Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts
Lord Stevenson of Balmacara (Lab)
My Lords, the Bill creates a duty on the relevant Minister of the Crown to appoint a person for each non-economic regulator. As the person is variously described it is a bit confusing, both in the Bill and in the notes, as to exactly what they will be called. It might be worth having a further discussion about this at some point, but for the purposes of this amendment my eye was drawn to the phrase in the notes “Small Business Appeals Champion”.
An additional point to make here is that it is quite refreshing to read of a Government who are prepared to go hammer and tongs into adding new regulations to an area. I am not one who is necessarily against regulation in principle, as good regulation drives a lot of good things, but this has quite a set of layers of regulation in it. Given that we are also considering the Deregulation Bill, and indeed have been faced with a number of attempts to try to reduce regulation, we ought to be quite clear what we are doing here. Although I make a trivial point about the name, it is also important.
The aim is to ensure that there are clear and effective procedures and processes in place, so that businesses—again, it seems to be defined as “businesses”—can challenge regulatory decisions, should they feel that they have been treated unfairly. I put on record that we support this approach. We are aware of the previous history of this: in the publication Small Business, Great Ambition it was said that businesses were not always confident that there was a clear pathway to challenge decisions by a regulator. It is good that the Government have recognised this and want to come forward with proposals. It is also interesting that, in the evidence for that, it is clear that two issues are in play here. Businesses did not know how to challenge decisions—I imagine that is more at the smaller end of the market—but they also found that it was either too expensive or too time-consuming, or both, which again rings true to anybody with experience in this area.
In the consultation issued by the Government prior to the preparation of the Bill, Small Business Appeals Champion and Non-Economic Regulators—it perhaps gave away its content in its title—the Government explained that,
“given the range of different statutory arrangements … the Government will need to give individual consideration to the application of the policy to each regulator before the policy is implemented”.
That is a large amount of work given the number of regulators that have been revealed as a result of our work on the Deregulation Bill, for which a parallel but different set of regulations is of course being imposed. Can the Minister update us on how they are doing on this? It will be quite an extensive trawl through a number of regulators that were set up over the years. It is important that we have some sense of how we are getting on and whether any lessons can be learnt from that experience.
Cutting to the chase, a small business appeals champion—or whatever name we agree on—will be appointed to every non-economic regulator. These will be quite important people, particularly for small businesses, because they will be concerned about, and seek redress, when regulators introduce new regulations that might be against the best interests of their businesses. I worry that the Bill is not very sharp about the regulatory powers and responsibilities. Will they be sufficient? Will they be adequate to achieve what they set out to do? Will it be more than just a talking shop?
Individual appointments to the regulator will be by a Minister of the Crown. The Bill states that they will either be statutory office-holders within the regulator or be appointed by the Minister of the Crown in respect of the regulator’s functions—presumably as additional personnel. I am concerned about this. The power of a small business appeals champion will lie in their ability to challenge the regulatory functions that they are appointed to review. Perhaps the Minister will explain this when she responds, but it does not seem to me that a person who is already employed by the regulator is in a very strong position to criticise the regulator’s activities. Could she talk us through this? Are they not meant to be independent? It would be very unusual to have someone in a position of reviewing or providing reports to external bodies about a particular body if they are employed by that body. It might be better if they are board members and maybe they should be appointed in a particular capacity to each board, but the range envisaged in the Bill seems to be too large for this to be appropriate.
To take further examples, what happens if a reviewer has to comment to the Minister on the way that the regulatory duties are discharged by his or her boss? Is there not a problem there? The employee will have a duty of care that might be breached if they are expected to make recommendations in public that will end up being considered in Parliament. Noble Lords begin to see where I am going. This is almost like a whistleblower. Parliament has considered this topic and will return to it later in this Bill, but real concerns have been expressed about how we treat whistleblowers. Their effectiveness is entirely related to whether they can make their comments without being subsequently sorted out by the powers that be in their organisation.
Similar points came up on whether an employee in a regulator would have sufficient knowledge and expertise to do the job envisaged by the Bill. It seems to me that someone who reviews the work of a regulator would need to be at the board level. Although there will be no doubt excellent people further down the chain, I doubt whether they would have the experience or expertise, or be senior enough, to take a view.
There is also an intention in the clause that one reviewer would be appointed to each national, non-economic regulator in some cases but to groups of regulators in others. For instance, some regulators, groups of industries or groups of functions will work in roughly the same area; the suggestion is that one regulator could cover them all. Is there a list of the regulators that would likely be grouped together? If there is not, could we get that in play? That is quite important. For instance, we could consider one regulator for energy, but we could also think that there would need to be different expertise relating to gas or to water, as opposed to some of the other utilities. There is also the asymmetry of expertise and experience that I have already mentioned. For instance, if a reviewer was employed by one regulator but was expected to review and critique a cognate regulator—or even a very different one—one would worry about whether they had the expertise, or whether they would be able to criticise a sister organisation operating in the same field.
I am afraid that I have asked a lot of questions. I should have made clear that this is merely a probing amendment. We support the general approach, but we would be grateful to have a bit more detail so that the Committee could better appraise whether this is a good move. I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I thank the noble Lord for his amendment relating to the appointment of small business champions—my snappier, if less accurate, title for them. I agree that sometimes we need to regulate, especially, as in this case, to make regulation better.
The Government have brought forward these clauses because we want to ensure that regulators’ appeals and complaints processes are accessible and fair, and work for business. We want to make sure that, if a business wants to challenge a poor regulatory decision, there is a clear and easy-to-understand process to make a complaint or appeal to that regulator. I agree with many of the noble Lord’s comments.
How are we progressing with identifying regulation? The consultation closed last Friday. It is on the government website. We will make final regulations with our proposals for listing regulators once the Bill is approved. Our proposed list was set out in the consultation. What regulators will be grouped together? We have not decided on that, but we will certainly look at it once the list of regulators is finalised in the light of the comment that the noble Lord made.
Turning to the amendment before us, the Government intend that the small business appeals champion policy should apply to a diverse range of national regulators, with equally diverse circumstances. For example, there are large regulators, some with statutory governance arrangements, complex stakeholder groups and thousands of staff, such as the Health and Safety Executive, the Care Quality Commission and the Environment Agency. However, there are also tiny regulators with few staff, where there is no board and the legal responsibility for regulating lies with the Secretary of State, such as the Employment Agency Standards Inspectorate, the Animals in Science Regulation Unit or the Senior Traffic Commissioner. There is something in between as well, such as the Office for Nuclear Regulation or the Charity Commission. We have designed this policy so that it has the flexibility to work across this varied array. A key part of that flexibility is around appointments.
I agree with the noble Lord that in some cases it may not be appropriate to appoint a board member as a champion. For instance, if the board is involved in the appeals process, it would create a conflict of interest. However, in other cases, it could be a positive advantage to appoint a board member as the champion. A non-executive director might be uniquely well placed to combine an understanding of the needs of regulated businesses and an intimate knowledge of the way the regulator works. There is not an unlimited supply of people of talent and objectivity who are prepared to take on public roles of this kind and familiarity can be a distinct advantage, especially in very technical areas.
The Government do not agree that the appointment should be limited to exclude regulators’ board members. We have deliberately placed responsibility for appointing champions with the relevant Minister, supported by his or her departmental officials, and not with the regulator, to ensure that someone of appropriate independence and stature is chosen. We should trust Ministers to be responsible for ensuring that an appropriate appointment is made, and not constrain them as the amendment proposes. In carrying out the recruitment process, the Minister and the Government will, of course, ensure adherence to any relevant guidelines such as the Code of Practice for Ministerial Appointments to Public Bodies. I hope that the noble Lord will be reassured by what I have said and agree to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I thank the Minister for her very clear exposition. I agree that we should focus on small business champions—I will try to do that, although it gets a bit complicated later on. Who is involved and what sort of bodies are likely to be grouped together are obviously a work in progress and I hope to get information on that as we go forward as it shapes the way in which we respond to this issue. We may wish to return to that at a later stage.
I understand the point the Minister makes about the need to have expertise and a sufficient number of high-calibre people doing this important work. It will help small businesses and, as I said, we support it. However, I think that the conflict-of-interest point has resonance. Her examples do not necessarily reassure me that, simply because the appointment comes from outside and is made by somebody who is not themselves the regulator, that will provide the degree of independence, authority, expertise and single-mindedness of purpose that will be required if this is to be effective. However, for the purposes of this debate in Committee, I beg leave to withdraw the amendment.
Lord Deben (Con)
My Lords, I rise to warn the Committee—and I hope that the Minister will accept this warning—of the danger of the enactment of good-heartedness for the sake of it. There is a phrase in the amendment that symbolises that. The amendment that we are discussing with the first one contains the expression,
“protecting individuals from unfair treatment and promoting a fair and more equal society”.
I am all in favour of a fair and more equal society, but I cannot think of anything that is more likely to make people feel that all this stuff is yet again a whole collection of persiflage rather than the serious matter we are talking about. This is not about small businesses; it is not what small businesses are about. It is a perfectly reasonable statement but not something that we should be putting into the Bill. I am surprised that it is in the amendment.
