Small Business, Enterprise and Employment Bill

Baroness Primarolo Excerpts

Wednesday 16th July 2014 Commons Chamber

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I declare my interests as they appear in the Register of Members’ Financial Interests and I shall be using my precious five minutes to discuss the clause 70 proposals for a register of people with significant control.

The Government have spoken about anonymously owned companies having connections with terrorist groups and being used to hide shadowy funds, and they suggest that transparency of ownership is the best cure for that. These proposals are, of course, a departure from current English law, where transparency of ownership relates to whether a company is public or private. If it is public, there are various disclosures that have to be made as to ownership—for instance, once a shareholder owns 3% or more of a company’s shares. However, in situations where the public are not involved—say, a family company or a private equity company—privacy can be maintained.

There are four issues at stake here: the first is fighting crime; the second is the right to privacy; the third is the increasing regulation; and the fourth is encouraging investment in British private companies. I doubt that the first ambition will be much satisfied through this measure, while I do have significant concern about the loss of privacy and investment that could result and the increased regulation. Moreover, if criminals have concerns that this legislation will stop their money laundering potential, they will simply buy other assets. There is no beneficial register of stamp collections, for instance, or blood diamonds, but the family business that legitimately wants privacy of ownership will suffer as a result. We need to know how many of these private companies are being used for crime, compared with the hundreds of thousands that are legitimate—in effect, are these provisions worth it?

The provisions apply to those with more than 25% ownership or control, and I foresee many court cases arising over whether someone actually exercises significant influence or control over a company. Shady players will give stakes in companies to third parties to go beneath 25%—that is, of course, if they ever own any of the shares at all. Families, likewise, will split shareholdings between them, often making it impossible to determine control. Should we not be concentrating on the legitimacy of the money going into and out of companies, rather than the shares being held?

I know that the finance industry also has concerns. The problem here is that fund structures will often mean that those who are defined by the legislation as having significant control over a UK company may, in fact, have delegated management to a fund manager. It will be important for the legislation to navigate the complexity of private fund structures to arrive at an appropriate result.

If the impact of these regulations is to put off institutional or angel private equity investment, this would be a case of throwing the baby out with the bath water, but I think from my own practice experience that there are also some serious privacy issues here. People have a right not to show their wealth, and if they cannot do that by buying shares, they will buy gold or art or put their money abroad. Some people do not want their shareholdings to be known to other people with whom they work or live. Many foreigners want anonymity for legitimate reasons, and we should not just assume that their private companies are fronts for dirty money laundering. Some have ethical issues; Muslims come to mind in respect of investing in companies that may conduct lending or brewing.

During the passage of the Companies Act 2006, I presented amendments aimed at protecting legal, rather than beneficial, shareholders who were under threat from animal rights terrorists, who were taking their names and addresses off the share register and persecuting them. The fear of this will only increase with these proposals and broad exclusions are going to be needed.

I see from the House Library that significant concerns have been raised by the Association of Pension Lawyers, the British Bankers Association and the British Private Equity and Venture Capital Association. Let me add my concerns on behalf of the thousands of family businesses that are going to be affected by this. I think we should remove these clauses, but if we go ahead, I would suggest some system whereby people could avoid the register and maintain their right to privacy if they show the authorities that they are legitimate and of previous good character.

With my remaining time, I shall turn to director disqualification. I understand the need to have overseas offences included in the grounds for disqualification, although the technicalities of this could be very complicated. However, I have concerns about the proposal to increase the time limit for starting disqualification proceedings from two to three years. Sometimes the investigation will indeed require more time, but I do not think we should be giving the authorities more time to delay their processes and so it may be better if the extra year were to be provided for upon application to the court.

As for striking off a company by the registrar, I note that the proposal in clause 91 is to reduce the notice period from six months to as little as two months. Given that that will give creditors less time to make their objections, will the Minister please explain his thinking here? On the clause 73 proposal to abolish bearer shares, the notes say that only 900 companies using them are still trading, but getting rid of them will be inconvenient and a cost to business. Why can we not make these proposals retrospective? I also note that British companies that trade their shares in the US financial markets use American depository receipts, which are presumably bearer stocks. Will those also be excluded? Could the Minister please explain?

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order. I am sorry but there is huge pressure on time and the time limit may have to go down. I call Mr Adrian Bailey.

--- Later in debate ---

[Greg Mulholland]

My hon. Friend forgot to mention in his long list of titles his elevation earlier this year to president of the save the pub group. It has been a pleasure working with him. As well as the figures he has—

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order. Sit down. We are really pressed for time and Members need to be disciplined. We did not need the introductory remarks, so you have lost the opportunity to make your point. I call Brian Binley.

[Mr Binley]

President Brian Binley. [Laughter.] I apologise, Madam Deputy Speaker.

