Small Business, Enterprise and Employment Bill

Bill Esterson Excerpts

Tuesday 18th November 2014 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

Does my hon. Friend agree that all the ins and outs, ups and downs and unknowns of what the Government will end up bringing forward, either here or in the House of Lords, show why it is important that we support new clause 2, which 91 of us, including me, have signed?

[Toby Perkins]

I do. You will be glad to know, Mr Deputy Speaker, that I will come on to new clause 2 in more detail in a moment, but I basically agree with my hon. Friend’s point. His constituents in Sefton, who feel strongly about their local pub industry, will be glad to know that he took part in debates in the Public Bill Committee and has signed new clause 2.

That brings me nicely on to the contributions that a variety of Members from throughout the House have made on the subject in recent years. The hon. Member for Salisbury (John Glen) told the House about the landlords of the White Horse in Quidhampton, alleging that Enterprise Inns had

“signed them up to a lease on a false prospectus and…made their business completely uneconomic and unsustainable”.—[Official Report, 13 June 2013; Vol. 564, c. 476.]

The hon. Member for Meon Valley (George Hollingbery) has confirmed that the closure of the White Hart in South Harting was caused by

“unsustainable rent demands...from Enterprise Inns”.—[Official Report, 13 June 2013; Vol. 564, c. 476.]

The hon. Member for Romsey and Southampton North (Caroline Nokes) wrote to Enterprise Inns to inform it that the Abbotts Mitre public house in Chilbolton was

“under threat largely due to unrealistic rents and changes in terms and conditions”.

The hon. Member for Bristol North West (Charlotte Leslie) wrote to Enterprise Inns asking it not to close the Lamplighters in Shirehampton, and the hon. Member for Cheltenham (Martin Horwood) has bemoaned Enterprise’s decision not to save the Little Owl. As a Sheffield United fan I am not generally in favour of saving the Owls, but in this case it would have been important. He said that

“a big company has failed to recognise a pub’s value to the community.”

The hon. Member for Pudsey (Stuart Andrew) was also concerned with saving the Owl, this time the one in Rodley, whose threatened closure he blamed on

“the mounting costs imposed by the building owners, Enterprise Inns”.

The hon. Member for Bromley and Chislehurst (Robert Neill) said of the sale of the Porcupine in Mottingham that the public were

“incensed that their right to bid for the pub has been bypassed deliberately by Enterprise Inns and LiDL”.

--- Later in debate ---

[Toby Perkins]

I take issue with the idea that the only pubs that are being closed and turned into supermarkets are unsuccessful ones. The Crispin in Chesterfield is a successful pub that makes good profits, but it does not offer Enterprise Inns the 25-year lease that Tesco is willing to offer, and that is why it is being shut down. Pubs that are turning into supermarkets should not necessarily be described as unsuccessful.

I thought that I had responded to the hon. Gentleman’s point, but I will do so again. Of course we are supportive of steps to support larger pubs, and we think that is important. The specifics of the Government’s proposal and whether it has implications on the right of a community to have its voice heard on such issues is a matter that my hon. Friends in the communities and local government team will consider at greater length. Of course we support pubs that are successful and want to expand, but we also want to defend pubs that have a future in the community but often fall victim to the vagaries of pub companies’ operations, particularly when pub companies close pubs that are successful.

In response to the hon. Member for Burton (Andrew Griffiths) let me turn to the specifics of new clause 2. When debating pub tenants we are talking about a group of people who often work as many hours as anyone, but who earn less than they could legally be paid by an employer on the minimum wage.

[Bill Esterson]

The hon. Member for Burton (Andrew Griffiths) asked my hon. Friend what he is doing to help, and he was just starting to explain. My hon. Friend supports the market rent only option in new clause 2, so that is exactly how he, and the 91 hon. Members who have put their name to the new clause, are supporting pubs in our communities. When mentioning those Members who have referred to pubs in their constituencies, I hope my hon. Friend also expects them to support new clause 2, as do I.

[Toby Perkins]

I certainly do. The hon. Member for Burton had the unrivalled pleasure of listening to a day and a half of debates to which I made a fairly significant contribution—I appreciate that he cannot get enough of my contributions on pubs, but he has had a significant opportunity to hear my thoughts on the matter.

