ensure that in circumstances where the Minister may consider it, the Small Business Commissioner might, apart from the prime and overwhelming focus, at some point on the horizon be able to exercise their immense judgment in being able to develop that sort of role. We strongly support these measures.

Small Business, Enterprise and Employment Bill

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Monday 9th March 2015 Lords Chamber

[Lord Stoneham of Droxford]

My Lords, I do not want to detain the House too long on these amendments and have a long argument on the respective merits of “may” and “must”, as I understand there are certain legislative interpretations of that. However, as I said earlier, we are concerned that a lot remains to be decided in the secondary legislation. Therefore, we want to be as firm as we can about what the primary legislation lays down. If the Minister can confirm that “may” means “must”, I understand that there will be no problem. All I seek is clarity and to leave the draftsmen to draft what is appropriate in the circumstances in legislative speak, hoping that “may” equals “must” in a layman’s understanding.

However, Amendment 33AR is a more substantial and significant amendment as it seeks to align and clarify the definition of “tie”. Clause 68(5) defines “tie”, saying:

“Condition D … is subject to a contractual obligation that some or all of the alcohol to be sold at the premises”,

et cetera. Amendment 33AR seeks to widen that by inserting,

“product or service tie supplied or provided by”,

as other ties exist in pubs. We want to align this definition with the definition in Clause 43(4)(a)(ii), which states,

“does not contain any product or service tie other than one in respect of insurance in connection with the tied pub”.

We are seeking to clarify the definition of a tied pub. I beg to move.

[Lord Mendelsohn]

My Lords, I rise briefly in support of the amendments tabled by the noble Lord, Lord Stoneham, who has been an assiduous follower of the Bill. These are important tidying-up amendments that help correct and clarify some key measures in the Bill. In particular, Amendment 33AR is an essential requirement to make sure that there is consistency in the Bill. I hope that either the amendment will be accepted or the Government will agree to bring it back at Third Reading.

[Baroness Neville-Rolfe]

My Lords, I am afraid that I cannot agree to this amendment. I explained why we could agree to “must” elsewhere in the Bill but we are unable to agree to this amendment for reasons that I have also explained.

Small Business, Enterprise and Employment Bill

Debate between Lord Stoneham of Droxford and Lord Mendelsohn

Wednesday 28th January 2015 Grand Committee

[Lord Stoneham of Droxford (LD)]

My Lords, I worked for most of my life in a sector where we were often referred to as being in the last-chance saloon—the newspaper industry. It is perhaps a more appropriate analogy to make to the pub sector and its owners. Many attempts have been made to grapple with this issue. My noble friend mentioned four Select Committees. There have been unintended consequences in profusion as we have tried to deal with the issues over the past 10 or so years. We have to get it right this time and anticipate, where we can, any actions that could try to get round the intentions set by Parliament.

We are talking about small businesses. At its heart, what we are trying to achieve is to be in favour of free and fair competition. This means that ties must not create unfair pressures on individual publicans or give too much power to large companies. That is what this is about. When Parliament started to look at the whole beer industry over the last 20 or 30 years, it never anticipated the existence of pubcos. We can concentrate on them, but pubcos are already property companies that have overleveraged themselves—as, indeed, have many regional newspaper owners, as I know from experience. They are finding it difficult to survive and to invest. I will come on to that in a moment, because it is at the root of a lot of problems.

With their amendment, the Commons agreed to enshrine in law the principle that the tied licensee should not be worse off than a free-of-tie licensee. That is what the Commons laid down. I accept the concerns mentioned by the noble Lord, Lord Whitty, that we do not want to go down a route where this is watered down and put into a consultation period of 12 months, and then find, as we emerge from the long grass, that it has been watered down even further. That is my concern. There are a number of weeks still to look at this. As we move to Report our task is not to water down what the Commons decided but to improve the workings of the code and the Commons’ intentions, to enable our pubs to be more sustainable, able to be improved and invested in, and to protect community institutions run by enterprising and hard-working publicans.