That enables me to say what I really wanted to say, which is that I think this is a good and necessary Bill. However, we have to remember that we also have a commitment to reducing red tape and reducing the appearance of red tape. I want to make a point about the appearance of red tape. Very often people think that something is restrictive or difficult because there is an awful lot of it. I have always believed that we ought to have a law saying that we cannot introduce any new laws unless we take away at least the same number of lines from the present laws, so as not to make people feel that they are overwhelmed by what is before them.
This seemed to me to be a reasonable moment, before the Minister rises, to say to the noble Lord opposite that there is a responsibility in setting down amendments so as not to give the impression that we are prepared to load people with a whole lot of things that may be politically correct, nice things to say, or something that might be added to a speech, but which, frankly, make people feel that the Government are constantly after them with all sorts of nebulous thoughts and ideas to which we can all sign up, but which ought to be left to people to decide for themselves as to their purpose. They should not be written down in this way.
Baroness Neville-Rolfe
I thank noble Lords for the amendments and for the opportunity to debate the role of the champion and how it helps business.
We know that small businesses suffer disproportionately from regulatory burdens and find appeals systems, in particular, hard to understand. I thank my noble friend Lord Deben for his intervention, which I could not have put better myself. The point about reducing red tape and the appearance of red tape particularly applies to appeals, when people need to understand where they can go and to have proper processes at a regulator if and when things go wrong. I feel that very strongly.
Looking at the amendments in turn, Amendments 33D and 33E relate to the champion’s assessment of the regulators’ appeal processes and procedures. We certainly do not want the champions to ignore the core role and function of a regulator when making an assessment of the regulator’s complaints and appeals. However, we will make it clear in guidance that the champions should consider this in their assessment of appeals processes. Clearly, those processes need to be shaped by the sort of cases at stake. Cases considered by the Pensions Regulator will be very different from those before the Environment Agency or the Security Industry Authority. There are a number of factors that champions will need to consider in reviewing appeals processes. As well as the protections that the regulator has been established to secure, these will include the types of cases being considered, the profiles of the businesses which are applying and the typical timescale. We aim to identify the relevant considerations in guidance. Putting only one of them in the Bill would give it undue weight. I hope that the noble Lord will accept that, and feel able to withdraw the amendment.
Amendments 33F and 33L relate to reporting—both by the champion and the independent complaints commissioner—on discrimination against a business that has challenged a regulator. Of course, the independent complaints commissioner is the equivalent of the champion for financial services regulation. It has a different name and different framework to fit in with the regulations that establish these bodies and the statutes relating to them, as I think the noble Lord acknowledged.
The Government fully agree that such discrimination is unacceptable. We do not want to deter complaints. However, Amendment 33F requires that the champions should provide an assessment of individual cases and provide redress on those cases if they find that discrimination has occurred. While understanding the objective, we do not want to create a separate route of appeal, which is what the amendment seems to do. It also conflicts with Clause 17(5), which explicitly prevents champions making any recommendation in relation to individual cases. By giving the champion vires over individual cases, Amendment 33F would negate that.
None the less, this whole issue is certainly one to which the champions should be alive. I am happy to commit that our guidance to champions under Clause 19 will require them to consider any examples of discrimination against those who challenge regulators’ decisions, and to make recommendations where they find it. That is an important horizontal issue for them to look at. The Government therefore oppose this amendment, although we support the sentiment behind it.
Amendment 33L makes similar, though less extensive, requirements in respect of the financial regulators’ independent complaints commissioner. The amendment requires an assessment of any unfair and discriminatory practices in the commissioner’s annual report. The clause already requires the report to include information concerning general trends emerging from investigations, which can and should include the issues of unfair and discriminatory behaviour where there has been a complaint. We believe that does enough and do not want to create a new industry of challenge and confusion.
I hope that the noble Lord has been reassured by my response and by what we plan in terms of guidance and will agree to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Mendelsohn, for his explanation of these amendments, which I hope I have understood, as I know that they are largely probing in nature. First, I turn to Amendment 33G, which would have the effect of limiting the champion to consider only appeals and complaints by small and micro-businesses. I suspect this is not his intention. It is true that larger businesses generally find it easier to navigate regulators’ appeals systems. That is why we call this policy the small business appeals champions or the small business champion—because the main benefits will fall on small and micro-businesses.
However, large businesses have problems with appeals, too, and fixing those problems can be beneficial in a broader way: smaller businesses having similar issues or facing similar burdens can benefit. It would be a mistake to exclude the experience of larger business entirely from the work of the champions. One can imagine a champion telling a business, “I’m sorry, but because you’ve got 51 staff, I can’t take any notice of the evidence of your problems within the regulators’ appeals system”. Clearly, that is not what we want. What we want is somebody of good quality who will come in and take a critical look at this important area.
Amendment 33K proposes that the guidance for the small business appeals champion should be laid before Parliament. I can tell the noble Lord that it is actually the Government’s intention to show the guidance to Parliament and I am content to consider his amendment further.
Amendments 33N and 33T seek to replace the term “smaller scale businesses” in the business impact target provisions with a cross-reference to the definitions of small and micro-businesses in Clauses 33 and 34. I understand the logic behind these amendments and recognise that use of a specific cross-reference might at first sight provide for a certain legislative coherence. However, I do not believe that the amendment is necessary for the provisions in this part of the Bill to achieve their intended effect. The Government’s view is that, in the specific context of the content of the annual reports required under the business impact target provisions in Clauses 23 and 24, and the expertise of the independent verification body that will assess estimates of economic impact under the target provisions under Clause 25, the term “smaller scale business” is sufficiently clear.
The context for the use of the term “smaller scale business” here is very different from the purposes of the definitions which have been provided in Clauses 33 and 34. Those later definitions are being created to facilitate exemptions from regulations. To achieve that, the definitions need to be precise and workable at a detailed technical level. In contrast in this clause, we believe that the term “smaller scale businesses” is sufficiently clear for its own purposes.
The Government’s view is that in practice the term “smaller scale business” will be interpreted in accordance with the EU definition, which we discussed last week, and is therefore consistent also with the definitions provided for in Clauses 33 and 34. The EU SME definition is, of course, widely used on an administrative basis in the UK for a variety of purposes, including statistics, grants, and other policy contexts.
Moreover, the use of a broader descriptive term, rather than something more technical, clearly has advantages in terms of enabling a wide range of relevant issues to be included in the report without raising questions as to whether such issues are within the powers provided for in this clause. This ensures that the reporting can operate flexibly. Similar arguments apply in relation to the expertise of the independent verification body, which we will no doubt come on to discuss.
In addition, there are some legal issues with the operation of this amendment. The definitions in Clauses 33 and 34 are not complete and will require secondary regulations to make them function. While the headcount is defined on the face of the Bill, there are important financial definition criteria which have to be established under delegated powers. Such regulations will not be in place by the time that the target clauses are commenced and in operation—a technical point but I thought one worth making.
Amendment 33S would require the independent verification body to have expertise in the assessment of the impacts of regulation on small and medium-sized businesses, but not larger businesses. That is a narrowing of the current requirement set out in subsection (6) of Clause 25, which requires the independent verification body to have relevant expertise in assessing the economic impact of new regulation on all businesses, including smaller ones. The Government consider it vital that the verification body should have the expertise required appropriately to assess the economic impact of regulation across the full range of business. That is clearly particularly important for regulations that concern activities typically undertaken by large businesses—for example, large-scale manufacturing, or businesses with certain types of pension scheme. The findings of our current version of the independent verification body—the RPC—bring a great deal of light to regulatory proposals and often cause us to pause and ask whether something is good or bad regulation. We are trying to bring that good system on to the statute book in a way that attracts top-quality people to this body. We think that the wording in the Bill is right.
I thank the noble Lord for his probing amendments. There are good practical reasons why we have drafted the clauses in the way that we have. I hope that he has found my responses helpful, including my clarification on the amendment relating to Parliament, and will be willing to withdraw his amendment.
Lord Mendelsohn
I thank the Minister and am very grateful for her response. While small businesses will be the disproportionate beneficiaries, and although some of these issues affect companies of different sizes, there is the potential for small businesses to be squeezed out in certain circumstances. I accept that the drafting is elegant, and certainly has a lot more legal validity than our amendments probably have. However, it is important to consider how the measure will operate in practice. I cannot help feeling that we may return to these issues time and time again as the relevant balance is difficult to achieve.
We are very encouraged by the Minister’s response on Amendment 33N. We will certainly take careful note of what she said and consider how the measure will operate. We are very grateful to her for her constructive response but will want to consider whether we are sufficiently reassured that the measure will disproportionately benefit small businesses—the Bill is about disproportionate benefit to small businesses—or whether we have lingering concerns that small businesses will again lose out—not completely, they will be beneficiaries—to other companies. In those circumstances, and given the Minister’s very helpful comments, I beg leave to withdraw the amendment.
Lord Deben
My Lords, having been critical of what I am afraid I referred to as persiflage in an earlier amendment, I draw my noble friend’s attention to the importance of this set of amendments. They are not here, as I understand it, to lay extra burdens on anybody or to make generalised statements about good will and family life. In fact, they are designed very purposely to ask the Government to be very clear about this issue.
