Intellectual Property: British Economy

Bill Esterson Excerpts

Tuesday 28th February 2017 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

I congratulate the hon. Member for Selby and Ainsty (Nigel Adams) on securing this important debate. There has been a large amount of agreement across the Chamber on the nature of the challenges and what we are asking the Government to address.

Intellectual property is the sum of a person’s or a business’s creativity and unique knowledge: their industrial designs, trademarks and inventions. Intellectual property gives ownership to ideas. It secures, for the creator, a stake in the value generated by their creations. Whether we are talking about the knowledge economy, the digital sector, high-end manufacturing or renewable energy, the UK has a deserved global status in all those fields. We have that status not just because British people are particularly good at having ideas, but because we are very good at safeguarding the ownership of those ideas, although, as we heard in great detail from hon. Members, we have a significant amount more to do to protect that ownership. Intellectual property is a catalyst for growth and jobs—for a successful economy. That is becoming increasingly apparent and it will be increasingly important if we are to be an economy of high pay and prosperity, and not an economy of low skill and low wages, competing on the basis of price alone, in an uncertain world.

As the hon. Member for Selby and Ainsty said, the Digital Economy Bill has only three clauses on intellectual property. He is right to make that point and to say that the Government need to give the area of IP far greater attention. He, along with a number of other hon. Members, spoke about the impact of piracy on investment and emerging talent, the threat to the creative industries’ revenues that that brings, and the importance of the code of practice. As my hon. Friend the Member for Cardiff West (Kevin Brennan) pointed out, if we have a code, there needs to be proper enforcement, and the Government have a vital role in ensuring that enforcement takes place.

As the hon. Member for Selby and Ainsty said, it is easy to bash big companies. We need to be careful about doing that and should praise them when they get things right—the code of practice is a prime example—although I hope he agrees that those big companies should pay their taxes where they generate their profits. He spoke about the safe harbour laws and touched on some of the challenges for IP as we leave the European Union. He was right to raise those challenges, which I look to the Minister to respond on. I will come back to that a bit later.

My hon. Friend the Member for Cardiff West made the point that there is large-scale agreement on the need for IP policy. He mentioned IPTV, which gives access to content without rewards to the creators but with enormous rewards to criminals who are out of our reach overseas. While he was speaking I searched on Google for IPTV and came up with Amazon, eBay and Gumtree offering very low-priced mechanisms for accessing such content. It is there, easily available in front of us, and hon. Members have pointed out just how widespread access to it is.

I am afraid that I have to agree with Members about the slow response in the Digital Economy Bill, which has happened despite the Government accepting the need for action. My hon. Friend the Member for Cardiff West raised the seriousness of the problem and expressed frustration about the lack of action on Members’ amendments tabled during the Commons stages of the Bill. Will the Minister tell us why there is such a lack of action?

My hon. Friend the Member for Newport East (Jessica Morden) rightly praised the staff based in her constituency and the excellent work they do at the Intellectual Property Office. She said, importantly, that the Government need to invest in the staff’s work for the long term because of the critical nature of IP to the success of our economy. I hope the Government will do just that.

My hon. Friend the Member for Cardiff West talked about the difference between good and bad regulation. Good regulation helps business and the economy, and that includes the need to protect smaller businesses when it comes to copyright and unregistered design rights. He and the hon. Member for Selby and Ainsty rightly highlighted the need for a proper approach from the Government on safeguarding online. That point was extremely well made and well heard; I believe it is also understood by Government. My hon. Friend talked about the damage to exports if we do not get our approach to IP right. As we leave the EU, trade deals will be important for exports, and IP is a crucial part of that agenda. The hon. Member for Glasgow North (Patrick Grady) rightly talked about the exploitation we have seen of the world wide web, and the challenges that have grown since 1993.

The hon. Member for North Antrim (Ian Paisley) spoke of the loss of revenues to the Government from illicit fuel sales—I think he said that 40% of fuel sales in Northern Ireland are illicit—and made the comparison between fuel sales and the importance of preventing illicit sales online. I was grateful to him for expressing his lack of understanding of technology and products such as Spotify—I am glad I am not the only one in the room who faces such challenges with my children and their access online.