The Bill proposes a mechanism called a parallel rent assessment. From a tenant’s point of view, such a mechanism is time consuming, and it will allow a pubco to run a tied tenant into financial collapse long before they receive an adjudication determination. It is potentially expensive for tenants, requiring them to employ professionals to represent their case, and it is complex. It is also totally unsupported: no organisation, pubco, brewer, tenant or consumer supports the parallel rent assessment mechanism. I am therefore surprised that the Government have recommended a mechanism with so little backing.

I appeal to the Minister to reconsider the proposals on pubcos, especially as they relate to the tie, and to consider the opportunity for a fair rent option without a tie. I am happy that the breweries are excluded from that particular element—the Select Committee in fact asked for that—but pubcos should be willing to face up to their responsibility in relation to encouraging tenants to take their pubs on false pretences. If hon. Members have, like me, seen a woman in their office in tears because she owes £94,000, having taken on a pub on a false premise, or seen a husband trying to comfort his wife because they know they are going bust, having sold their house to invest in a pub—there are many examples of that kind—they would recognise that reality.

--- Later in debate ---

[Mr Binley]

I had better not, or Madam Deputy Speaker will have words with me privately later.

I conclude simply by urging the Minister to reconsider the option proposed by the Business, Innovation and Skills Committee in its report. The Secretary of State initially seemed to accept it, but I fear that the Treasury oar then had an impact, smacking him—

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order.

[Mr Binley]

Pity.

--- Later in debate ---

[Catherine McKinnell]

I will give way.

[Madam Deputy Speaker (Dame Dawn Primarolo)]

No you will not, because your time is up. You just missed it by a second, I am afraid.

[Rebecca Harris (Castle Point) (Con)]

I rise with some trepidation to speak on Second Reading, because it is such an enormous Bill and contains so many interesting measures. I am well aware that speaking on Second Reading sometimes marks Members out as candidates for the Bill Committee. I envisage that it will be a very long but fascinating Committee. The Bill contains many disparate measures. Some are not eye-catching or glamorous, but they will do a good deal to support small businesses in practical ways. They demonstrate that the Government take their commitment to make life easier for small firms very seriously. I like the Bill so much that I think we should have a small business Bill at the beginning of every parliamentary Session.

I am especially interested in the new measures on prompt payment, which is a big issue in my constituency—a lot of construction firms in my constituency are often troubled by the late payment of fees. The requirement for certain companies to supply details of payment times and for them to be published is welcome. I have sympathy with the views of the Federation of Small Businesses, which says that records of payments to sub-contractors should be taken into account when companies bid for Government contracts. I would be tempted to go further than that—all of a private company’s businesses arrangements, including how well it pays its suppliers in private business dealings, should be taken into account when it bids for a Government contract—because we need to foster a culture in which not paying promptly results in reputational damage to firms. About £40 billion is owed to SMEs in contract payments. It is not acceptable for firms to enjoy the Government’s prompt payment policy if they do not share it with their supply chains.

It is brilliant that the Government’s mystery shopper scheme is being made statutory. It is a fantastic scheme. I am pleased that about 80% of the cases referred to the mystery shopper scheme have resulted in a positive outcome and improvements to procurement practices to improve small firms’ access to public sector contracts. I am a big fan of that initiative, but it needs to be used more widely. I have been given many examples of SMEs that have gone through the time-consuming process of bidding for a significant public sector contract. They hear that they have submitted the most competitive, best-value bid, only to find that a major firm has secured the contract. The major firm then asks the SME to be its sub-contractor to do the work in any case.

The suspicion is that, often, public sector procurers use excessively high requirements when they are not relevant to the contract—for example, on financial track records—as a means of simplifying their work load and of letting the bigger corporations manage multiple contracts for the public sector. At the same time, the bigger corporations take a sizeable top slice of the cost to the taxpayer. I have found the mystery shopper scheme to be a useful tool in my arsenal to assist businesses that approach me when they are based in my constituency or are seeking to invest in it. However, the scheme needs wider publicity—more businesses need to know about it—and I am encouraged that things are taken forward in the Bill.

Hon. Members on both sides of the House agree with banning exclusivity clauses in zero-hours contracts. Many workers, and especially many women in my constituency with whom I have discussed the matter, say that they like the flexibility, but when things go wrong, and the employer abuses the system, the problems start. They can cause serious hardship. Strictly speaking, banning exclusivity clauses will not entirely end the abuses of zero-hours contracts. The Government clearly recognise that, which is why clause 139 gives scope for further reform.

I praise the Department and the work of UK Trade & Investment on exports. UKTI is undoubtedly the driving force behind some of the measures in this huge Bill. As a member of the Business, Innovation and Skills Committee, I consider it my implicit duty every time I meet a business owner who exports to ask whether they are getting support from UKTI and how they rate it. The feedback has recently been 100% positive, from tiny, niche luxury food exporters to big bespoke boat builders such as Blyth Workcats, which manufactures catamarans on Canvey Island. Businesses have great confidence in UKTI and increasingly value its work and approach. I am happy to take this opportunity to say so.

I commend the numerous common-sense measures in the Bill, which will do a great deal to support business growth and small businesses as the engine of our long-term economic plan. I am very proud to commend—

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order.