I say to my noble friend that it is important for the Government to be very clear about this position, because there are a number of other areas in which the Government have not been clear and where we are now in some difficulty. Of course I would not be out of order were I to speak to the question of caste at any length, but there is no doubt that there are a series of issues where lack of clarity has led people to be concerned as to where the Government stand. I am not concerned about that, because I am quite sure that the Government stand in the right place—you could not expect me to sit on this side of the Room if I did not think that. However, there are those who are not entirely sure, and this would be a good opportunity to give them the assurance that they need, not only for the high-minded view that the noble Baroness, Lady Thornton, put forward and which she is perfectly right to raise, on the standing within the international community, but also for a rather boring local reason. That is that one of the problems of red tape, as I said, is the perception of it, and one of the other problems is the misunderstanding, and not knowing where it is.
I do not like the term “deregulation” much, as it presupposes that the answer in all questions is not to have regulation, while in my view we have to try to look for good regulation. That is what Governments of all parties mean, when they are sensible, whatever they say outside. One of the ways we can have good regulation is, first of all, to have clear regulation—people know where they are. That is why I am so keen on not having too much of it, not because I do not want regulation, but simply because the more you have of it, the less people are clear and the less they know what they should be doing. In this particular case, clarity seems crucially important.
Although this is clearly a probing amendment that is meant to try to make sure that the Government say what they think and, if it is necessary to put that in the Bill or change one of the clauses in such a way as to make that explanation certain, I am sure that the Government will find a way to do that. I wanted to emphasise that this seems to be a totally different kind of discussion from the one that I rather light-heartedly drew attention to earlier on—I apologise to the noble Lord, Lord Stevenson, if he felt that I had been unfair about what he said. However, on this occasion it is important that there should be absolute clarity.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Baroness for her amendments relating to the scope of the champion policy and the links to the growth duty and indeed, for making an appearance in the Committee to talk about the EHRC in particular.
If the noble Baroness will bear with me, I shall take the amendments in turn. Perhaps I should start by commenting on the question from my noble friend Lord Eccles about the purpose of the business impact target. Clause 21, to which he refers, establishes a framework for transparent regulatory reporting. This framework builds on, it is fair to say, the world-leading success of the Government’s one-in, one-out and one-in, two-out approaches to regulatory management, which have saved business a lot of money—£2.2 billion a year.
The Government have significantly improved the regulatory environment for business, but the job is not done. Many businesses in this country, as we have heard in the Committee, believe that complying with regulations is still the single greatest challenge to running their business. There remains an ongoing need for future Governments to ensure that the regulatory system is as streamlined and efficient as possible and, as my noble friend Lord Deben said, really clear.
Clause 21 is designed to achieve that objective. It places a duty on the Secretary of State to publish and lay before Parliament a business impact target within 12 months of the commencement of a new Parliament. The setting of deregulatory targets is already well established. The previous Administration set a reduction target for administrative burdens; this Government have pioneered other systems. Examples demonstrate the value of such an approach and the Bill’s proposals are in a sense a natural progression of the established practice, which is important.
Amendments 33H and 33J would, in different ways, restrict the list of regulators to which the small business appeals champion provisions can apply. The Bill already provides that the list of regulators covered by appeals champions should be set out in regulations. As I have already said, these will be subject to an affirmative resolution. We have already issued a consultation document—I repeat that for the benefit of the noble Baroness, Lady Thornton—and that consultation paper is on the government website. The consultation ended last Friday, but we are happy, of course, to take account of representations received in debates in the House alongside the consultation. We will publish a summary of the consultation and the Government’s response in due course. Our response will become the basis of the regulations that we lay before Parliament and which will bring regulators into scope.
The one area where the clauses mention specific regulators is in respect of the financial services regulators. That is because these regulators already have an extensive statutory framework for engaging with business stakeholders and we feel that creating a champion would risk creating confusion and duplication.
On Amendment 33H, if one accepts the general thrust of this policy on the need for someone to make sure that regulators’ appeals processes are business friendly, why would one not want it to apply, for example, to care homes that felt unfairly treated and wanted to challenge rulings by the Care Quality Commission? What about businesses challenging the Insolvency Service?
Moreover, the amendment also proposes to exclude the Equality and Human Rights Commission. I can reassure the noble Baroness that it is already the Government’s position that the EHRC should not be in scope. Consequently, it was not included in the consultation to which I referred or in the list of regulators to be covered. The Government recognise the possibility that applying the growth duty to the EHRC might have inadvertently triggered a review of the “A” status of the EHRC. They have therefore decided not to do so. The Business Secretary has written to the EHRC to confirm this decision. We have no desire to threaten the status of the EHRC, and will take all necessary action to ensure that we do not. I hope that that clarity also reassures my noble friend Lord Deben.
Nevertheless, we do not think it would be appropriate to start excluding certain regulators within the Bill. The Bill, as drafted, rightly leaves this for secondary legislation. This is because regulators may change over time and it is important that there is flexibility to amend the list accordingly.
Lord Deben
My noble friend said earlier on that this would not apply to the financial regulators. Some of us think that this Government have the most amazing ability to think in two different ways: they deregulate on everything else but overregulate in the financial areas. I declare an interest, which is in my entry in the register of interests. I do not quite understand why, if these things are so good for all the other areas, they are no good in the financial service area. My noble friend said that she thought it might be duplicative, but I cannot think of any rights that people have under the present regulations which parallel this. There are small businesses involved—again, I declare my interest—so I do not quite understand her answer to that, although I must thank her very much for her clear answer on the equalities organisation.
Baroness Neville-Rolfe
I thank my noble friend for his intervention because it gives me the opportunity to explain that Clause 20 introduces equivalent provisions for financial services. It is because of the plethora of existing legislation on financial services that we have to do it in a slightly different way in that area. I am sure that we will come on to scrutinise that clause in due course. Even for the financial regulators, I understand that the exclusion is not in the Bill. We are simply trying to achieve exactly the same effect but have had to do it in a different way.
Baroness Thornton
Rereading this, I wonder whether I could ask the Minister a question about Clause 21(4), which says that:
“The Secretary of State must lay each thing published”.
I was responsible for taking a Bill through the House which used “thing” in it. We spent a great deal of time defining what “thing” meant. That was in the medical world and we came to the conclusion that, in that context, “thing” was the word that had to be used. However, I am not sure whether “thing” needs to be used here when we are talking about publications. The Minister may not need to answer what I ask now, but perhaps she would like to think about it.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for bringing her experience of other areas, with a certain levity, while raising a good point. I will certainly take it away and look into why the drafting was done as it was by parliamentary counsel.
Amendment 33J relates to the duty on regulators to have regard to growth. That duty will of course be created by the Deregulation Bill, which we have also been considering in this House, and which includes similar provisions to this Bill giving the Secretary of State power to make regulations establishing which regulators should be covered by it. Like the small business champions, the growth duty is part of the Government’s better enforcement programme to improve regulatory enforcement. The champion will seek to improve scrutiny and governance on the appeals and complaints processes of a regulator and has no vires over individual regulatory decisions. The growth duty seeks to ensure that regulators have regard to growth when they take regulatory action.
The two policies will apply to many of the same regulators, but there will be a few differences at the margins. I agree that there may be regulators for which the growth duty is not appropriate, but I do not believe that this would automatically mean that a champion would not be of benefit, for all the reasons we have been discussing. For instance, the Pensions Regulator will not be subject to the growth duty because it already has an equivalent duty under its own statute. But we see no reason why it should not have an appeals champion, and have proposed as much in our recent consultation paper.
Baroness Thornton
My Lords, I apologise for intervening, but the noble Baroness will be aware that, if this is done under statutory instruments, there is no power to amend them, which is why it is very important to get things right in Bills.
Baroness Neville-Rolfe
We are serious about the terms of our consultation. I have explained why I think that we are right to do it the way that we are. The list is available, and I will ensure that the noble Baroness has a copy of it, but I think that the material point for her is the undertaking I have already made standing here in Parliament about the EHRC, where I think that we are in agreement.
On Amendment 33M, the business impact target and the growth target are two very different policies. The growth duty applies to regulators and the target to the Government. The target relates to regulatory legislation, whereas the growth duty is about influencing the behaviour of regulators on the ground. Having a report on the coverage of one policy included in a publication about the details of another risks confusion rather than adding to transparency. The growth duty is covered in the Deregulation Bill, and we should not confuse matters by adding it to this Bill as well. We already have full transparency about the list of regulatory bodies to which the growth duty will apply. The Deregulation Bill provides for that list to be prescribed in regulations, which are subject to affirmative resolution. Anyone wanting to understand the coverage can and will look at that list. Duplicating it as part of an unrelated publication does not seem to be the right thing to do.
I have received important advice on the subject of the meaning of “thing” in the Bill. It refers to several different things—thus the use of the phrase—including the business impact target, the interim target, the methodology and the scope of the target. I suppose that that was the best wording that they could come up with for that purpose.
I hope that I have answered the noble Lord’s questions and the wider questions raised by my noble friend Lord Eccles. If I have not, I am sure that we could discuss those points further. We do not believe that the amendments are necessary. I hope that some reassurance will have been taken from my response and that, in the circumstances, the noble Baroness will agree to withdraw the amendment.