The hon. Gentleman and others spoke of the need for fairness to the performer in benefiting from their own intellectual property. He said that there is an opportunity for the UK to provide the gold standard for IP as we leave the EU. I think we should be doing that anyway—that should have been our priority regardless of whether we were staying or leaving. It is crucial we do so in the time we have left before we finally leave. We should not be waiting to leave to achieve that goal. He made a very important point about the case for a Government role in creating a fair market and a level playing field so that industry can thrive and performers can receive the appropriate rewards for their industry, innovation, creativity and hard work.

The hon. Member for Perth and North Perthshire (Pete Wishart) was the second member of MP4 to speak in the debate. I did wonder whether he was going to contribute for the other two members as he went on, to make up for them not being here. He made some good points. He spoke about the challenge of leaving the EU and the importance of the digital single market, and called on the Government to use our remaining time to help shape the agenda before we leave. He repeated the concerns of my hon. Friend the Member for Cardiff West about how slow the Government have been in responding to protection against theft.

The UK’s system of regulating IP is considered to be one of the finest in the world, rated number three by business in the 2016 Taylor Wessing global IP index in respect of obtaining, exploiting and enforcing the main types of IP rights: trademarks, patents and design rights. The investment pays off—intellectual property makes a significant and growing contribution to the UK economy. As the Intellectual Property Office notes, UK investment in intangible assets protected by intellectual property rights has risen from £47 billion in 2000 to £70 billion in 2014 and has been estimated at 4.2% of total GDP. It is therefore clear that intellectual property is of great importance to the UK economy.

We welcome the Government’s recognition of the importance of IP in the industrial strategy Green Paper. Investment in science, research and innovation is one of the 10 pillars of the Green Paper and, as part of that, the Government are

“reviewing how to maximise the incentives created by the Intellectual Property system to stimulate collaborative innovation and licensing opportunities”.

I hope that that is going to include university spin-outs and making sure that we make full benefit of the commercial applications that come from them.

Labour is committed to investing the full 3% of GDP in research and development, and has long called for the Government to improve their record. That is the level of investment needed to place rocket boosters under the R and D pillar of the industrial strategy, and I hope we will see more of it from Government. Sadly, we have seen a decline in Government spending on R and D from 0.56% of GDP in 2009 to 0.49% in 2013. That is considerably lower than the OECD average of 0.7% and the EU average of 0.64%, so more needs to be done by the Government on investment in R and D.

IP is crucial to the success of the economy and business, and to those in industry—especially those in the creative industries, as we have heard. Clear, early action is needed on piracy, on arrangements for leaving the European Union and on making IP a key part of the success of our economy. I look forward to the Minister’s reply.

Draft Economic Growth (Regulatory Functions) Order 2017 Draft Growth Duty Statutory Guidance

Bill Esterson Excerpts

Tuesday 28th February 2017 General Committees

[Margot James]

It is a pleasure to serve under your chairmanship, Mr Brady.

The order will support regulatory bodies in the UK in creating a healthier business environment by making regulation more proportionate, transparent and accountable. The Government are committed to ensuring that regulation supports growth and does all it can to unlock productivity in the UK. Better regulation is central to the Government’s desire to make the UK the best place in the world to start and grow a business, and a key part of our commitment to driving economic growth and boosting productivity. The Government delivered savings of £10 billion to business over the last Parliament, and we have committed to achieving a further £10 billion of deregulatory benefit for UK businesses in this Parliament through our business impact target.

In the Deregulation Act 2015, we introduced a duty for regulators to

“have regard to the desirability of promoting economic growth”—

the growth duty. Alongside the business impact target, that duty supports a positive shift in how regulation is delivered. It will help to reduce the regulatory burdens that hold businesses back and prevent them from getting on with doing business. The result will be another step forward in ensuring that regulation supports growth by freeing up businesses to innovate, creating greater prosperity and opportunity for all.

The 2015 Act establishes the economic growth duty as a legislative requirement for persons exercising a regulatory function. The draft order sets out the specific regulatory functions to which the duty applies, and the statutory guidance has been produced alongside it to assist regulators in fulfilling their new responsibilities at both strategic and operational levels.