Pub tenants are those who clean their pub and get it ready for the next day’s trade. They are working at the bar, handling supplier relationships, generally keeping a cheerful presence, wearing the mask, and closing up long after most people have finished work, and all the while they know that the unfairness of their relationship means that the whole day’s work has been for nothing financially. Latest figures show that more than half of tied licensees work for less than £10,000 a year. Indeed, during the recent mini-recess I spoke to three pub tenants in my constituency who run pubs owned by the big pub companies, and none of them was taking a wage out of the business. By voting for new clause 2 and amendment 5 we can take a significant step towards preserving pubs for the next generation, and hardwire fairness into that longstanding business relationship.

Amendment 5 is simple but important and should reassure people who have concerns about these complicated issues. The Minister attempted to say that she believes the Government have found a different way to achieve broadly the same thing, but the specific wording of our amendment leaves a lot less potential for businesses to get out of saying that they are covered. To my mind, there are two ways in which the pubs code could fail to deliver what we want—first if the code is too weak and allows pub companies to comply with it while continuing unfairly to disadvantage their tenants; and secondly if we end up with a code that strikes the right balance for our expectations about the behaviour of pub companies, but is drafted in a way that allows pub companies to exempt themselves, or creates confusion as to who is covered.

Already the big pub companies have attempted to create confusion over definitions. The Government were right to acknowledge that they dropped a clanger with the phrase “tied pubs”, which in their definition is supposed to mean those on a tenanted or leased model in England, Scotland and Wales, although the code would need to be enacted separately in Scotland. The phrase “tenanted, leased” is the type of tenure clearly defined and easily established. We remain of the view that amendment 5 will provide the greatest clarification on exactly who should be covered by the Bill.

--- Later in debate ---

[Gordon Banks (Ochil and South Perthshire) (Lab)]

It is a pleasure to follow the hon. Member for Brighton, Pavilion (Caroline Lucas), and I should like to speak to new clauses 3 and 4. Before I so do, I should like to draw the House’s attention to my entry in the Register of Members’ Financial Interests.

New clause 3 is designed to flush out late payers. It seeks to press, or perhaps encourage, FTSE 350 businesses that have not signed up to the prompt payment code to do so. It would also empower the Secretary of State to publish a list of such companies on the Government website, thereby highlighting those that had not committed to the code. I support those ambitions. The new clause sets out to do what the Government said they would do—name and shame large companies that did not commit to prompt payment practices. However, they have now reneged on that promise. New clause 4 proposes that the Government conduct a review into how the payment publishing regime could be adapted to ensure that late payments would be automatically accompanied by a compensation payment, and how the onus of reporting late payment could be moved away from the customer waiting to be paid.

Why are the new clauses so important? Any small business owner will know that a late payment can often mean the difference between continuing to trade and business failure. Insolvency specialists have estimated that one in five business failures are down to bills not being paid on time; they are nothing to do with a failed business model and and purely down to cash being withheld from the business by its customers. The Scottish Building Federation has highlighted the fact that four out of five building firms have reported instances of late payment in the past year. I can assure the House that the overwhelming majority of those businesses will not have considered seeking redress through interest payments.

The problem that the Bill will not solve is that it will still be up to the supplier—usually a smaller business—to pursue its customer for prompt payment. The supplier will either lose the argument, and lose the prompt payment, or win the argument and put at risk its relationship with that larger customer.

[Bill Esterson]

My hon. Friend is absolutely right to make the case for a level playing field when it comes to the payment of smaller suppliers by larger organisations. He has also made the point about the human and social cost of late payments to the people who run and work in small businesses. Does he agree that it is incredibly short-sighted of larger businesses to disrupt their own supply chains by delaying payments in that way? Is not that another reason to deal with this issue once and for all by adopting these important amendments?

[Gordon Banks]

I thank my hon. Friend for making that valid point. The bigger companies have to understand that there is a need for smaller companies in the supply chain. They should view the situation in the round and acknowledge that not every company is big enough to withstand late payments in the same way that they perhaps could. There is a moral argument running through this as well. If I supply goods and services to someone on a Tuesday and they agree to pay me a particular sum by 1 August, for example, why should they not pay me by that date? It is simple: if I keep my part of the bargain, I expect them to keep theirs.

--- Later in debate ---

[Gordon Banks]

I absolutely agree with my hon. Friend. It is not morally or structurally fair for a small business to be trying to squeeze a few hundred or a few thousand pounds—perhaps even tens of thousands of pounds—out of a large multinational company. That onus must be shifted away from the small company. After all, the company is only endeavouring to get what it is owed. If the larger customer is made to pay its bills on time, it will take the onus away from the small supplier.

