Small Business, Enterprise and Employment Bill

Debate between Viscount Younger of Leckie and Lord Hodgson of Astley Abbotts

Wednesday 28th January 2015 Grand Committee

[Viscount Younger of Leckie]

I take the noble Lord’s point, but I spoke in support of my noble friend Lord Hodgson’s amendments on the grounds that there would be an exemption from the MRO.

[Lord Hodgson of Astley Abbotts]

The issue is that every company has a target return on capital. If it is to make an investment, it wants to make a return on capital and the company will set a target. The problem is that if you are going to invest your £30 million, you want to know what your return on capital will be. One issue that relates to return on capital is what will be the contractual relationship. Therefore, before you make your investment, you want to know what the end play will be, because that means that you can be assured—if it all goes well; it does not always go well—that you will get that rate of return on capital. That is the background to the figure that my noble friend is giving. Companies want to be certain that they have targets for the return on capital which they need to meet.

Employment: Zero-hour Contracts

Debate between Viscount Younger of Leckie and Lord Hodgson of Astley Abbotts

Wednesday 23rd October 2013 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, while I am sure that there have been some abuses of zero-hours contracts, perhaps I may ask my noble friend to keep the matter in perspective. The register of interests of your Lordships’ House reveals that I am the director of a brewery and a pub company. Our pub company staff find most welcome indeed the economic flexibility and freedom that zero-hours contracts give them.

[Viscount Younger of Leckie]

My noble friend makes a valuable point. Opportunities for zero-hours contracts allow, for example, students to enter the labour market. I have heard about instances of workers who used to work on the Tornado project using their legacy engineering skills in just such a way. They were particularly happy to do that. Also, zero-hours contracts particularly help the partially retired, who can work in a scaled-back manner.

Companies and Partnerships (Accounts and Audit) Regulations 2013

Debate between Viscount Younger of Leckie and Lord Hodgson of Astley Abbotts

Wednesday 17th July 2013 Grand Committee

[Viscount Younger of Leckie]

My Lords, as I was saying, in removing the requirement for reporting on policy and payment of creditors, we are taking this issue seriously. In November, my honourable friend in the other place, the Minister of State at BIS, Michael Fallon, wrote to companies to encourage them to become signatories to the prompt payment code. By 1 April 2013, more than 1,371 organisations had signed up to the prompt payment code. These regulations are not intended to stand alone and will be supported by guidance from the Financial Reporting Council. This guidance will be published for consultation in the coming weeks and will provide help for those companies whose thinking on their reporting is still in development.

I turn now to the third statutory instrument on today’s agenda, the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, covering reporting of directors’ pay. It is worth taking a few moments to elaborate on the reasons why it is important to make company reporting on directors’ remuneration more transparent. As the Committee will know, the Government’s comprehensive reforms to executive pay addressed concerns that the link between directors’ pay and performance has grown weak. This is damaging for the long-term interests of business and it is right that the Government are acting to address this failure.

These draft regulations are the final part of those reforms. Changes to primary legislation contained in the Enterprise and Regulatory Reform Act have given shareholders new voting powers to hold companies to account. These regulations give detailed effect to those changes for shareholders by setting out the information that quoted companies must include in a directors’ remuneration report. As a package, these reforms contribute to the Government’s wider aim of establishing a corporate governance system that supports long-term, sustainable growth. The regulations focus on the content of the company’s report on directors’ pay. They cover both the required disclosure of pay policy and the improved transparency of reporting on pay and I shall deal with those in turn.

First, on the remuneration policy, the Enterprise and Regulatory Reform Act amended the Companies Act 2006 to give shareholders new voting powers to hold quoted companies to account on directors’ pay. Quoted companies must put their remuneration policy to shareholders at a minimum interval of every three years. These regulations give effect to those changes by setting out the details of the information that quoted companies must give to shareholders in their directors’ remuneration policy. The policy must include: first, a description of the elements that make up each director’s remuneration package, such as salary, pensions and bonus; secondly, the maximum that may be paid for each of those elements; thirdly, an explanation of how payments are linked to different levels of performance and how that performance is measured; and, finally, the company’s policy on recruitment and exit payments.