Baroness Thornton
I thank the Minister for that comprehensive answer. I thank the noble Lord, Lord Deben, for referring to me as high minded and for his support. I do not take that as any reflection on my noble friends and their efforts in this regard. I am very grateful to the Minister for that reassurance. I know that the noble Baroness, Lady O’Neill, has received her letter and is very grateful for it. It is not that we will stop keeping a weather eye on these issues, but this one looks like it will be okay.
My noble friends will probably be returning to Amendment 33M, because there are issues about having the Deregulation Bill and this Bill, with business impact targets and the growth targets. I think that further clarification will be sought, but that is not my job right now, so I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for tabling this probing amendment. To answer his question I will explain the purpose of the clause. The Government have significantly improved the regulatory environment for business, as I have already explained. There has also been some encouraging progress at an EU level. This December’s EU Competitiveness Council conclusions on better regulation were extremely positive, calling for the first time for EU burden reduction targets. Therefore, the issue now goes wider than the UK. Building on those achievements, the Government are legislating to lay the framework for transparent regulatory reporting.
On Amendment 33P, I acknowledge that the framing of the business impact target sets a wide scope for future Administrations to determine for themselves what will count for the purposes of the target; that is, what is a “qualifying regulatory provision”. We consider it prudent to allow sufficient flexibility for future Administrations to determine the precise scope of the target, depending on their priorities and circumstances. We believe that this approach should attract support on all sides, not least at this stage of the Parliament.
Potentially a wide range of regulations could be in scope, meaning that some adjustment may be necessary to avoid perverse outcomes or other adverse impacts. For example, it may not be sensible to include certain measures—such as those related to national security or civil emergencies—within the target, because they could not be anticipated at the start of, say, the five-year parliamentary term. In addition, a future Government may wish to exclude measures that have negligible impacts on business, such as simple consolidations of existing regulations. Including all such measures in the target could be disproportionate and would represent a poor use of taxpayers’ resources without delivering obvious benefits to business.
The fundamental point is that the choices that a future Administration make regarding the scope of a business impact target will be transparent and will be for the Government of the day to defend. It is not appropriate for this Government or for Parliament unduly to restrict that choice. I hope that that is not byzantine but sensible and that on reflection noble Lords will feel that it is a reasonable rationale.
My noble friend raised the important issue of methodology and I agree with him that you can have as many methods as you have economics professors. However, it is an important principle that we need transparency around methodology and, of course, methodology is an important component of the good work that a body such as the RPC does. It is entirely appropriate that the Government of the day are able to look at the methodology options in a transparent way, to make appropriate decisions and to put them before Parliament. I hope that the noble Lord will be willing to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I prefaced what I said by saying that it was a very low-minded question. I hoped that I would get an answer to my concern, which was that I did not understand why we had to regulate in the Bill for stuff that I thought was taken as read more generally. Perhaps that was too detailed or too low a question to be answered on the Floor of the House. Perhaps the Minister might write to me about it. I do not think that it is a major issue.
The major issue is the one raised by the noble Viscount, Lord Eccles, which is increasing my sense of concern—“panic” might be too strong a word—arising from some of the ways in which Clause 21, in particular, is described. It is not just the slightly odd use of the word “things”. This is a complicated set of calculations with a new quango being set up to look at it, with all the other things that go with that. I think that we will come back to it, as I have an amendment later that deals with the way in which this might be amended. At this stage, I will certainly withdraw the amendment, although I think that we will need to come back to some of the points raised.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Stevenson, for his questions and for allowing us to debate these important provisions. I will start by answering the question about coverage and refer him to Clause 27(2)(b), where he will see that businesses activities are defined as including activities,
“by a voluntary or community body”.
The definition is broad and includes the voluntary sector. I can understand why that is.
Lord Stevenson of Balmacara
That is, of course, true and I have read that. Clause 27(2) specifies that, but Clause 27(3) says that they do not count as business activities if they are controlled by a public body, or are,
“acting on behalf of a public authority in carrying out the activities”.
We are back on a rather circuitous argument.
Baroness Neville-Rolfe
The noble Lord has anticipated me. Voluntary shops presumably would be covered, but I will come on to talk about why there is a carve-out for public services, which is a slightly different point; I think that it is in the noble Lord’s last amendment.
Perhaps I should also, before I answer on individual amendments, talk a little about the verification body. It could of course be the RPC, which already exists, but the Bill allows flexibility for the Government of the day to decide on the precise body that they want, the people who are on that committee and the mechanics of how they are remunerated. At the moment, they get paid a daily rate, which seems fine to me. The Secretary of State will be under a duty to appoint a person, people or a body to perform the verification function. The body or persons must, in the view of the Secretary of State, be independent of UK Ministers and have expertise in economic and cost-benefit appraisal and the impact of regulation on business—including, significantly and importantly, smaller businesses. They will obviously also be subject to the usual public appointments rules.
Returning to the amendments, I think that there is a strong consensus on the importance of minimising regulatory burdens on voluntary and community bodies. Those bodies range from Cancer Research UK at the upper end to local community football clubs or parent-teacher associations. They are affected by many of the regulatory burdens affecting businesses, including reporting requirements. That is why the economic impact of regulations affecting the activity of those bodies is explicitly included in the scope of our target and it is why they are included in other regulatory reform proposals in the Bill. Moreover, as noble Lords will be aware, the Government have made a number of changes that have made it easier to set up and run charities and social enterprises. For example, we have provided greater legal clarity about volunteer liability and supported proposals to make criminal record checks simpler and less onerous.
However, the Government are not convinced of the need for the two amendments tabled today. The vast majority of voluntary and community bodies are small and will therefore already be covered by the existing reporting requirement set out in Clause 23(4). As well as being fewer in number, larger charities can call on greater resources and are able to mitigate the impact of regulatory burdens more easily than smaller charities. The amendment would therefore have the unintended consequence of weakening the focus of the reporting requirement on mitigating disproportionate burdens and undermine its intended impact. It also means that the benefits of the amendment in extending the reporting requirement to community and voluntary bodies in general would be limited.
Amendments 33U and 33N relate to the expertise of the independent verification body. I understand that there is a desire to deliver a clear specification of expertise—that is, regarding small business, community and voluntary bodies, as well as businesses in general. However, the Government’s view is that the clause already provides sufficiently for that outcome. Clause 25(6) requires that the independent verification body must have expertise in assessing the likely impact of regulation on business activities, including activities carried on by smaller-scale businesses or voluntary or community bodies. The Government consider it most important that the verification body has substantive expertise in assessing the economic impact of regulation on voluntary and community bodies, not just on commercial business. That is reflected in the membership of the existing Regulatory Policy Committee. However, securing that outcome does not require a change to the Bill.
Finally, I turn to Amendment 33X and the question asked by the noble Lord, Lord Stevenson, about the carve-out for public sector bodies. The Government’s primary focus in the Bill is reducing regulatory burdens on business and the third sector. Subsection (3) therefore excludes from the definition of qualifying activities those carried out by public sector bodies or that are related specifically to the delivering of a public service. Public sector regulatory burdens are of course important, but they are clearly beyond the scope of a business impact target. Including them within the target system would lose the clarity of focus on business—small business in particular—so essential to the growth agenda.
This carve-out also avoids unintentionally capturing regulations concerning requirements of public sector delivery—for example, schools, prisons and NHS services. We feel that it would be perverse to capture within the target the impacts associated with regulations relating purely to the provision of public services in that way. Doing so would lead to significant changes in reported impacts arising purely from changes in public sector delivery arrangements. For example, where service delivery was transferred from the public to the private sector, or the other way round, the effect would be an increase/decrease in the reported burden on business.
I hope that that explains the rationale for the provisions and why it is important that they are retained. I hope that the noble Lord will have found that reassuring and will be willing to withdraw the amendment.
Lord Stevenson of Balmacara
Not quite. I do not think that it is reassuring. I am getting more and more like the noble Viscount, Lord Eccles, as we go through the day. Is the Minister really saying that every PTA in the country will have to be in scope to this quango? I may be thought bonkers, but this is getting beyond a joke. We are talking about a Government so dedicated to deregulation that they will require my Little Missenden parish council school to get together in a way to ensure that it has proper regulatory functions in place and understands the process of regulatory procedures to the point at which it can appeal and go to see a small business champion, who will, of course, be far too busy dealing with big business problems. I understand, I think, that the regulatory structures need to be reformed a little, but one only has to read pages 26 and 27 to become completely hysterical about what we are saying. We have talked about things already, but the wording here does not strike one as being a wonderfully clear and concise expression of the new regulatory burden.
Baroness Neville-Rolfe
We are building on existing good practice, which I have explained. If small bodies such as the ones that the noble Lord described are affected by a new regulation, it seems right that the impact should be considered in the assessment by the independent body—the sort of compliance assessments that we rely on to look at the impact of regulation. It could, of course, be de minimis. That would be perfectly possible in the circumstances described by the noble Lord, but to exclude them does not seem to be right. This is in relation to the impact target; we are particularly focused on that at the moment.
