Enterprise Bill [ Lords ] (First sitting)

Alan Brown Excerpts

Tuesday 9th February 2016 Public Bill Committees

[Bill Esterson]

I thank my hon. Friend for that point: we might almost think that the Government had designed it so that that would be the consequence.

Many small businesses find trading with the public sector very different, because of late payment and retentions in the construction sector, and because of the arrangements for contracting, procurement and tendering. Given that the public sector is such a large part of the trade of small firms and one of their biggest markets, it seems odd that the small business commissioner is not going to be constituted in a way that will allow support to be provided when the public sector is involved. That is the point my hon. Friend made. In fact, the issues of late payment and retentions, contracting, procurement and tendering are the same whether the business being contracted for is with the public or the private sector. The imbalance in the relationship between large and small is the same in both sectors, and the need for a level playing field is the same.

Public sector organisations that buy from the private sector should treat large and small businesses equally, yet many of the complaints from small businesses suggest that large firms have the advantage in tendering and other contractual matters in their relationships with both public and private sectors. Certainly my own experience in business was that it was almost impossible, as a small business, to get anywhere in tendering or even in getting past the pre-qualifying questionnaire. I know that that is a complaint often made by small firms: there seems to be an automatic decision to choose the larger firm when it comes to contracting.

If we want the small business commissioner to be as effective as possible, we should enable and, indeed, encourage him or her to explore and address the challenges where they lie and where small business wants support and advice. It makes sense for small businesses to have one place to go to for help, no matter the cause of complaint. If what the Government want the small business commissioner to address late payment as a priority, it makes sense for the commissioner to address late payment, not just some late payment. Whether a small business has difficulty being paid, progressing with tenders or developing its business with large customers, many of the same difficulties of anonymous organisations present themselves. The idea of a one-stop shop seems to make a lot of sense, and this group of amendments is an attempt to give teeth to the commissioner from the outset and not to limit his or her remit.

In the Lords, the Government said they did not want to include the public sector because there are other arrangements for complaints against the public sector, and for mediation. The obvious answer is that the difficulties that small businesses face are such that the existing arrangements are not sufficient, just as the existing arrangements are not sufficient in relation to late payment and other relationships between large and small firms in the private sector.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Sir David.

The hon. Gentleman makes a valid point. I agreed with what he said earlier about the relationships between businesses and their clients in the public sector. He pointed out that the current arrangements do not work. There is also a risk associated with Government cuts in the public sector, because one of the easiest places to make cuts is in the backroom staff who process invoices and so on. If the current system is not working, there is a risk that things will get worse for small businesses. It is really important that the public sector is included along with private businesses, so that the small business commissioner can hold them to account.

[Bill Esterson]

That is an excellent point, because it highlights the fact that when Ministers and Government MPs say that cuts can be made in administration or in non-essential roles, there are consequences. As the hon. Gentleman says, one of the consequences is in accounting departments, and there is a potential knock-on effect of the late payment of small businesses. One reason why it would be a good idea to include the public sector is that the commissioner could shine a light on some of those problems, gaps and staff shortages. They could say to the Government that they should rethink the scale of cuts in the public sector, that the consequences of those cuts also have an effect on the private sector and the wider economy, and that perhaps those Treasury decisions should be reconsidered. Of course, that is much harder to do if the commissioner is part of the Department and owes his survival in post to the Secretary of State.

The Groceries Code Adjudicator was set up, albeit on a limited scale, and we could learn much from that experience when considering how best to set up the small business commissioner. When I say “a limited scale”, I mean that a three-day-a-week adjudicator with five members of staff is responsible for 7,000 suppliers with 300,000 indirect suppliers that are not even part of her remit.

The Groceries Code Adjudicator was set up to address the imbalance between large supermarkets and their suppliers, because there had been a long-standing problem. There is also a long-standing problem in how many small businesses are treated by some public sector organisations, and the creation of the small business commissioner is an opportunity to address problems for small businesses, regardless of where those problems originate. That includes working with the Groceries Code Adjudicator.

One learning point from the Groceries Code Adjudicator, by the way, is that she has spent much of her time explaining to suppliers and others what her role and remit are, leaving her much less time to devote to addressing the concerns of the industry, which was why the office was set up in the first place. Maybe that is one reason why, after two years, she has held only one investigation, welcome though that investigation of Tesco is. We should take that experience on board.

The adjudicator has raised concerns about suppliers’ reluctance to complain and difficulties in ensuring confidentiality in the complaints process. We will move amendments on those points later in our discussions. Hopefully, we can learn from the Groceries Code Adjudicator to ensure that the small business commissioner is as effective as possible, as early as possible.

On the relationship between small businesses and the public sector, there are sometimes supply chain situations in which a small business supplies goods to a private sector customer, who in turn contracts with the public sector. My hon. Friend the Member for Wakefield made that point earlier. Construction is a good example; we will come to the issue of cash retentions in the construction industry numerous times in our deliberations.

If a small business is not paid by a larger customer, which in turn is struggling because of delays by a public sector organisation, I can see how the small business might approach the small business commissioner for help but be told that the complaint is beyond the scope of the small business commissioner due to the involvement of the public sector. The simple answer to that and other disputes with the public sector is for the small business commissioner to be able to intervene in all cases brought to him or her by small businesses. As the Minister did not respond earlier to the point made by my hon. Friend the Member for Wakefield about supply chains involving the public sector, perhaps she will do so this time.