In addition to the directors’ remuneration policy, companies will be required, as they are now, to produce an annual remuneration report setting out what directors have been paid in the past financial year. Remuneration reports can currently be long and opaquely written, which is why we are proposing significant changes to those reports to make it much clearer to investors how much directors have been paid and how this links to performance. In the new annual remuneration report, companies will have to: first, report the amounts paid to each director in terms of their salary, pension, benefits, annual bonus and long-term incentive plans, and provide a single figure for total pay; secondly, explain clearly how the payments relate to performance by giving details of actual performance against the targets set and how that relates to the amount received; and, thirdly, provide contextual information, including details of the fees paid to remuneration consultants for advice to the company relating to directors’ pay, and a comparison of the change in pay for the chief executive and the wider company workforce.

Under the changes to the primary legislation, shareholders will continue to have an annual advisory vote on a remuneration report. However, where a company’s shareholders reject the annual remuneration report, the company will be required to resubmit its pay policy to a binding vote at the AGM the following year.

I would make it clear that these reports are not intended to be long legalistic documents but to provide clear and meaningful information to company shareholders which allow them to hold the company to account. These regulations replace the current 2008 regulations on reporting and will apply to the same group of companies as at present—in other words, the approximately 900 quoted companies registered in the UK whose shares are listed on the main market.

These regulations have been developed in close consultation with a wide range of interested parties, including companies, investors and unions, to ensure the reforms achieve the policy intentions in a workable and lasting manner. This has been a challenging task and we are satisfied that we have successfully found the right balance. Indeed, several major companies have already started to adopt some of the new disclosures in this year’s annual reports.

I recognise that these are big changes, but we expect these regulations to be accompanied by industry-led guidance to aid companies and investors in their implementation of the regulations. We welcome this guidance, which is being developed by companies and investors together and is scheduled to be available in September. The guidance will be of real benefit in ensuring that companies provide a meaningful level of detail to their shareholders. However, and arguably more importantly, it also demonstrates the impact of improved engagement between companies and investors, engagement which we are starting to see and which will be the final part of making sure that these reforms lead to real and lasting change. I commend these orders to the Committee.

[Lord Hodgson of Astley Abbotts]

My Lords, I am grateful to my noble friend for his clear explanation of the three instruments. I want to focus my remarks on the last two—the strategic report regulation and the one that is concerned with directors’ remuneration. Before I go any further, I need to declare an interest, which is on the register. I am the senior independent director, or SID, of a FTSE 250 company, and the chairman of its remuneration committee. So these orders are far from being of academic interest to me. On Friday, the day after tomorrow, I will meet our remuneration consultants in Wolverhampton to discuss the implications of the instruments that we are talking about this afternoon. It is important that we should move sometimes from the rarefied atmosphere of this Committee Room and see what the things we discuss are going to mean on the ground and their real implications for British industry. With great respect to my noble friend and his officials, sometimes the reality of what is being proposed is some way distant from the undoubted good intentions with which the regulations are drafted. If this makes me sound a bit parochial, I am afraid that I am not going to apologise for that, because what we are considering and will no doubt pass today is going to affect 900 of Britain’s largest companies. I am concerned with the practical implications.

The business of which I am director is not a complex one. We brew beer in five breweries up and down the country and run just over 2,000 pubs across England, Wales and Scotland. We have no overseas operations and a pretty simple business model. I say that to my noble friend so that we can set in context the remarks that I am going to make about these two sets of regulations.

The Committee should be aware that, in 1995, our annual report was 25 pages long; by 2000, it was 41 pages long; and by 2005, it was 76 pages long. In spite of the observations in the Deloitte study included in the documents that have been circulated, which suggests that the size of annual reports is sloping off—I have yet to see a company whose annual report is shortening—last year it had gone up by a further 20 to 96 pages. So in 15 years, we have gone from 25 to 96 pages. I have to say that I do not think that that has helped the shareholders.

I looked through the objectives in the Explanatory Memorandum for the strategic report regulations, which says at paragraph 7.5:

“The suggested restructure and simplification of the reports aims at giving all stakeholders … the information they need in a clear and effective way so they can be active stewards of the companies they own”.

I thought, “Amen to that! Terrific!”. When my noble friend says, in his clear explanation, that we are going to simplify the framework, I say amen again. However, he went on to say that there is going to be a new section of the annual report. That does not sound like simplifying, it sounds like extending. It may have a simplified bit in it, but it does not sound to me as though we are going to shorten it, because he then went on to say that we are going to require the disclosure of other information.

I am particularly concerned about the growth in the annual report and, as I will explain as we go along, the effect that the growth in the size of annual reports has on individual shareholders. The fact is, as the Explanatory Memorandum makes clear, institutional shareholders are fine. They will turn up at our door, knock and say that they want to know about this, that or the other, and we will say, “God bless you guv’nor” and tell them. I am much more concerned about the average small shareholder.