[Bill Esterson]

One reason why a fair system for recovering payment is needed is that small businesses do not have the people, time or money to chase late payment. Large businesses do, and they can defend themselves against smaller businesses. This is really about making it fair and equitable, and ensuring that small businesses can compete on equal terms with large ones.

--- Later in debate ---

[Ben Gummer]

I can only speak from personal experience, which is what I have tried to do, to explain why I think it makes sense to go down the Minister’s route and why we would end up with perverse consequences were we to go down the route of mandation. Many small businesses are not members of the Federation of Small Businesses, and the Federation of Small Businesses is not absolutely right in everything it suggests. All I would say is that, in this instance, my own experience is that mandation would have a perverse consequence that would be inimical to the well-being of all small businesses. As a good first step, transparency, as the Government suggest, will create a new environment for businesses, which will change things for the better for people trying to build wealth and prosperity in our nation today.

The shadow Minister intervened on me to suggest that something better could be done. All I will say to him is that, when in government, his party did absolutely zero. They were, if I may coin a phrase, a zero-zero Administration when it came to small businesses. In 13 years, they did nothing apart from put up taxes on small businesses. They did nothing to cut red tape. Labour Members oppose the Minister’s efforts to tackle bureaucracy and claim that they can do better, but that sits a little ill in their mouths. I know that most business people—this is true of almost everyone I speak to in my constituency—think that it sounds a little false, and there is a reason for that: it comes neither from the heart nor from a real desire to do anything right. The difference is that the Minister understands what needs to be done and he is doing it.

[Bill Esterson]

Like the hon. Member for Ipswich (Ben Gummer), I have run a small business—for 15 years, in my case. The reason new clause 4 is so important is that the status quo just is not working: small businesses are not in a position to chase late payments. In Committee —the Minister will probably repeat what he said then —members on both sides came up with examples of why action is needed, but I am afraid that what is being suggested just is not adequate. That is why we need measures such as new clause 4, which goes so much further.

As my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) has said, small businesses account for half of our economy. They are a crucial part of the economy and of prosperity and future prosperity. Very many small businesses are struggling at the moment and late payment is one of the main reasons for that. They are used by suppliers for working capital—in fact, they are used as a bank. We have heard about how accounts departments are available only on Tuesday at 5 o’clock or Friday at 3 o’clock, and if people cannot get hold of them at those times, they have had it. When I was in business, there was only one payment run a month, and if people missed that, they had had it for a month. The following month’s invoice would then be queried and sent back to them, so they would miss two payment runs and two months’ worth of pay. I am afraid that that sort of practice goes on all the time, which is why action is needed to go further than the Government’s proposal.

A total of £39.4 billion is overdue in payments to small businesses. On average, small businesses are owed £38,000 in overdue payments. One in four companies spends 10 hours or more a week chasing late payments.

[Gordon Banks]

Given the time in the calendar that we are now approaching—November, December, January, February—does my hon. Friend share my experiences of and concerns about what happens to cash flow and cash collection over these months, when for a number of reasons, or rather excuses, cash collection during the winter months, when in some ways it is needed more, is greatly reduced?

[Bill Esterson]

That is absolutely true. It is certainly my experience that the delays at this time of year are an additional burden on small businesses. They of course have a knock-on effect not just on the businesses themselves, but on the staff, who potentially lose out in the run-up to Christmas, when families need support more than at almost any other time of the year.

The proposal is about unlocking the potential of small business to do so much more for our economy and our future prosperity. As I said at the start, the status quo is not working, and we need something to change.

As we have heard from other Members, 10% of small businesses have considered using late payment legislation, but they have not actually done so. At the same time, 22% of them have ended a relationship because of late payment. That is a demonstration not that the system is working, but that it is not working.

Small businesses cannot and will not challenge their larger customers for fear of losing them. As I said in an intervention, there are moral reasons, community reasons and other good reasons for ensuring that payments are made on time, including to support the supply chain and the bigger business, as well as to benefit the wider economy and individuals in our country.

The issue is crucial, and we must make sure that the right solutions are brought forward to support small businesses and everybody who owns them or works in them. The system is not working at the moment, which is why the concept of automatically having to pay an 8% penalty on late payments is so important. Such behaviour will not change on its own. My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) made that point very well by saying just how few businesses in Scotland have signed up to the prompt payment code. It is a derisory number: is it 43?

[Gordon Banks]

indicated assent.

[Bill Esterson]

I do not know how many businesses there are in Scotland, but there are 5 million in the UK as a whole, and it is not too hard, by scaling that up, to calculate that the number signing up to the prompt payment code overall is not very big.