Lord Stevenson of Balmacara
I appreciate what the Minister is saying, but I do not see a de minimis provision here. Perhaps the noble Baroness can take that away to look at. It is similar to what the noble Viscount, Lord Eccles, was saying. It looks like a many-headed Hydra and I do not think that that is what was meant. I think that it is meant to be a much simpler cut-through to try to find a balance between ensuring that those who are adversely affected by regulatory practice have a mechanism recognising that they are so affected and having a way of resolving it without suddenly putting the aegis of the country on a war-time footing alert that they are going to be attacked by the bureaucrats who will be coming to get them. I extend to make my point.
Baroness Neville-Rolfe
My Lords, given the concern that has been raised and given that, as the noble Lord, Lord Stevenson, says, our intentions are certainly to cut red tape rather than the reverse, I shall be happy to discuss this before Report if that would be helpful.
Viscount Eccles
My Lords, I have found myself in support of the noble Lord, Lord Stevenson, on other occasions. It is quite a new and strange experience to find him in some support of me. My conclusion is that if Clauses 21 to 27 were quietly to disappear, the world would be a better place.
Lord Mendelsohn
My Lords, in moving Amendment 33BC, I will speak also to Amendments 33BD and 33 BG. The amendments together would create a total of five definitions in UK law based on the measure of employee headcount. We are trying to introduce the definition of a micro-business, meaning a business with one to nine employees, a small business, meaning a business with 10 to 49 employees, a medium-sized business, meaning a business with 50 to 249 employees, a large business, meaning a business with a headcount of 250 to 1,000, and a super corporate, meaning those with in excess of 1,000 employees.
We very much support the thrust of the clause, and it is excellent to have a proper definition to work with. Our amendment seeks to establish a richer and, in our view, better way to define the different type of businesses. The basic argument for it is pretty compelling. We understand the need to make regulations and legislation as effective an operation as possible. Defining in law what is meant by the terms “small business” and “micro business” will make it possible for future Governments of any colour to exempt enterprises of that nature from new regulatory obligations. In addition, it can help to target particular elements of policy and support to the required businesses.
The definitions are based on the European Commission’s recommendation, which defines micro, small and medium-sized businesses by employees, turnover and balance sheet total—definitions which are already widely in use on an administrative basis. There are arguments to be had about the relative merits of headcount versus turnover and how to blend those numbers. It is widely acknowledged that it will not be straightforward to embrace everything cleanly with those definitions. It ends up as a complex Venn diagram landscape of connected definitions.
Nevertheless, there is a great attraction to making it as simple but sophisticated as possible. We believe that this five-group classification achieves that. It is of course accepted that the definitions are always imperfect, and that turnover is a factor in the size of a business. Nevertheless, there are good reasons to take a broader view than the Bill currently does.
The great merit of the Bill is its defined and single purpose: to focus on small businesses. Our challenge is that it does not go far enough, but we accept—to paraphrase—that a journey of a thousand miles starts with a single step. We believe that we should not stop to congratulate ourselves on starting the journey but remain focused on the future.
Here, we have a chance to do something with our amendment. Other places which have for a long time had very focused small business policy and even agencies are today looking at how they use definitions better to deal with the problems that we are debating now. The Bill represents a chance for us to address matters of the future.
Governments and policymakers in general have always had difficulty in improving the efficiency of markets in which small businesses operate. It is easy to use measures to deal with monopolies, oligopolies and so on, but in the markets in which small businesses operate it is very different. The Government’s role in relation to small businesses is naturally to consider how to establish political and economic stability, how government spending can trigger markets, setting interest rates in different places, forms of regulation, but also—and decisively—the role of market catalyst. Among the measures and levers that the Government have, it is important to recognise the diverse needs, aspirations and potential of businesses.
Small businesses are a key source of jobs in any economy. There are those start-ups which will have the ambition to become global players and will recruit in great numbers, but most small companies are small and will stay that way. Tax credits for hiring new workers are of great importance to a company on the threshold of a decision on whether to increase by one more employee or a small number. For aggressive start-ups with great confidence and belief in the future, the high-growth culture will make them more concerned about visas, immigration and the condition of education.
It is not just about growth. There are also great distinctions between companies relating to their ages and their relative requirements based on how long they have been in business and the challenges that they have had. Providing policy incentives, encouragement and exhortation can be done better if the type of business can be defined better. That is even now a strong debate in places such as the United States, with the Small Business Administration, and in other places where they have had long-standing agencies to target small businesses. Today, they are looking at further definitions to ensure that their measures can be as targeted and effective as possible.
In our view, this welcome area of the Bill would be strongly enhanced by richer and fuller definition. Even if the relevant measures are not introduced at this stage, there is no doubt that such definitions would help us to design much better policy in the future. In this context, I would be grateful if the Minister could reassure us that the Government have considered the Bill’s drafting not just in terms of 2015 but with regard to the future, and can assure us that the policy measures can be appropriately constructed to target different subsections of the small business community. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for taking us back to the question of definitions in the Bill, which we have already discussed, and for setting out in a wide-ranging speech some of the logic behind his position. I shall read that with great interest when I have a little bit more time to reflect. I would like to go through the amendments that the noble Lord has tabled, which I think are to some extent probing in nature, and explain why we have done things the way that we have.
First, I turn to Amendments 33BC and 33BD. The Government are establishing definitions which will be broadly consistent with the European Commission’s, as I have said before. These definitions are widely used in the UK, and so by following the approach taken by the Commission, we will keep life simple for businesses. We are establishing statutory definitions of small and micro-businesses for a specific purpose, which is to help mitigate disproportionate burdens on smaller businesses, including community and voluntary bodies, by facilitating exemptions or other more proportionate treatment in new secondary legislation. We need to define small and micro-businesses clearly in order to exempt them from regulations where appropriate.
This policy intention explains why these definitions are different from those we have heard in previous provisions of this Bill. These definitions need to be precise enough for businesses to know whether they are covered by certain regulations or not. The rationale for the definitions is clear. It costs a small business 10 times more per employee, on average, to comply with regulations than it costs a large business—that is an interesting statistic to add to the noble Lord’s list. In contrast, medium-sized and larger businesses do not suffer from the same level of disproportionate burdens. For instance, those businesses are more likely to have access to specialist regulatory expertise. It would surely, therefore, be unfair to exempt larger businesses from certain regulations without also exempting smaller businesses. There is, therefore, no need to include larger businesses in these definitions.
The Government are committed to reducing regulatory burdens on all businesses, including medium-sized and large businesses, but the specific purpose of these proposals is to mitigate the disproportionate burdens that are most acute. I hope that the Committee can agree that, based on our policy intention, extending the definitions to include medium-sized and larger businesses is not required, and, indeed, could undermine the strong focus on mitigating burdens where they are most severe.
Turning to the detail of the definitions, I welcome the noble Lord’s support for the use of headcount. However, as he said, financial criteria can be an important adjunct to staff headcount in order to reflect the true scale of a business, and therefore the extent to which it suffers from burdens. If a business has the resources of larger businesses, those resources will mean that it is unlikely to suffer from the same disproportionate burdens, even if its headcount is relatively low. For example, such a business would be able to buy in specialist expertise to assist with compliance. For these reasons, in my view it would not be right for them to be treated as a small or micro-business for the purposes of this definition.
As regards Amendment 33BG, which I regard as probing as the noble Lord did not explore it, this Government believe that it is appropriate for the small and micro-business regulations to be subject to the negative procedure. The regulations will make detailed, highly technical provisions, which may require periodic minor changes. For example, the financial thresholds could need to be updated in line with EU definitions. I welcome the fact that the Delegated Powers and Regulatory Reform Committee accepted the Government’s judgment on this issue. I know that the House has great confidence in the views of that committee.
I am grateful for the debate on these provisions, and for the support that we have heard for the Government’s intentions in relation to small and micro-businesses. I hope that the noble Lord will withdraw his amendment.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for his amendments on treating businesses as consumers. Like my noble friend Lord Deben, I have worked in small business—in fact I ran a small garden centre business, and represented 6 million small businesses in Brussels for some time. No one is more determined to try to think about the effect of legislation on small businesses and how to get that right and incentivise innovation, which my noble friend Lord Deben referred to. However, we should not entirely condemn our great companies, which deal in everything from electronics to aerospace and food. They do innovate, and many of them lead very substantial export efforts around the world. Like my noble friend Lord Deben, however, I worry about the free enterprise culture. In fact, I have been trying to get one of my four sons to create a small business, so far without success.
As a Back-Bencher last year, I learnt a lot about the difficulties of dealing with utility providers. That informed us on the Consumer Rights Bill, which we debated in this Room for many weeks—and I am delighted that the noble Baroness, Lady Hayter, has joined us after so many constructive discussions on that Bill.
I agree that we must support small and micro-businesses and put in place the conditions for them to prosper. That is why the Bill is so important and why this Government are doing all that they can to support these businesses. None the less, I remain concerned about the scope of the amendments. They are wide-ranging and not consulted on. Small business might be keen on them until they discover the unintended consequences for their own businesses. That may be wrong, but we just do not know. For example, the small printer gets more reassurance when he buys his ink, but he suddenly has to give full refunds to his small-business and micro-business customers for 30 days because of a fault that might previously have been subject to a more agreeable negotiation—if he had cash flow problems, for example.