We have a big shareholders’ list, probably not unconnected with the fact that we offer free pints of beer to every shareholder who comes to our annual general meeting. For small shareholders, less can often be more: something shorter and better focused can be attractive and advantageous. We are talking about a strategic report, concerned with the essence of what drives a company, but when I look at new Section 414C that is to be added to the Companies Act 2006, headed “Contents of strategic report”, I see that it has 14 subsections and begin to think, “Hello, what is going on here?”.

New Section 414C(7)(b) states that a quoted company’s strategic report must include information about,

“environmental matters … the company’s employees, and … social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies”.

We have 2,000 pubs and five breweries. What are we going to write? It will be either a telephone book or the most anodyne and superficial stuff, because you cannot move between the two easily. What will happen is that the consultants will come along and say, “These are the words you need to use in your annual report. They will meet the requirements of the strategic report which we will approve this afternoon”.

New Section 414C(2)(b) says that the strategic report must contain,

“a description of the principal risks and uncertainties facing the company”.

That makes no distinction between risks that we can control and those we cannot. The major risk that we face is what happens to the UK economy. If it goes badly wrong, people do not go to the pub, they do not eat at the pub and they buy their beer more cheaply at the supermarket. However, saying that would give such a broad statement that it will be of little value to the company or the shareholders. Surely it would be much better if the regulations placed more emphasis on describing the key risks that were within the company’s control, rather than such broad generic statements, as I am sure we will get to.

At the other end of the spectrum, at the micro level, when we get to new Section 414C(8)(c)—and remember that we are discussing a strategic report—it states that it must include,

“a breakdown showing at the end of the financial year … the number of persons of each sex who were directors of the company … the number of persons of each sex who were senior managers of the company … and … the number of persons of each sex who were employees of the company”.

The employment of women is critical. Believe me, when my noble friend goes to the pub on the way home tonight he will find that a lot of the bar staff, the people who work there and a lot of the managers are women. However, do we have to have this in a strategic report? Is this going to add to the sum of human knowledge and put a shareholder in a better position to make a proper assessment of the company’s position going forward? Less is more.

My concern about these regulations, worthy though their purpose is, is that they do not provide enough specific focus for an individual company. We are going to get a series of bland statements. We are going to have a meat cleaver rather than a surgeon’s knife. The regulations continue to put far too great an emphasis on reporting the past, judge the ship by the shape of the wake and do not provide directors with sufficient safe-harbour provisions in respect of forward-looking statements. For noble Lords who are not familiar with the term “safe harbour”, it describes a means whereby you can say something about the future without being sued for doing so, provided that you do not say something that is utterly reckless.

We want directors to be encouraged to make more forward-looking statements, because that is what it is all about. To do that, they need proper safe-harbour provisions built into these regulations. I do not see them there and I hope that my noble friend can say something about this when he winds up. To be really helpful to shareholders, actual and potential company reports need to look forward and peer into the fog of the future, but directors will be reluctant to do so unless they have adequate protection.

Legislative Reform (Hallmarking) Order 2013

Debate between Viscount Younger of Leckie and Lord Hodgson of Astley Abbotts

Tuesday 29th January 2013 Grand Committee

[Viscount Younger of Leckie]

My Lords, the primary purpose of the draft order is to enable the UK’s assay offices—that is, the bodies which test and hallmark articles of precious metal—to set up hallmarking operations in offshore locations. The Hallmarking Act 1973, which governs hallmarking in the UK, currently prohibits such operations, limiting the striking of UK hallmarks by the assay offices to within the territory of the UK.

The Hallmarking Act makes it an offence, during the course of trade, to describe a non-hallmarked article as being wholly or partly made of gold, silver, platinum or palladium, or to supply, or offer to supply, it with such a description attached. Section 2(4) of the Act defines a non-hallmarked article as one which does not bear the “approved hallmarks” and a sponsor’s mark. The definitions of approved hallmarks in Section 2(1) include one to the effect that approved hallmarks are,

“marks struck by an assay office in the United Kingdom, whether before or after the commencement of this Act, under the law for the time being in force”.

This imposes on the UK’s assay offices a geographical limitation, preventing them striking UK hallmarks in overseas locations. It places them at a serious competitive disadvantage to certain EEA competitors whose law does not prevent their assay offices from operating offshore.