There is support for new clause 4 from across the business community. Phil Orford from the Forum of Private Business has said that it would be

“a welcome addition to the proposals outlined in the Small Business, Enterprise and Employment Bill and would go a long way to reducing the time and cost small firms spend on chasing late payments and allow them to concentrate on growing their businesses and creating jobs.”

Government Members must accept that it is supported across the business community. As my hon. Friends have said, the only way to support small businesses is to make the proposal mandatory to ensure that big businesses pay on time. New clause 4 does just that, and I hope that the House will support it.

[Toby Perkins]

I am in the rather unusual position of speaking to my new clauses and in effect winding up the debate at the same time, but it is a challenge I relish.

There have been some very valuable contributions to the debate. I reiterate my admiration of the campaign on late payments led my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams). She has been a really doughty fighter on the issue, and there is no doubt that late payment is a key factor in holding back small business growth. Suppliers frequently report that it is one of the key hurdles that they face, alongside access to finance, because small businesses do not have the cash flow buffers of their large competitors.

The hon. Member for Ipswich (Ben Gummer) has been forced to leave his place—he arrived in rather a rush and left in rather a rush. Let us hope he is properly dressed when he returns. He said, rather ungenerously, that I was in a lonely position as a Labour Member in having run a small business. However, we all know that my hon. Friend the Member for Edinburgh South (Ian Murray) was a small business owner, as were my hon. Friends the Members for Ochil and South Perthshire (Gordon Banks) and for Sefton Central (Bill Esterson) and many of my other colleagues. And so are several of Labour’s parliamentary candidates, who we hope will be joining us here in just a few months. Conservative Members often try to create the impression that they are the only ones who have ever been in business and that all Labour Members were previously engaged in social work, school teaching or whatever they think is not worthy.

--- Later in debate ---

[The Minister for Business and Enterprise (Matthew Hancock)]

We have had a good-natured and largely well-informed debate on these new clauses and amendments.

I shall deal first with late payments. We have heard passionate speeches from Members on both sides of the House on the importance of tackling late payment. I will start by addressing a comment made by the hon. Member for Sefton Central (Bill Esterson), who performed admirably on the Public Bill Committee and made many important interventions. He argued that the current situation in the country on late payment is not acceptable and is not working, and I think he is right. The question is what to do about it.

We consulted broadly on all the potential options surrounding late payments, including many of the options covered by the amendments, and we listened carefully to the responses to the consultations. There was a range of responses, including from those who would firmly regulate all private contracts and from those who did not want any change at all. It is important for us to take steps that will have a positive impact, and to think about the unintended consequences. If we introduce into English law a requirement for a contract to take a specific form, we will remove a freedom of contract that has served the country extremely well for a long time.

We have today heard passionate arguments about the importance of dealing with late payment, as we did on Second Reading and in Committee. We have heard them from my hon. Friend the Member for Ipswich (Ben Gummer) and from Opposition Members. I bow to none in my passion for sorting out the problem of late payment, because the family business in which I grew up nearly went under thanks to it, but let me point to the big picture. The hon. Member for Ochil and South Perthshire (Gordon Banks) argued that there was a moral case, and I agree with that. He also observed that the problem arose when there was a cascade of companies paying late—when, because some paid late, others had to do so, and then others had to as well. I have been at the receiving end of that, as I am sure he has. He is nodding now. The best way to tackle the problem of companies going bust and others paying late is first to establish a stable economy, and then to establish a culture of payment that is stronger and better.

[Bill Esterson]

Will the Minister give way?

[Matthew Hancock]

I will in a moment. Many Members have ignored the fact that the Bill already contains measures to improve transparency and increase prompt payment in the public sector. My Department pays within five days of receipt of 95% of undisputed invoices, and within 30 days of receipt of 99%. That excellent performance—which is what I would call it—must be rolled out much more widely in the public sector if the culture is to be changed, but we also need transparency.

[Bill Esterson]

I am glad that the Minister did not give way to me earlier, because he has made my point quite well. By improving its payment terms, the public sector is helping the economy. Rather than concentrating on putting the economy right in order to boost prompt payment, we should bear in mind that boosting prompt payment will help us to grow the economy, and if that is right in the public sector, it will be right in the private sector. We merely want to start the ball rolling. We in the Chamber do not have the perfect answers; it is for others to go away and design a system that works. If we assumed that all amendments must be perfect, we would never agree on anything here.