Construction Industry: Cash Retentions

Debate between Alan Brown and Philip Hollobone

Thursday 27th February 2020 Westminster Hall

[Alan Brown]

Again, I agree with the right hon. Gentleman’s intervention, and I thank him for it. Apart from the skills issue in the UK, it is another reason why we use labour from abroad, as he said. Also, we have relied on EU labour, but now the UK Government are ending free movement, so that will cause another issue and certainly underlines why we need to resolve the matter.

If the late release of retentions is such an issue, why do the sub-contractors not do something about it, such as adjudication or arbitration? They are caught between a rock and a hard place—they need their money, but they are often frightened to rock the boat, perhaps losing a vital pipeline of work from the contractor they are in arbitration with. That was the case for a local contractor in my constituency who approached me, as the MP, on the issue of cash retentions.

The processes also cost money in terms of resource time, often valuable resource. Therefore, it is not as easy a process for sub-contractors to follow as Ministers have suggested in the past. According to the recently published Government response to a consultation, the average cost borne by firms in adjudication over the past five years is £28,000, which is cost-prohibitive for small companies.

[Mr Philip Hollobone (Kettering) (Con)]

I congratulate the hon. Gentleman on securing this debate and on his superb speech. Brian Griffiths of Griffiths Air Conditioning in Burton Latimer wrote to me on exactly that point:

“When monies are held for long periods (often years), SMEs simply do not have the time, resources or legal skills to chase or recover, and have to take it as loss.”

Is Mr Griffiths not spot on?

[Alan Brown]

He is absolutely spot on—I thank the hon. Gentleman for his intervention, which illustrates the point that I was making. For the record, I think it is the first time ever that he has said he is enjoying the speech I am making.

I stated that there is a historical logic to the origins of cash retentions, but there is no logic—and plenty of history—to UK Governments ignoring evidence and recommendations that time is up for the use of cash retentions. As long ago as 1964, the Banwell report, published through the Ministry of Public Building and Works, stated that:

“Where sensible methods of selecting contractors are used, the entire elimination of retention moneys could…be accomplished without any unreasonable risk”.

The report also suggested as an incentive that this

“might well lead to a reduction in tender prices.”

That possible carrot was not enough for the industry and the Government to take action.

A further 30 years down the line, in 1994, we had the Latham report. This was a joint construction industry and Government report that recommended that cash retentions should at least be protected in a trust account—recommendation 27 of the report. We have a tenancy deposit scheme to protect individuals in the private renting sector, and yet for some reason there has never been the will to do something with the deposits, in effect, in construction.

Why have delays continued for nearly another 30 years since the Latham report? In 2002, the Trade and Industry Committee looked at the matter of retentions, compiling the report, “The Use of Retentions in the UK Construction Industry”. It concluded that the use of retentions in public procurement should be phased out by 2007. That deadline came and went, so it is no surprise that in 2008 the Business and Enterprise Committee produced a report called “Construction matters”, which looked at cash retentions. That report noted that the system undermined team working, damaged the cash flow of small companies and impacted on training and innovation, and that it should be ended at least in all parts of the public sector. The theme is consistent, but we are still waiting for action.

Moving forward to 2016, the industry again hoped for action. In a Westminster Hall debate on 27 January, the then Business Minister Anna Soubry assured us that the matter would be addressed following a review by Andrew Wolstenholme, to be completed by the end of that year. Due to cynicism in the Chamber, she confirmed that

“this Government”

will not

“prevaricate in any way or seek to knock things into the long grass.”—[Official Report, 27 January 2016; Vol. 605, c. 149WH.]

The following month, when the Enterprise Bill was going through its stages in the Commons, the same Minister said of cash retentions:

“I think they are outdated and I do not think they are fair. They are particularly unfair to small businesses.”

Yet the Government still defeated amendments proposing to eliminate the use of cash retentions, including one that I tabled on Report. When I expressed concern in Committee about timescales, the Minister also stated that

“the hon. Gentleman can be assured that this Minister gives absolutely her word that this matter is not going to be kicked into any long grass. In fact it is very short grass, which has only just grown, because the review will be completed by March and then recommendations will go out to public consultation. If legislation is required as a result of that consultation, I will be happy to be the Minister to take that through.”––[Official Report, Enterprise Public Bill Committee, 9 February 2016; c. 47-48.]

We now know that the consultation process did indeed end up in the long grass. In 2017, I tried to take through a private Member’s Bill on the subject. Although the election killed that Bill, it is fair to say that the Government would have blocked it anyway, given that they did not back the Bill of the hon. Member for Waveney (Peter Aldous) in the last Parliament. We had both had considerable cross-party support for our Bills, so it was disappointing that neither made any progress.

The only action taken by the Government since were the BEIS consultations on “Retention payments in the construction industry” and on “2011 changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996”, undertaken between October 2017 and January 2018. To be fair, three meetings with industry and stakeholders were held, and those groups agreed that the status quo and doing nothing were no longer regarded as a viable option.

With the last consultation closing in January 2018, I have been getting frustrated—two years later, and no sign of anything happening. Then mysteriously, the day before this debate, the Government magically publish the responses to the consultation. Who would have thought it? Luckily for the thrust of my debate—I had already written some of this speech—that did not change what I planned to say, because we only have publication of the consultation responses. There is no hard evidence for what the Government will do next. Sadly, I fear for industry and the SMEs that the long grass is once again being prepared.