Proportionate delivery of regulation plays an important role in supporting competitive markets and improving social and environmental outcomes. Regulatory enforcement that is not proportionate and risk-based imposes unnecessary costs on business, creates uncertainty and undermines investment. How regulation is enforced can have significant effects on businesses’ ability and willingness to invest and grow. In particular, there is evidence to suggest that some regulators fail to take sufficient account of the economic consequences of their actions and place unnecessary burdens on businesses in the exercise of their regulatory functions. To address that, in the 2012 autumn statement, the then Chancellor announced several measures designed to create a healthier business environment by making regulation more proportionate, transparent and accountable.

[Bill Esterson (Sefton Central) (Lab)]

The Minister refers to what the then Chancellor said and mentions that some regulators have not acted supportively for business and economic growth. Will she give an example of a regulator or a case in which that is supposed to have happened?

[The Chair]

Before the Minister resumes, let me say that because the Question has not been put yet, it is not technically possible for her to accept interventions. Of course, whatever the Minister says now is entirely up to her, but it is important that the Committee should be aware of the appropriate rules of order.

[Margot James]

I am extremely grateful, Mr Brady, as I am sure the shadow Minister is, for that point of learning, which was not enforced yesterday.

I will not comment on individual regulators, but I see from time to time examples where regulation is applied without sufficient concern for the ways of working in particular sectors. If those regulators were more sensitive to the ways of working, they would apply the regulations to no less effect and with less imposition on the companies concerned.

Although many regulators consider the impact of their actions on economic growth, some do not. Indeed, some regulators think they are unable to take account of growth because they do not have a statutory requirement to do so or their statutory objectives do not refer to growth. Requiring regulators to have regard to economic growth in this way will address the uncertainty of regulators that feel at the moment that they cannot have regard to economic growth and will put the obligation on a statutory footing, thereby complementing regulators’ other legal obligations.

The growth duty will help regulators to carry out their functions in a way that is conducive to economic growth, and will ensure that regulatory action is taken only when needed and that any action taken is proportionate. It will therefore encourage regulators to develop more mature and productive relationships with the sectors and businesses that they regulate, driving up the accountability of regulators to the business community. That will help to deliver our aspirations for greater productivity and growth in the economy.

Public consultations were carried out in 2014 and 2015, and there was a further consultation on the scope of the business impact target. Responses were received from a broad cross-section of stakeholders. The majority of respondents to the consultation on the growth duty agreed that regulators should have regard for economic growth and should be accountable for whether they have properly considered business growth in their decision making. One respondent said that

“businesses need to have proportional regulatory burdens that can be monitored and dealt with efficiently so they can focus on growth.”

Another stated that

“regulators should always have a dual responsibility to regulate and to promote economic growth…the two should not be mutually exclusive.”

There were a small number of objections to the inclusion in scope of particular regulators. Those were mainly based on arguments related to the amount of regulatory activity undertaken or the fact that the organisation did not have any regulatory functions.

Having considered those responses, the Government are satisfied that it is appropriate to bring the regulators listed in the instrument within scope of the duty. This measure is an important step towards creating a healthier business environment by making regulation more proportionate, transparent and accountable. I commend the regulations to the Committee.

[Bill Esterson]

rose—

[Patrick Grady (Glasgow North) (SNP)]

rose—

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[Bill Esterson]

It is a pleasure to serve under your chairmanship, Mr Brady, not least because you have created an interesting dilemma. The Minister and I, as well as other Members here, sat in a Committee such as this last week and were told that the Scottish National party spokesperson should speak first. The hon. Member for Glasgow North would do so, had he indicated before me that he wished to speak. However, you are in the Chair, Mr Brady.

[The Lord Commissioner of Her Majesty's Treasury (Stephen Barclay)]

The Chair is always right.

[Bill Esterson]

Indeed, so I shall continue. The Chair from last week—

[Stephen Barclay]

Let’s ask them about it.

[Bill Esterson]

The Government Whip, from a sedentary position, is being extremely helpful, which happens rarely. I take it that we can now take interventions.

[The Chair]

Indeed.

[Bill Esterson]

Thank you for that clarification, Mr Brady.

The Minister set out the case for the regulations. She commented in particular on the Government’s commitment, of which I have no doubt, to create a positive business environment across the UK and to unlock productivity by enabling businesses to invest and grow, as the explanatory notes state. I completely agree with that. The explanatory notes go on to say:

“The way in which regulation is enforced can have significant effects on businesses’ ability and willingness to do this”.