Over the last few weeks I have been pleased to visit a number of pubs owned by Punch and Enterprise. One visit was at the instigation of the management of Punch. I have to say that no lunches were involved, but they knew the way to my heart: they arranged for me to see the pub that is the principal pub of Portsmouth football supporters. I also visited some tenants on their own as part of my due diligence looking at aspects of the Bill.

I will deal with a number of particulars that are being raised in the amendments. First, let us look at the threshold. There is a change from the threshold being “all pubs” to 500 tied pubs. As the noble Lord, Lord Whitty, indicated, the concern there is that it creates a distinction that might encourage companies to move tied pubs out of their remit so that they can get below the 500 limit. The original definition was, I think, based on the size of the company and the power that they are likely to have in the marketplace. There was also a concern to protect the smaller, family-owned brewery companies and their tied pubs. We are concerned about this change because we fear that it will provide an incentive for companies to reduce their number of tied pubs.

We also recognise that, in the leasehold model, there is a lot of movement between tied and non-tied pubs, where exploitation of market power can emerge. That is why it was thought important, in the original Commons clause, to link the two, so that the 500 threshold was across the board and not just related to the tie. The other aspect—there is a division here that the Minister should confirm—is that we are assuming that the 500 limit will be confirmed and can be changed, if necessary by affirmative action, if the response is that it is used to contrive ways round the threshold. However, the actual figure will not be enshrined in the primary legislation. I would like confirmation on that.

There are further issues on definition. The proposal is fundamentally to protect tied pubs but once the market rent option is exercised the tenant effectively will not be able to access the protection offered by this pubco. Someone said earlier that the rights of tenants will be preserved, but if they move from a company that is covered by the 500 threshold to one where it is not, they will lose some of their rights. We need to ask the Minister what her current thinking is in ensuring that some ongoing protection continues if a tenant moves to the market rent option.

We are concerned about the removal of the sale and the administration trigger points, as these are precisely the avenues that anybody trying to get round the legislation will go down. I also understand the concerns, particularly with the complication on the administration side—we all know it is a complex process—but speed is of the essence. We need to look at what protection is available to the tenant in sale and administration. If a company decides to sell and move a tied pub into another company that is below the threshold they will lose the market rent option right. Tenants will lose a right by that move. Is there some mechanism that can continue that protection after the sale for those tenants in that situation?

Similarly, on administration, I understand the complications. I have worked in that area at times in my career when companies—not my companies—have been in administration. I know that speed is of the essence and the complication of the MRO is an issue. Again, if somebody is a tenant in a company that goes into administration and moves into a company that no longer has the protection of the threshold, will they lose their rights? I think they will at the moment, but if we are to change the triggers we must look at that when we consider the reformed clause.

Another area in which concerns have been raised is the parallel rents assessments. When a tenant has the opportunity to go down the market rent option, the whole point of the parallel rent assessment is that it improves the information for the tenant in terms of helping him to make a decision as to his direction. Doing away with that for existing tenants needs to be looked at.

I turn to the amendment tabled by the noble Lord, Lord Borwick. I understand that there are two stages. There is a 21-day period when someone is trying to get agreement on the market rent option. If he goes down that route he has 90 days for it to be set and organised. But if we turn the 21 days into 90 days there will be a six-month period of uncertainty, which clearly is not acceptable. In the initial negotiating period both parties might agree that they are making progress and are moving towards an agreement but they cannot meet the 21 days, so they could mutually agree to extend the period. That would be quite normal in a legal process in business. That is another area that should be looked at.

Something I noticed when I visited those pubco pubs was that some publicans had investment or were about to have investment. They are the tenants who are most likely to be pleased and probably in line with this, but not altogether. We need some protection for investment in the sector. As we go down the route of the market rent option it will have to reflect the investment that has been made in the pub.