We also need to remind ourselves that businesses, including small and micro-businesses, are not unprotected at the moment, as the noble Lord, Lord Mendelsohn, said. Provisions under the Sale of Goods Act and the Supply of Goods and Services Act apply to them now and will continue to apply. Under the unfair terms legislation, a business may limit its liability to another business if that is reasonable in the circumstances when they make an agreement. The existing regime gives appropriate protection, which is important, while allowing businesses to enter into flexible transactions, a point that I shall return to.
Small and micro-businesses make up 99% of all businesses in the UK—a total of 5.2 million businesses. Of those, 5 million are micro-businesses, which in aggregate employ 8.3 million people and have a turnover of £655 billion. That is an extraordinary and very good thing, but it means that a lot of businesses—a lot of value added—would suddenly face a change in operating rules under either of these amendments, even if those amendments are well meant. It also means that there is an incredible range of small businesses across all sectors of the economy, many being very specialist in their sectors and skilled negotiators in transactions. They are able to judge exactly what their interests are.
Businesses think about value for money and do not always require the detailed protection that we give to consumers. We give consumers general protections because they almost always face the same information asymmetries when they buy goods and services—that is, the range of goods and services that consumers are likely to purchase is so wide that they are unlikely to have detailed knowledge of them. The same is not true for small businesses. It is in the interest of these businesses to reduce this information asymmetry. The same incentives simply do not apply to consumers. In addition, consumers are less able to assess the cost and implications of their purchase decisions, whereas efficient businesses, by their nature, assess this information and make these decisions more effectively. The Government are of course keen to encourage businesses to become more efficient and to see a healthy and competitive market.
All businesses also need to enjoy the freedom to contract for goods and services on an individual basis. The current legislative framework allows for that already. The amendment would, at a stroke, reduce that freedom for 99% of all businesses—in the case of the second amendment, 96% of all businesses. The default obligations under the Consumer Rights Bill would apply, whether it suited a business or not. This could place a restriction on business negotiations.
Consider risk and reward—a defining concept of enterprising activity. This proposal could have a chilling effect by removing all risk in business transactions. Superficially, that sounds attractive for small one-off purchases, but what about the bulk deals, the order of specialist items or the removal of old stock? How would this encourage suppliers to take risks with cash flow? A supplier faced with the possibility of having to give a full refund to all its small business customers for 30 days, without scope to negotiate reasonably about any liability, would need to be extra cautious about its financing. Is that the right culture?
I of course recognise that the intent behind the amendment is to protect small or micro-businesses where they might not know more than a consumer when buying goods and services unrelated to their core commercial activity—I remember that in Committee we talked about kettles as well as hairdressers. But how do we make the distinction? What is core for one business may not be for another. The Consumer Rights Bill does not have a legal definition of a consumer good or service that we could rely on.
A further point is the difficulty for a seller in deciding the difference between the small or micro-business to whom the Act would apply and larger businesses to which it would not. That would certainly complicate implementation and I am passionate about having a good and simple implementation plan for the Consumer Rights Bill so that sellers abide by the new rules and consumers know where they stand.
Baroness Neville-Rolfe
My Lords, I welcome the noble Baroness, Lady Hayter, back to the Dispatch Box on the Bill. I start by answering her question about why we are doing this. Clause 35 will help support the further growth of home businesses by removing the current incentive for landlords to bar tenants operating a business from their home. As we have heard already, there are nearly 5 million small and medium-sized businesses in the UK. Of those, 2.9 million are home businesses. Home businesses are of growing importance to the economy, with an increase of half a million since 2010. The Government want the home business sector to continue to flourish. That is why we are committed to do what we can to overcome obstacles, and Clause 35 is a key part of that work. Landlord and tenant bodies agree that that is a sensible step, so why not use this opportunity to act now to help the enterprise culture and the small businesses that we all agree are so important?
For those who rent their home, things can be particularly complicated. Landlords can be wary of letting them run a home business. Indeed, residential tenancy agreements will often include a prohibition on business use. Section 23 of the Landlord and Tenant Act 1954 provides that where there is a business use for a property, a business tenancy exists. Because business tenancies enjoy greater security of tenure, private residential landlords are keen to avoid them, as they fear that it may be more difficult to get their property back at the end of a lease. That is what Clause 35 will address by amending Part 2 of the 1954 Act.
I add that the opportunities created by the digital world, bringing ever more innovations into the marketplace, make that provision even more important. This change could help to encourage the enterprise culture. I think that it is a sensible move and would assist the graphic examples that the noble Baroness, Lady Hayter, gave, although I think it will take a little longer to get the younger generation sewing again. However, perhaps craft skills are coming through and there is certainly an element there.
I thank the noble Baroness for tabling the amendment, but we are concerned that the effect would be to cause confusion. It would not prohibit the types of business activity listed, but it would create uncertainty as to whether certain types of business carried on in a home would make the home subject to the business tenancy provisions of the Landlord and Tenant Act. As I said, currently, Section 23 provides that where there is a business use for property, a business tenancy exists. Because business tenancies enjoy a greater security of tenure, residential landlords are often keen to avoid them.
Clause 35 is aimed to remove that disincentive on landlords when they are considering allowing a home business from their property. Under our proposal, landlords would continue to have a veto. The landlord continues to have a right to impose conditions—which I think is important, because it can relate to matters such as noise, which can be a big issue—or prohibit a home business outright if that seems appropriate to the property in question. However, we believe that the amendment could have perverse consequences, create bureaucracy, disincentivise landlords from being willing to consider a home business and encourage them to set unnecessary conditions.
Let us take an example. Suppose that a tenant were to ask the landlord for permission to operate a home business. The amendment would encourage the landlord to check whether the proposed business fell foul of the factors listed. The landlord might have to judge what constitutes a reasonable number of clients calling at the property, the impact of deliveries, and so on. In the face of that increased burden, landlords might become risk averse and say no. We also have concerns about providing for a binding agreement between landlord and tenant on whether a particular business or description of business carried on in the business should be a home business. That could have a detrimental impact on business tenants—that is, those in premises where business is the predominant use—if they were to lose the rights secured for them by the Landlord and Tenant Act. The security afforded by business tenancies means that tenants can invest in their businesses, building up good will, buying equipment and stock, without fear that they will have to leave the premises before the end of the tenancy.
Amendment 33BH would allow people to define for themselves, by agreement between the landlord and tenant, what a home business tenancy was. Some landlords might seek to use this to exclude business tenants from having the security of tenure provided by the 1954 Act. There is already provision for the exclusion of security of tenure in business tenancies by agreement, and with tested procedures involving notices and declarations by the parties. I believe it would be undesirable for this clause to provide an alternative route for landlords to avoid security of tenure. The tenancy agreement can state in terms that the tenancy is a home business tenancy, as set out in the clause, and the tenancy agreement is legally binding, provided that the tenancy is a home business tenancy within the meaning of the 1954 Act.
I know that the noble Baroness was probing to some extent, and I hope that she has found my explanation of this background useful. I think that this is a concrete and important change, which I commend to the House.
Baroness Hayter of Kentish Town
My Lords, it was not meant as a probing amendment at all. It was tabled because the very senior advice that I have taken from the top planning chambers in the country says that this is not going to work unless people know what it means; it will end up in court and that is where the definition of a home business will have to be decided. When someone claims, as a residential tenant, “Well, I’m sorry, I’ve been running my business as a speechwriter for the House of Lords at home and am therefore a business, not a home business”, that will have to go to court. The landlord is going to say, “No, it’s a home business because you live there as well”, but the tenant will say, “No, the major thing is that it’s a business”. The advice is absolutely that the courts will need guidance as to what is a home business.
A landlord would be sensible to claim that an enormous business was a home business, just because the person running it also happened to live in the place, because of course that would deny them the right of security as a business. So the landlord will be saying, “This is a home business”, while the person running the business will be saying, “No, this is a normal business and I happen to live here”. I mentioned Barbara Hepworth. Anyone who has been to her house will know that there is a bedroom there, but 80% of the house is her sculpture gallery. Of course, she owned that house. Still, if a house has one room that is a bedsit and nine rooms that are a business, is that a home business?
Baroness Neville-Rolfe
The noble Baroness is rightly concerned about this question ending up in court with lots of legal proceedings, which we all agree is what one wants to avoid in good regulation. To some extent, we have thought about that. We have taken a power in the Bill that allows us to further specify the definition if that proves to be the case, so she is right and I am wrong.
Baroness Hayter of Kentish Town
That is why we thought it should go in the Bill rather than waiting for regulations. I think that we share the desire that this should work, but it will work only if landlords and tenants can have confidence. As I say, just because a person running a business from a rented place happens to live there, I assume it is not the intention that they should therefore lose the security that they get under the 1954 Act. This will also open up to quite big businesses, and I wonder what thought has been given to the planning issues that arise from this. Local government certainly needs to think about how big a business would be before there were planning implications.