I also agree with that statement. It is a real shame that, when she responded to my incorrect intervention, she chose not to give an example of a regulator that has failed, as the notes state,

“to take sufficient account of the economic consequences of their actions and place unnecessary burdens on business in the exercise of their regulatory functions.”

It would be extremely helpful for Members if we were properly evidenced in our decision making to make sure that the intention of supporting growth and business success is most likely to be achieved by passing these regulations. The success of our economy, its growth and the prosperity of us all are fundamentally important to what the Government are trying to achieve, and that is helped by properly evidenced approaches to policy.

When the Minister responds, perhaps she will consider whether she can give specific examples of regulators where those concerns have been justified. It is right that we attempt to reduce unnecessary regulations, but good, smart regulations underpin fair markets and help to create a level playing field for smaller firms, start-ups and growth companies. They help to create jobs and prosperity. They are essential to the economy and to safety as well. The example of the 2012 Olympics in this country, where nobody died during the construction phase, is a tribute to the success of our regulatory regime. The building of the football stadiums for the 2022 Olympics is in stark contrast, given the death and injury toll for workers on those games. What went on there is a scandal.

Smart regulations protect the safety and rights of workers and businesses, support competition and prevent undercutting and exploitation. We have seen what goes wrong when those things do not happen, whether it is Sports Direct or the actions of Sir Philip Green. Members on both sides of the Committee who support a reduction in regulation should not forget the importance of the financial crisis and the fact that the lack of regulation or safety mechanisms to prevent the excesses of large parts of the financial sector in this country—let alone what went on around the world—was a key contributor to the crisis. We need better regulation, not none, whichever sector we are looking at. As the Federation of Small Businesses said in the Deregulation Bill Committee evidence sessions, people ask only for an avoidance of duplication, to avoid wasting of time as regulations are developed and implemented—not no regulation at all. That informs our response to what is before the Committee today. In the Labour Government, we had the Better Regulation Commission, which reduced the cost of regulation to business in this country by £3 billion a year. It is ironic that we are looking at the growth duty from the Deregulation Act, given that that Act introduced significant additional amounts of regulation for business.

Regulators decide for themselves the balance between promoting growth and applying the regulations for which they are responsible. That will continue to be the case with these regulations. However, how do they know the right balance to strike when they have to respond or be accountable for the regulations?

In Committee debates on the Deregulation Bill, in both the Commons and the Lords, the question was raised of what would happen if there was a challenge—if there was a claim by businesses that the duty for economic growth had been misapplied. The point was made, and accepted by Ministers, that we could see judicial review. That was said by the Minister in Committee.

If that were the case, under pressure from large companies with deep pockets, regulators, most of whom are small with limited resources, would have to decide whether to defend themselves. The potential for significant pressure being brought to bear on the regulator by the strongest in our economy is very real and was raised throughout the passage of the Bill. What is the right balance? There are competing needs and duties between regulation and the economic duty. One part of an economy would want to see one approach applied, another would want to see a different one.

Good regulation should promote growth and act in the best interests of the industry for which the regulator is responsible. A regulator’s duty should be both to support an industry and to ensure compliance with regulations, as is already the case. Why the need for this specific, spelled-out additional duty—the extra requirement of compliance with the growth duty? That comes back again to the lack of specific examples of where it is not happening at the moment, and it makes clear the need to obtain an answer from the Minister.

The Government often say that they want fewer regulations and less intervention, yet here there is more. The question whether the actions of the regulator will support growth will depend on the interests of the person or organisation viewing the way in which the regulator applies that duty. In the nuclear industry, the regulator clearly has a significant responsibility for safety but could take the view that it has to pursue that even further because failure of safety in the nuclear industry would lead to complete economic failure as well. That point was made by a Conservative member of the Bill Committee.

Another example was given by the Institute of Directors in evidence to the Bill Committee. It said that the regulator in a particular sector might not be helping growth in the view of one individual, and some of the evidence suggested the potential for legal challenge and judicial review. Big business might think that regulations hamper growth, although smaller firms say the complete opposite. In that case, if there are conflicting views of what constitutes supporting growth, how will the regulator respond? What decision will they make? What is the basis for that decision?