The draft order is designed to remove this geographical limitation, thus redressing the competitive imbalance by enabling the UK assay offices to operate offshore, thereby helping to ensure their future viability and, in the longer term, protecting UK jobs. A feature of the scheme to permit offshore marking is that the British Hallmarking Council will authorise offshore-struck marks, which will be clearly distinguishable from the existing domestically struck marks. In order to make clear the distinction between the two sets of marks, the council will also issue guidance to the new offshore marks. This will help to introduce clarity for consumers, retailers and the enforcement community alike.

The market in articles of precious metal, and the hallmarking of such goods, has moved on. It is now a global business in which vast amounts of high-volume, low-cost jewellery are produced, mainly overseas. In order to capture this market, some of our EEA competitors have been busy setting up hallmarking operations within or in close proximity to manufacturers’ premises. They are able to do so because their national laws do not prohibit it. The advantages to both parties of such an arrangement are obvious and it is equally clear that failure to adapt to this changing market will pose an ever greater threat to the existence of the UK assay offices.

In addition to the main change to the Act, two other changes effected by the draft order are directly related to the broadening of the scope of the Act. The first concerns the widening of the choice of marks for sponsors and manufacturers, referred to in the Act as a “sponsor’s mark”. These are unique marks which identify the person or organisation submitting an item for hallmarking. Currently such marks must include the initial letters of the name of the sponsor. As there are only so many permutations of letters possible, these are beginning to run out. The order will therefore remove this requirement, making it easier for sponsors to register their marks. To ensure that some sort of rationale applies to the extended range of marks that will become available, the British Hallmarking Council will be issuing guidance on the limits that will apply to such marks.

The other change corrects an anomaly in the Hallmarking Act whereby articles of silver, gold and platinum cannot be coated with platinum without the written consent of an assay office. The change will permit articles of silver, gold and platinum to be coated with platinum without having to obtain such consent.

Why are these changes being made only now, given their obvious value to the UK hallmarking fraternity? The answer is severalfold. The changes being effected by this order represent the culmination of a lengthy journey. It has its origins, in fact, in the previous Administration, which began the process back in 2009 under the stewardship of the noble Lord, Lord Drayson. The Government of the day had to ensure that the legislative process they chose to pursue was the right one. As noble Lords will appreciate, such a process takes time. In addition, it was essential to secure the agreement of the British Hallmarking Council, which supervises the activities of the UK assay offices and includes assay office representatives, as to the detail of the approach to be taken. By 2010 this had been achieved and the order process was set in motion.

In the intervening period, the Government have necessarily focused on making sure that the order is fit for purpose, which has involved clearing a number of legislative and parliamentary processes designed to do just that. The important issue is that the order that has been forged from all these processes will achieve our original aim of opening up new opportunities for the UK assay offices.

In conclusion, a simple accident of drafting has led the assay offices to the situation in which they now find themselves. It is sobering to think that four words in the original drafting of the Hallmarking Act—“in the United Kingdom”—have led to this unfortunate situation. Were it not for that, the assay offices would be competing on level terms in overseas markets and we would not be having this debate today.

The UK hallmarking community has been the driving force in the case for legislative change. The consultation also revealed strong support from the trading standards community for the proposed changes. If the order becomes law, it will provide invaluable support to the continuation of hallmarking in the UK, which has centuries-old traditions. By so doing, it will have the potential to protect UK jobs while helping to ensure that the British public and retailers can continue to rely on a domestic market offering jewellery and other similar articles of precious metal bearing predominantly UK hallmarks. I commend the draft order to the Committee.

[Lord Hodgson of Astley Abbotts]

My Lords, I thank my noble friend for his careful and detailed explanation of the order, and I thank the officials in his department for the very extensive explanatory document they have provided. Before I go any further I have to declare an interest. I am a liveryman of the Goldsmiths’ Company, but I should make it clear that I am not speaking for the company; indeed it does not even know that I am going to make this speech and I am not sure that it will much like what I am going to say anyway.

I understand the reasons for the regulation. As my noble friend has made clear, this is about removing the restrictions on hallmarking within assay offices in the UK because they put those offices at a clear competitive disadvantage. The explanatory document talks about Thailand, India and Holland, so I quite understand that. I also understand, particularly when wearing my hat as a goldsmith, the extensive and high reputation of the UK assay offices; indeed, the word “hallmark” has a much wider use in the English language than merely being applied to the issue of jewellery made of silver, platinum and so on. It has become a word used to denote quality everywhere. So far, so good, but I want to probe a couple of issues.