The Minister said that there were 2.9 million home businesses; she did not of course say how many of those were in rented accommodation as opposed to owner-occupied. Maybe she would be able to write to me about the figures—or she may be getting them at this moment—for how many of those 2.9 million are in rented accommodation. I worry that this is so vague that it will not give certainty and there will have to be test cases in court. Without some guidance from Parliament about what we had in mind for what is probably a welcome and well intentioned measure, the fear is that there will not be enough certainty. We know that landlords are pretty risk averse, for understandable reasons. There will be so much uncertainty that the measure will not be implemented.
Baroness Neville-Rolfe
I do not have the figure that the noble Baroness would like, so I shall write to her. However, the powers apply only to tenants with a residential tenancy, so there is no risk that someone with an existing business tenancy could lose security. That is an important clarification. It does not affect existing planning requirements either, but I note the point she made. The planning requirements continue to apply. They are complicated, but it does not do anything about planning.
Baroness Hayter of Kentish Town
Existing businesses that will lose the right to secure tenure are those where the landlord has acquiesced because he has known about a business being taken on. Until this Bill becomes an Act, those businesses have security, and they will lose that, not necessarily wrongly, but it is not quite correct that all businesses will retain the rights they have. This is something we may come back to. We will certainly take further advice. People who are very active in this field certainly have concerns, and the Minister may also need to check a little more widely on that. For the moment, I beg leave to withdraw the amendment.
“Section 35: supplementary and consequential provision
(1) In section 41 of the Landlord and Tenant Act 1954 (trusts), after subsection (2) insert—
“(3) Where a tenancy is held on trust, section 43ZA(2) has effect as if—
(a) paragraph (b) were omitted, and(b) the condition in paragraph (c)(i) were a condition that the terms of the tenancy require at least one individual who is a trustee or a beneficiary under the trust to occupy the dwelling-house as a home (whether or not as that individual’s only or principal home).”(2) A dwelling-house which is let under a home business tenancy is to be regarded as being “let as a separate dwelling” for the purposes of—
(a) section 1 of the Rent Act 1977 (protected tenancies),(b) section 79 of the Housing Act 1985 (secure tenancies),(c) section 1 of the Housing Act 1988 (assured tenancies), and(d) any other England and Wales enactment relating to protected, secure or assured tenancies.(3) Subsections (1) and (2) do not apply to the tenancies mentioned in section 35(5).
(4) Subsections (2) and (3) do not limit the circumstances in which a dwelling-house which is let under a home business tenancy is to be regarded as “let as a separate dwellling”.
(5) In this section—
“enactment” includes provision made—(a) under an Act, or(b) by or under a Measure or Act of the National Assembly for Wales,“England and Wales enactment” means any enactment so far as it forms part of the law of England and Wales,
“home business tenancy” has the same meaning as in section 43ZA of the Landlord and Tenant Act 1954.”
Lord Deben
My Lords, we should be very grateful to the noble Lord, Lord Cromwell, for raising this question. It is only part of the question, if I may put it that way, because there is a real issue which the previous speaker was absolutely right to raise. We have to think this through and I am not sure that it has been thought through. What is the nature of a property which was rented originally, or, indeed, owned originally, as a house, and then a business is started within it under the terms of the Bill? I put it like that because it was pretty clear in the past what you had to do: you were running a business, so you had to report it to somebody and somebody told you whether you could or could not run a business in those circumstances. That is, bluntly, more or less what happened.
We also know that a very large number of people run businesses, do not report them to anybody and nobody cares too much. As long as they do not make too much noise or other nuisance, everybody is perfectly happy. However, that is an unacceptable position because some people manage to run a business in those circumstances but others do not and that is not right. We want to encourage people to start a business in these circumstances because it is the natural way to do so. We do not want interfering local authority personnel to arrive and say, “You can’t do that in your garage. You have got to move to our extremely nice and very expensive industrial estate”.
Two tax elements are involved here. I do not think that the noble Lord, Lord Cromwell, mentioned the other one. I am very interested to know what happens about VAT. If a house is said to be a business premises as a result of this measure, there is also the question of whether, if you sell it on, you retain your right to sell on your principal residence, because it could be your principal residence as well as your business. How would that interact with selling a business premises where you have received rent? Then there is another question about how you have structured the business and which part of it is used as a business. The Committee can see immediately that there is a series of complications here. I dare to say to my noble friend that I am not quite sure that people have actually thought this through.
I want to do precisely what the Bill is intended to do, which is to say that you cannot prevent people running a business from their own homes. That is not an acceptable way for either a landlord or local authorities to operate. I know some areas where local authorities have operated absolutely appallingly in what they insisted on. They made it very difficult for people. This is not just in small circumstances. There was a really bad example in my constituency when I was a Member of Parliament in which a local authority said that it was unacceptable for a marquee to be put up in a very large house with a very large amount of ground around it because it was being used as an exemplar of marquees. They could have a marquee if they wanted one for a party—as long as they did not have too many parties—but to have a marquee as an exemplar of marquees, because the business was for marquee renting, was unacceptable without planning permission, which the local authority would not give.
People get themselves into terrible situations. We need to be quite sure where we are going with this particular change. However, I think that the amendment in the name of the noble Lord, Lord Cromwell, is not acceptable for all the reasons that have been given: it is not complete enough and it opens the gates to misuse of the Bill, which none of us wants. We have to ensure that the person lives in the house; that is obvious. This is one of those really difficult situations because it is like the question of the elephant: you can describe what you mean by this, but to write it down in a satisfactory way is quite difficult. Clearly, if a house is largely used for a business and a flat is effectively attached to it then that is different from the house being used as a house in which some of the rooms are used for the business. Some of the rooms may sometimes be used by the business. All those things make it extremely difficult.
I do not want my noble friend to think that the only answer to this is not to do it; that would be a great disappointment and I am sure that she will not think that. We want to do it, but I am not sure that this little bit has been as thought through as it will have to be. The noble Lord, Lord Cromwell, has rightly brought it to our attention and I hope that my noble friend will accept that we need to know more about this before we can be entirely happy with it.
Baroness Neville-Rolfe
My Lords, I welcome the noble Lord, Lord Cromwell, to the Committee and thank him for joining our discussion, and for putting us right on the history of the Cromwell family. More seriously, he has brought his practical experience of enterprise and of the subject. I thank him for his support for the Bill, and I think he supports Clause 35 as well. This has been a good debate. It is excellent when Back-Benchers raise these sorts of concerns with amendments of this kind.
For completeness, I should add the wider action that we have taken on business rates. In the 2014 Autumn Statement, the Chancellor announced further help for business rates, bringing the total support for 2015-16 to £1.4 billion. That included some very significant measures targeted specifically at smaller businesses, such as the doubling of small business rate relief for a further year and the £1,500 discount for smaller shops, pubs and restaurants. We have also, of course, given councils powers to grant discounts entirely as they see fit. When they do so, we automatically meet 50% of the costs. Those powers can be used to support small businesses to encourage growth.
It was also good to have the support of my noble friend Lord Stoneham. As usual, he made perceptive points about the drafting and rightly drew attention to the requirement for owner-occupation.
It is always good to have the noble Earl, Lord Lytton, joining the debate, in view of his knowledge of the subject. I note what he says about empty property rates and the services provided to business rate payers. Of course, the current system on empty property rates was introduced by the last Labour Government. We recognise that the empty property rate can be burdensome, especially at times of economic difficulty, but the need to balance changes to the system owing to fiscal consolidation has meant that we have left things as they are.
I turn to the amendment and the issue at hand. The purpose of the proposal is to exclude home-based businesses from paying business rates altogether. I agree that this is an important issue, and we have to provide sensible and clear rules on home working so that they support growth and businesses know where they stand. However, we believe that the amendment is unnecessary, as we hope that we have indeed already achieved the desired outcome through some sensible and clear rules. We have ensured that, in the majority of circumstances, home-based businesses will not attract business rates—the noble Baroness will be glad to hear that. We provided that clarity through guidance published by the Valuation Office Agency last summer. The guidance clearly sets out the circumstances in which the Government do not expect businesses to pay business rates. That guidance is available on the GOV.UK website.
As a result, in the majority of circumstances home-based businesses will not attract business rates, but there are some exceptions in the interests of fairness. For example, a dentist’s surgery on the ground floor of a domestic house continues to attract business rates. Indeed, that example serves to illustrate why we favoured guidance over legislating on this matter in this Bill. Guidance allows sensible decisions to be made reflecting the circumstances on the ground in each case. Attempting to legislate to cover all situations could, I fear, increase uncertainty over home working and allow some substantial businesses to avoid business rates. I hope that noble Lords agree that is not what we wish to achieve, and that clear guidance is the best approach in this situation.
My noble friend Lord Deben raised questions about tax, so I shall comment on VAT in particular. A home-based business, as I am sure he will know, should remain liable for VAT in the same way as other businesses, subject to the same thresholds.
Lord Deben
I was referring not to that issue, but to the issue of clearing up the connection between business rates and home businesses. Unless we do that, there could be circumstances in which the home became liable to business rates and then it could be seen as a business property. I want to make sure that, if such a business was sold, the owner could maintain the right to sell his own property without VAT—
Lord Deben
Yes, the capital gains tax element becomes very serious in that regard. I know that my noble friend will tell me that, happily, it is all here, but I am just not sure that everybody will understand that. I want to make sure that the guidance makes it clear that people are protected.