The big firms will want their interests to be prioritised and those same big firms are in the strongest position to challenge the decisions by the regulator through the courts. That is why, in Committee, the Labour party tabled an amendment requiring regulators to produce an annual report on how they have interpreted these regulations to support small and medium-sized enterprises, to try to ensure support for the creation of a level playing field and a fair market.

Sadly, the Government rejected that amendment. That was a great shame, so perhaps, once these regulations are put into action, the Minister will return to that point and consider whether the measure is something that should be introduced. We perceived it as a way of reducing the potential for legal challenge and judicial review and reducing some of the unforeseen consequences of this additional requirement on regulators.

It is clear that if there is a significant amount of legal challenge—if the lawyers are involved—this could amount to a lawyers’ charter. We would see economic growth as a result of greater sums spent on lawyers, but I do not think that is quite what the Government had in mind. We need to be mindful of the danger of significant legal challenge.

We also need to consider the balance between short-term economic activity and the longer-term effect of what regulators will have to do as a result of the duty. A decision to act in the short term to cut costs of regulation by less application could result in growth— absolutely. However, if that leads to longer-term corner cutting, it would be counterproductive in the long run and growth would be lower. How will regulators make those decisions? Will they be allowed to make them without facing undue pressure for short-term decisions that are not in the interests of the wider economy, and how will that contradiction be overcome?

Safety in many sectors—food, water, nuclear or construction—comes with an additional cost to business, but accidents have a far greater longer-term cost, so getting those balances right is fundamental. The Government say they want growth. The question of short-term versus longer-term interests of businesses is tied up in the kind of growth we want and its sustainability. The threat of legal challenge, the difficulties it will cause to regulators, the additional time and cost pressures on the regulators are surely not what is intended. I wonder whether the threat of legal challenge might lead to less sensible application of good regulation.

If the Government really want to achieve the growth that they have set out—we see that with the development of the industrial strategy Green Paper—support for business and a high-pay, successful niche economy is the only way for this country to thrive. To avoid going in the opposite direction—the Prime Minister warned of the alternative of a low-wage economy; a tax dodgers’ paradise off the shores of the continent, along the lines of the Cayman Islands or Singapore—we have to get this kind of measure right. We have to get its application right, otherwise we will see the unintended consequences in the longer term and not the success that I think we all agree is needed.

I look forward to the Minister’s answers. We really need to get the balance between short term and long term right, otherwise the growth duty will not end up being the success that it should be.

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[Margot James]

I thank hon. Members for their questions. Both the hon. Member for Glasgow North and the shadow Minister discussed the nature of regulation and I think there is some agreement—I would hope so anyway —that we are about better regulation, smarter regulation and regulation that is appropriate to the sector of society or the economy it is attempting to regulate.

I would like to put on record the fact that the notion that the Prime Minister was espousing some alternative for this country—its being, as the shadow Minister mentioned, a low-wage tax dodgers’ country on the edge of Europe—is the absolute antithesis of her aspirations. The notion of regulation is very important to the industrial strategy. We want to achieve a state where the regulators have a responsibility, as do all sectors of the economy and businesses operating within it, to support the economic growth that we all depend on. The shadow Minister said surely they were doing that already. Many do, and that is a good thing, but because they do not have a statutory obligation to ensure they have a duty to promote growth alongside their other responsibilities, some of them are not aware of it or, worse still, some think they do not have to do so. That is the purpose of the measure, and the response of the Federation of Small Businesses was that it would be a good thing if all regulators realised they had a responsibility to promote growth where appropriate. [Interruption.] Does the hon. Member for Sefton Central wish to intervene? I get a sense that he does. I am quite happy to give him the floor.

[Bill Esterson]

It is baffling, Mr Brady. The Minister has said twice that there is concern about regulators that are not promoting growth, but she is not giving us any examples. Without a proper evidence base, it is extremely troubling that the Government are doing something that does not stack up, that lacks the support to say that it is needed. Just one example, please—that is all we are asking for.

[Margot James]

I am not going to name individual regulators. The hon. Gentleman can read the consultation that lies behind the introduction of this regulation, from which I am sure he can get a feel for the sectors that are in need of this duty.