We have two sets of people with different objectives as far as this regulation is concerned. The assay offices wish to increase the hallmarking model and they do not much care who does it, while UK jewellery manufacturers are anxious to build and develop their trade and who, by having an absolutely clear and unequivocal UK hallmarking standard, may have some competitive advantage. Because it is not tackled very clearly in the explanatory document, I would like the Minister’s reassurance that we are not in danger of hollowing out the UK industry in our efforts to protect the position of the assay offices.

Paragraph 9 on page 12 of the explanatory document reads:

“The Government agrees that it is likely that some jobs will be lost as a result of the setting up of hallmarking operations by the UK Assay Offices in overseas locations”.

That is surely true because elsewhere in the document it says that 35% of the jobs are going to be lost, or at least that is one of the estimates. Further on, paragraph 12 states:

“The Government therefore rejects the notion that no benefit will accrue to the UK as a result of the proposed changes to the Hallmarking Act. The unanimous expression of support for change by both the BHC and Assay Offices is a reflection of the fact that the demand for change emanated in the first place from within the hallmarking community”.

Of course it did, because it is looking for ways to boost its trade. It is not going to say anything other than just, “Right on, Government”. We need to be careful that we do not, by advancing the position of the assay offices, remove the competitive advantage from our manufacturing industry—an important industry.

My second point is the potential loss of quality and reputation. This is going to be an interplay between individual assay offices, the British Hallmarking Council and the international hallmarking convention. It would be helpful if my noble friend could say a little about this when he winds up the debate. The British Hallmarking Council is made up, I hope, of representatives from the assay offices; I think I heard the Minister say that. Is there a third party? Are representatives of manufacturers and others involved in this industry part of the hallmarking council? I ask because there must surely be a danger of some regulatory capture if only the assay officers are represented on the Hallmarking Council. In turn, how does it relate to the international hallmarking convention, which obviously only some countries belong to, because it is referred to in the explanatory document?

--- Later in debate ---

[Viscount Younger of Leckie]

I do apologise; I was under the impression that the noble Lord had raised that issue.

The noble Lord, Lord Stevenson, raised the issue of how to inform consumers about these changes. The procedure is that a dealer’s notice is required to be displayed in all premises selling hallmarked items, and this will include both the onshore and the offshore marks.

Finally, the noble Lord asked about the representation of the British Hallmarking Council. The council consists of 19 members covering eight assay offices, 10 government appointees and one chairman. The 10 government officers include four from industry, while the others are from consumer protection and the independents. I hope that that answer helps the noble Lord.

In conclusion, although there may well be some other questions that need to be answered—

[Lord Hodgson of Astley Abbotts]

I thank my noble friend. I do not doubt that his officials will be able to answer my question very quickly. Am I right in reading from the explanatory document that the profit expected from this is £400,000 a year? Have I read the explanatory document right? It seems to be an incredibly small sum of money for us to go through all this, but perhaps I have misunderstood or misread the explanatory document.

[Viscount Younger of Leckie]

Indeed, I have read the document and I can confirm that that is in the notes that I have read. I believe that it is an estimate, but I note what my noble friend has said in terms of the actual sum of money.

In conclusion, I hope sincerely that the introduction of this order will mark a turning point in the fortunes of UK assay offices, and I commend the order to the Committee.

National Lottery

Debate between Viscount Younger of Leckie and Lord Hodgson of Astley Abbotts

Tuesday 18th December 2012 Lords Chamber

[Viscount Younger of Leckie]

I suggest to the noble Lord that any issues relating to that are for the Gambling Commission. The National Lottery, I remind noble Lords, generated more than £92 billion from its inception in 1994 to mid-November this year. The annual sales figure for the year to April 2012 was £6.5 million, which is the highest since the start of the lottery. Therefore, it is a very successful operation.

[Lord Hodgson of Astley Abbotts]

Is my noble friend aware that people who give to local lotteries often do so because they wish to support a specific cause and, as such, will not give to a national lottery? In that sense, their contributions are additive. Since the National Lottery grew by 8.1% in the half-year to September—that is £264 million—what does it need protecting from? Would it not be better to let a thousand flowers bloom, encourage localism and not interfere?

[Viscount Younger of Leckie]

I agree with my noble friend. He gives me an opportunity to say that the Health Lottery has raised more than £28 million for good causes. Its turnover last year was £119 million. Although it has not been long since its inception, it has been highly successful and has benefited more than 30,000 people across Great Britain. Relations have been developed with strategic partners, including the Alzheimer’s Society and the Carers Trust.