The amendment also address the fact that most small business trade is with other small businesses; again, larger firms and the public sector are often somewhere in the supply chain. I believe that such disputes are also excluded from the small business commissioner’s remit, unless the Minister tells us otherwise. There is a wider business environment, and for the small business commissioner to deliver, it needs to be able to do so regardless of the nature of the parties involved.

During the debate in the other place, I noticed that there was discussion of how late payment could not be considered in isolation. It was suggested that to address late payment effectively, the small business commissioner would also have to consider commissioning and operations. As hon. Members will know, payment in business is due only if a contract has been properly agreed and completed to the satisfaction of both parties. There are legal definitions of what constitutes the completion of a contract, which go beyond my limited knowledge of the law. The argument was made in the Lords that late payment is often the result of disagreement about contract matters and about whether a product or service has been delivered as agreed. As a result, it is difficult to see how the small business commissioner will be able to consider late payment in isolation.

The point was also made in the Lords that if small businesses want help with late payments or anything else and are told that the Government have set up a wonderful new service, but are then told that the small business commissioner is not allowed to help with their particular problem, they will feel let down by the Government. It will reinforce the impression that the Government are not really interested in helping; that they are not really on their side; that they stand up for some groups, but not others; that they are there for the Googles and tax havens of this world but not for small businesses. That impression already exists through measures such as the introduction of quarterly filing of tax returns, the scrapping of the growth fund and business accelerator and the movement from grants to loans for small businesses. The creation of the small business commissioner is an opportunity to put some balance back, but only if it is done in the right way. That means not restricting where the small business commissioner investigates. It should be able to look at other elements of the business relationship, including commissioning, procurement and operations, and its remit should include the public sector and other small businesses.

The Government want the small business commissioner to concentrate on late payments. Given the scale of the problem, we do not object to that, although it is not the way in which the Australian commissioners have been set up. The advice from Australia, from the excellent Mark Brennan, has been that having late payments as the commissioner’s main focus might limit the role, because late payment is about a lot more than the immediate issue of whether a particular invoice is late. The commissioner could and should be able to do a lot more, and should have an important role in improving the wider business environment for small business and the economy as a whole. Better information is an important part of having a successful economy, with low barriers to entry, that encourages and supports the growth of businesses or all ages and sizes. Having the appropriate regulations to ensure fair competition is another important element.

It is clear from the successful work of Mark Brennan that there is an opportunity for our small business commissioner to provide information and work towards the right kind of regulation that ensures a fair economy. On Second Reading, the hon. Member for Huntingdon (Mr Djanogly) raised concern about the narrow remit of the small business commissioner, and I agree with him that it lacks teeth. There is an opportunity for the commissioner to do much more than look at 500 late payments a year when there are 5 million small businesses. That sounds like just scratching the surface.

Lord Mendelsohn made the point that the small business commissioner could look at so much more, including

“access to information and education; advocacy to government; investigation of small business complaints and business behaviour; facilitating the resolution of disputes, including and especially through mediation; influencing small business-conscious government and other key stakeholders, including regulators, media and the business community; and ensuring that such a commissioner would operate with an attitude of being concerned with substance rather than technicality and a dedication to resolving disputes by encouraging commercially realistic attitudes”.—[Official Report, House of Lords, 25 November 2015; Vol. 767, c. 733]

He also made the point that an effective small business commissioner should be expected to help the wider business environment and the economy as a whole, as his or her role is to ensure fairness, not to see one party succeed at the expense of another.

The Lords were also concerned that a mediation role was to be excluded from the function of the small business commissioner. In Australia, the ability to resolve disputes through mediation and direct involvement has been one of the reasons for the success of the office across the country and in a number of different states. Mediation has meant the commissioner working with large businesses as well as small and has enabled the small business commissioner to build profile, credibility and influence. In Australia, if a large firm refuses to take part in mediation with the small business commissioner, that can be taken into account when costs are being considered during court action. The Australian small business commissioner has teeth—very sharp ones—and it is a great shame that ours appears to be lacking in bite. The small business commissioner’s ability to direct small businesses to another organisation that may be able to help clearly has value, but in some cases the commissioner may well be best placed to help and, as in Australia, may be more effective in a wider sense. The purpose of the amendments, which relate to the public sector, is to give a wider sense of how we can build on the commissioner’s initial role of tackling late payments.

--- Later in debate ---

[Anna Soubry]

The Department of Health, no doubt, has very few contracts because it is not the Department that delivers, but the clinical commissioning groups and hospital trusts. It is important that the Labour party understands how the Government and business work. The Government and the previous Conservative-led Government simplified public sector procurement and abolished the pre-qualification questionnaires for low-value contracts, to back up and assist small businesses and make our lives considerably easier. Those are examples of the real-life things that we have done.

[Alan Brown]

On the previous point about the trickle-down effect, the Scottish Government are trialling a project bank account system for public procurement, whereby payments to the main contractor go into a project bank account and smaller payments that would normally trickle down to the supply chain are ring-fenced for sub-contractors and other people in the supply chain. They get their money right away without going through middle men or the main contractor. Is that something that the UK Government will consider in due course?

[Anna Soubry]

As I said, I am going to try to confine my remarks to the amendments.