Baroness Neville-Rolfe
I understand what my noble friend says. He is talking about untoward effects, which we are not in the business of creating if we can possibly avoid it. The sensible thing would be for me to take away that point on VAT and capital gains tax. I am always rather careful about saying things about capital gains tax, as it is a complex subject. So we will write on that issue and copy the letter to anyone else who is interested in that point.
I finish on another positive point by reminding noble Lords that, in his Autumn Statement, the Chancellor announced that the Government would conduct a review of the future structure of business rates. The review will report before the Budget in 2016, and the Government will publish its terms of reference. I would encourage interested parties, including noble Lords with expertise in this area, to engage with this review, because it is an important opportunity.
I hope that the noble Lord has found my explanation somewhat reassuring and, on this basis, will withdraw his amendment.
Baroness Wheatcroft
My Lords, I apologise for not being here at the beginning of proceedings, but I have to intervene on this. Consumer groups are extremely effective in making their views known. They lobby us very effectively and they certainly lobby the CMA. While it is right that the CMA should listen to them, I do not think that there needs to be any formalisation of that relationship when it is looking at legislation. On the second issue, the idea of an annual report on the state of competition in the economy, I agree with the noble Lord, Lord Whitty, that this would be a massive undertaking for the CMA to have to complete every year. In fact, it is very hard to see how it would be able to undertake its main role if it had to produce that report on an annual basis. It also seems to me that because consumer groups now have the right to bring a super-complaint, there is a degree of duplication anyhow in the amendment. If consumer groups feel very strongly, they can make their super-complaint. Therefore, I take issue with the amendment.
Baroness Neville-Rolfe
My Lords, Clause 36 is important and I thank the noble Baroness for providing us with an opportunity to debate it. In our various dealings on other legislation, we have agreed on the importance of competition to consumers and the role that consumers play in making competition a reality. The Government are very keen on competition and I am not going to try at this late hour to engage in the philosophical debate between my noble friend Lord Deben and the noble Lord, Lord Whitty, both of whom have great experience of regulation, regulators and competition. Indeed, I learned from the noble Lord, Lord Whitty, during the passage of the Water Bill, when I was on the Back Benches. I am clear, however, that the Government want to ensure that the powers are in place to effect proper competition. I hope this clause will be a significant contribution to that, empowering the CMA formally for the first time to make recommendations on legislation.
Amendment 35B relates to consulting consumer groups. The CMA is the independent, expert competition body. It is the body best placed to assess the likely impacts on competition of legislative proposals. In considering proposals from Government, it will take into account their impact on consumers. This is a key value and it is enshrined in the CMA’s primary duty as set out in the Enterprise and Regulatory Reform Act 2013. This states that,
“the CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Consumer advocacy groups have a valuable and vital role to play in scrutinising proposals brought to Parliament. That will continue and they can make their views on proposals known as and when they see fit. As the noble Baroness, Lady Wheatcroft, rightly said, they often do that in many different ways. The CMA works closely with consumer advocacy groups, including Which? and the Citizens Advice service. CAB is also an active member of the Consumer Protection Partnership, although, sadly, Which? chose not to join it. The CPP brings together publicly funded enforcement, advocacy and advice organisations to share, compare and interpret intelligence to identify trends in the causes of consumer detriment. Regular scheduled meetings of this group and its sub-group are held throughout the year, and it plays an important role.
The CMA’s main responsibility is to ensure that competition and markets work well for consumers. That is one of the main reasons we value competition: it leads to better deals for consumers by encouraging innovation, new products, new ways of doing things and more competitive prices. In its annual plan for 2014 the CMA made a commitment to put consumers at the heart of everything it does. It is embedding this approach in its thinking and processes across the organisation, as well as establishing a programme to reach out to consumers and to a wide range of consumer organisations. An example of the success of that approach is the low income consumers project, where the CMA engaged actively with the CPP and other organisations that have a role in protecting consumers to review how problem debt affects consumers’ decisions and choices regarding the goods and services they purchase. There is also a practical timing point in response to this amendment. Requiring the CMA to consult others before making use of its new power would inevitably delay the timeliness of its recommendations, which might in turn diminish its influence and impact on new legislation.
Amendment 35C relates to an annual competition health check in collaboration with consumer advocacy groups and representatives of small business. Well functioning markets work for consumers, business and the economy, and for small business. The aim of the CMA is to make markets function in that way and to promote competition. In understanding markets and establishing priorities, it is of course important that the CMA takes into account the views of interested parties, including consumer advocacy groups and small business. However, effective mechanisms are already in place to achieve that. The intelligence gathered by the CMA through its engagement helps to inform its annual business plan. On 26 November it published its draft annual plan for consultation, and its strategic assessment was published the following day. The draft version of that plan sets out plans and priorities for the coming year. The consultation gave interested parties, including small business, the opportunity to provide views and comments on the proposed priorities. The consultation period closes on 23 January and a final version of the plan will be published in March.
The CMA has limited resources, and it is important that it is focused in the most effective way. New and effective mechanisms are already in place to enable it to gather intelligence, including vital consumer intelligence. The introduction of a new duty to produce an annual competition health check would divert resources away from tackling problems in markets that have already been identified, which at present, of course, include banking and energy. In view of the comments that the noble Baroness made, I am sure that she welcomes that. The CMA inquiry is a very important moment for the energy market. The independent and authoritative analysis that the CMA will bring will start rebuilding trust. The investigation is looking at many very important issues: barriers to entry, the impact of vertical integration, market power in generation, and weak incentives for companies to compete in retail markets, including of course any lack of consumer engagement.
To conclude, therefore, we are doing enough, and the provisions in the Bill should be welcome, although I suspect that we may not agree this evening. I am very grateful for the support of my noble friends Lord Deben and Lady Wheatcroft, and other noble Lords, on this important amendment. In the circumstances, I hope that the noble Baroness will agree to withdraw her amendment.
Baroness Hayter of Kentish Town
I thank the Minister but her suspicions, as ever, are completely accurate. We do not agree.
We are getting close to the time to finish, but I have two things to say. The problem with the CMA or for any of us who are legislators, in government, or whatever, is that the impact of malfunctioning markets falls most heavily on consumers. They are the ones who get ripped off when markets do not work. Not to have embedded in discussions in both identifying those problems and in looking at solutions the very people who feel the whack of it seems to be a mistake in legitimacy terms.
Baroness Neville-Rolfe
I agree that consumers are absolutely central to this. I have said it on many occasions, but I believe that we have a reinvigorated CMA. The processes for engagement with everybody, including small businesses and consumer groups, which are the subject of the second amendment, are very strong. It would be a mistake, as others have said, to put yet more requirements and red tape into this area because I fear that that would have an adverse effect on the ability of the CMA to tackle and use its competition powers to look at these very important markets in the way in which it is looking at energy.
Baroness Hayter of Kentish Town
The Minister might well say that. However, the Which? manifesto—I gather there is a general election in the offing—is that the CMA and all sector regulators should carry out routine, cross-examining analysis on the state of consumer competition. That may sound familiar to those who have been reading the amendment. The Minister may be very confident that consumer representatives feel that everything is tickety-boo—sorry, Hansard—but that is not how the consumer organisations themselves see it, and they have called for this. That is an important element. They still feel that they are shouting from the outside.
I take very much the comments made by the noble Baroness, Lady Wheatcroft, on what the problem is, as someone who has both run a lobbying organisation and an embedded consumer body within a regulator. The difference in the impact that one could make is enormous. Shouting from the outside one tends to do late. Indeed, I think the Minister gave it away when she said that consultation could delay something. The suggestion I hear from that is that we will have our report and then we will consult on it. That is not what we are trying to do.
Baroness Neville-Rolfe
There are systems within the CMA set-up, including the CPP, which allows it to consult on things. Who knows what the exact facts are, but that is how the system is designed. It is to try and give pre-eminence to competition which is done in a way that is envied by other member states I visit. They are very concerned both about competition and consumers.
Baroness Hayter of Kentish Town
The Minister thinks that we are not very far away. She is saying “Do it in consultation” and I am saying that, too. I tabled an amendment about consultation and the noble Baroness is saying that we are doing it in consultation but does not want this amendment because she does not want to do it in consultation. That is not quite an accurate portrayal of what we are saying but it sounds as if we are closer than maybe the Minister wants to admit. Having a review of how something will affect the competition and asking the CMA that is meant to do this only for consumers and not do it in consultation would be strange. Therefore, adding the words,
“in consultation with consumer advocacy groups”,
seems easy. That was the first amendment.
On the second amendment, the idea is to make sure that all the time somebody is asking, “Are there failures in the market?”. The difference between us is that it sounds as if everything is going well, yet our experience is that consumers are not always getting a good deal from parts of the market. The system that is set up is not good enough. We have been in government. My noble friend was actually in No. 10 but he obviously was not doing enough at the time. My other noble friend was a Minister, so it clearly goes back a long way. The idea is that we should have a driving mechanism, which is what the second amendment is about. The first amendment is important and one to which we should return. The idea of excluding those who are most affected by the lack of competition cannot be right, but for the moment I beg leave to withdraw the amendment.