One of the just published documents on cash retentions states:

“Our aim is to work with the construction industry and its clients to achieve a consensus within the industry on how to resolve the problems associated with cash retentions. Several policy options are under consideration, a possible retention deposit scheme, and phasing out of retentions completely, and work continues to assess the viability and potential impact of these.”

It feels like we are going in circles, but will the Minister at least confirm that the status quo is no longer an option?

Why was there no acknowledgement in the consultation publication that a deposit retention scheme is the preferred option of respondents? Separately, the Scottish Government are consulting on retentions, including the possibility of introducing a deposit retention scheme. Their consultation closes on 25 March, but a key premise of the consultation is based on Pye Tait research, which states:

“The research particularly noted that retention money held in trust in a separate, ring-fenced account until it is either used to rectify defects or becomes due for payment or in some form of retention deposit scheme would meet almost all of the serious criticisms of the current retention system.”

That would allow a statutory solution to help prompt payments and deal with problems with cash flow. It has certainly given hope to SMEs that action will be taken in Scotland, and I urge the Scottish Government to follow through on that. Given their early adoption of project bank accounts, I expect them to be more receptive. It is fair to say that their consultation is a stage ahead of the UK Government’s.

The thing is that a working deposit retention scheme solution is at hand. Industry bodies and a major tier 1 contractor have been working collaboratively with academics, banking and financial experts, insurers and software developers to develop an IT platform as a digital solution to ring-fencing cash retentions. The key features in the proposed retention deposit clearing house scheme are that the aggregate of the retention moneys handed over to the client will held in a bank account and ring-fenced by a trust, and allocated to all supply chain firms as is relevant to their deductions. Also, firms will be able to use an app for online checks of the amount of their retentions held in the scheme. An insurance policy will be made available to the client to cover any shortfall in the scheme in case there is non-compliant work that is not rectified, because of insolvency, for example. The scheme will be regulated by the Financial Conduct Authority. The costs of administering the scheme are estimated at just £23 per £10,000 of main contract value, so cost is clearly not a barrier to introducing it.

It transpires from the responses that have just been published that the retention deposit scheme is the preferred option. Additionally, as I am sure the Minister is aware, the BEIS roundtable meeting of client and industry stakeholders in May 2019 voted for work to begin on the feasibility of a retention deposit scheme. I want therefore to ask the Minister what Government progress there has been to date, in relation to that work. What is the Department’s timetable for taking action on protecting cash retentions? Those are the key issues on which I am looking for an answer from the Minister—but by way of a conclusion there are some other questions I should like to put to him. Why did it take so long to publish the responses to the consultation? Does he agree that tier 1 contractors should not use subcontractor retentions for their own cashflow purposes? Will he definitively rule out the status quo? I have outlined Scottish Government recognition of the need for legislative measures on retentions, so what plans does BEIS have for legislative solutions? What is the Government position on retentions within their own projects? For example, will BEIS confirm that retentions will be removed from all Government-funded projects, as has been recommended for decades?

I genuinely hope that the Minister can give positive responses. Maybe he will be the one to cut through the long grass that cash retention has been hiding in for a long time. I assure him I would be happy to work with him to help him cut that grass, and help companies to get the money they deserve.

Motability Car Scheme

Debate between Alan Brown and Philip Hollobone

Tuesday 23rd February 2016 Westminster Hall

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

It is a pleasure to serve under your chairmanship for the first time, Mr Hollobone. I am glad to be able to bring this motion forward and to have secured the debate, but—

[Mr Philip Hollobone (in the Chair)]

Order. Would the hon. Gentleman be kind enough to move the motion and then do his speech?

[Alan Brown]

Apologies. I beg to move,

That this House has considered the Motability car scheme.

I am glad to bring the motion before the House today, but in truth it would be much better if this topic did not require consideration at all. The origins of this stem back to the previous Parliament and the change from the disability living allowance to the personal independence payment in April 2013. At the time, some of the changes were dressed up as fairness and giving people more control, but there is no doubt that there were concerns that DLA self-assessment, the automatic qualification process and, sometimes, the fact that there was no follow-up could possibly be abused.

That was the thought process that definitely drove the Tory ideology, and that has overshadowed how best to manage the system to help people with disabilities. Throw in a projected £2.5 billion saving and the fact that an estimated 600,000 fewer people would end up on PIP compared with DLA and we can see that this was just another assault on the disadvantaged. For me, the key change in assessing enhanced mobility was the reduction in the distance of the walking assessment from 50 metres down to 20 metres. Imagine it: somebody can go into an assessment centre and sit down and possibly be at risk of already meeting the walking test.

The enhanced rate is critical. The Motability scheme allows those receiving the highest rate of DLA or PIP to lease a suitable adapted vehicle, powered wheelchair or mobility scooter, in return for their weekly award. The Motability scheme is particularly important for enabling disabled people to be independent and to manage their condition. It allows users to participate in social activities and do the things that many of us take for granted, such as being able to continue to care for their children.

If we look back at the history, the Motability scheme was founded in 1977. It started out with a single car and has grown into a scheme that operates on a completely UK-wide basis, with nearly 650,000 users at present, which includes 15,000 using electric scooters and wheelchairs. It is a massively respected scheme, it is a charitable body and it has been praised by the National Audit Office for providing good value for money.

The Motability scheme plays a vital role for many disabled people across the country. Restricting access to Motability vehicles for those who have relied on them will undoubtedly increase the isolation that many disabled people feel.