I assume also that if the pub has had an investment, some agreement will have to be made on exactly how that would be funded. The tenant might well want less of an increase in rent and more on the wet rent because that is a marginal cost, as opposed to a fixed cost. These are quite complex issues but there is nothing stopping protection where the market rent option is a possibility; if there has been investment, it would normally be reflected in the market rent that is set.

With those comments, while I did not speak in our initial debate, I say that I am concerned. I had access to the order of the amendments only at about 12 o’clock today, so trying to prepare how the hell one was meant to reply to this debate was difficult when one did not know what the order was. A lot is required in working out what the final Clause 42 should have in it. I shall listen carefully to what the Minister says but, as I imagine we have four weeks or so before we come back to this on Report, we will have to have a consultation on the detail so that we get this right.

[Lord Mendelsohn (Lab)]

My Lords, I want to clarify one thing in response to the comments of the noble Lord, Lord Hodgson, about my dear and noble friend Lord Stevenson of Balmacara, who is not in his place. He does in fact drink at the Crown; the alternative option is the Red Lion. They both happen to be privately owned, so we will leave that one there.

I am grateful to my noble friend Lord Whitty for helping us to focus on the context of this debate. There is little doubt that a small business Bill is the perfect location for these provisions. During the discussions we have had on supporting small business, all sides of the Committee have raised issues to ensure that small businesses are given the support to allow them to operate efficiently and to have the right level of protections and opportunities for commercial activity, employment, growth and development. In the area that we are addressing today, we are looking at issues of asymmetric information, imbalances of bargaining power, behaviour and commercial restrictions—all issues that we have discussed in different ways on parts of the Bill.

We believe that the Bill should be a key part of the UK’s growth requirements, to be achieved by allowing commerce and markets to flourish and addressing impediments to functioning and competitive markets. This is why we are keen to support it. Commercial change, innovation, transformation and adaptability are crucial for the UK. With all the good that there is within the UK pub sector—although there has also been some bad, which many colleagues spoke to so eloquently at Second Reading—it is a market that should see itself as being enabled by the proposed legislation and the measures that we are debating today. We certainly see the market rent only option in this context. It is a firm pro-business and pro-market principle that we are pleased to see in the Bill.

Labour has long argued for a market rent only option as the only way of guaranteeing the principle that tied tenants are no worse off than their free-of-tie counterparts. We have brought the issue to a vote in the Commons four times. Under the original Bill, licensees would merely have had the right to ask their pub company to show them how much their rent would be under a free-of-tie scheme. This was problematic, as all the information would be held by the pubcos; all the calculations would be crunched by their accountants and all the final estimates made by them. Even if they then revealed that the landlord would be better off free of tie, they would have had no legal right to demand this option.

The Government’s own response to a consultation on a statutory code, printed in June, concluded that,

“a mandatory free-of-tie option … is popular with many tenant groups and might arguably offer the simplest way of ensuring a tied tenant is no worse off than a free-of-tie tenant”.

However, for reasons known only to them, it took a new clause and a massive Back-Bench rebellion for the Government to come to what in our view was the right conclusion. Now that they are there, we are very pleased that they are working hard on how we can make this work. The proposed new clause puts the right principles back into the Bill. It delivers a mandatory free-of-tie option that allows publicans to buy their beer on the open market. The Business, Innovation and Skills Select Committee concluded that this was the only way to ensure that landlords would be no worse off than if they were free of tie, as it would force pubcos to offer tied tenants the best deals.

We are in a somewhat complex position. We have had amendments tabled very late and I saw the impact assessment only on my way into the Committee today. It is not simple and straightforward, and the lack of time to adequately identify where we are on all these matters has generated a great deal of examination and commentary. Some aspects were expected, but there is a great deal of concern about the approach in detail. I look forward to listening to the comments and explanations that the Minister is going to give. I expect she will have quite a bit to do today. We should make it clear that although we are supportive of the Government’s approach—