Talking in the abstract, we want to see regulators providing more proportionate decisions; we want to see a reduction in administrative burdens, inspection costs, duplication of information, and reliance just on external contractors. Businesses do not want to feel that regulators are faceless bureaucrats, but that they are approachable and supportive of their overall success. Some regulators are better at that than others. The purpose of the measure is to try to bring the rest up to the standards of the best. For more detail, I urge the hon. Gentleman to read the consultation.

Turning to other matters that the hon. Gentleman raised, he cited the Olympics as a regulatory success, and contrasted them with the financial crisis. He said there was not enough regulation to deal with that and the fact that, in his words, “all parties were on the side of less regulation.” I do not think that was the case. As my hon. Friends have pointed out, there were 6,000 pages to regulation at the time. The root cause of the problem was not the lack of regulation, it was the impossibility of enforcing those regulations, and the fact that there were too many regulators with a finger in the pie.

We want to see regulators balance their regulatory purpose with their duty to promote growth. The hon. Gentleman was concerned about legal challenges and the imbalance of power between large companies and relatively lightly resourced regulators. While, in principle, it is possible for a legal challenge to be brought, the statute and the regulations require that regulators have regard to the desirability of promoting economic growth. Providing a regulator does so, a legal challenge would fail, so there is no real prospect of a court being asked to consider the particular balance being struck by a regulator. That balance is up to the regulator and if they have good reason for their decision—if they have considered their duty to promote economic growth but concluded that, on that occasion, it is trumped by another of their other duties—they will merely have to demonstrate that reasoning. I hope that that reassures the hon. Gentleman.

The growth duty is a key element of our agenda to improve regulation in the UK, and these regulations will support a positive shift in the way in which regulation is delivered by reducing the unnecessary burdens that hold business back and prevent them from getting on and doing business. They will therefore help to ensure that regulation supports growth, and will create a healthier business environment by making regulation more proportionate, transparent and accountable.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Economic Growth (Regulatory Functions) Order 2017.

Draft Growth Duty Statutory Guidance

Resolved,

That the Committee has considered the draft Growth Duty Statutory Guidance.—(Margot James.)

Draft Business Impact Target (Relevant Regulators) Regulations 2017

Bill Esterson Excerpts

Monday 27th February 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Ryan. I have not done so before, and I look forward to it. The Minister has very briefly set out the Government case for the regulations, and I will raise a series of concerns and challenges, to which I would like her to respond.

The Minister went over the Government’s one-in, two-out approach in the last Parliament, yet here we are, adding regulation to the regulators. At first glance, it looks like more regulation, not less. A long list of regulators that will see additional claims on their time and effort is included in the regulations. The Government’s claims to want to see less regulation do not always stand up to challenge, but that is not the main point. We have debated the impact of quarterly reporting before, and I am sure we will debate it again. Time, bureaucracy and cost are associated with the requirement for businesses to report their tax affairs every three months. The Federation of Small Businesses estimates that the proposal will create £2,600 a year of extra cost. We have extra regulation and extra costs to business from a Government who say they want less.

I turn to the matter at hand. A number of concerns emerged in going through the regulations. The challenge is to balance properly the short-term requirement on regulators to reduce the amount of work they are doing with the long-term impact. Has that long-term impact been measured? Has the impact assessment adequately looked at what some of the challenges, concerns and impacts may be, especially when we are talking about public safety and health? A number of the regulators concerned, including the Care Quality Commission, the Chief Inspector of Drinking Water and the Food Standards Agency, cover one if not both of those areas. Those are three examples; I could mention many more where public safety and health are paramount.

The concern must be that, in the Government asking or requiring regulators to reduce their impact on business, corners are not cut and that public health and safety are not put at risk. Can the Minister answer this simple question: what is the mechanism to avoid an increase in risk in any of the agencies referred to in the schedule and the papers in front of us? The Financial Conduct Authority is included in the regulations, and we are all acutely aware of the important lessons of the financial crash. What is the mechanism for ensuring that the reduction in the requirements on the FCA will not lead to additional problems in the financial sector, such as the crash from which some would argue we are yet to recover? That is a great concern, and that was expressed in the consultation. The point about caution and the analysis made by a range of these agencies needs a detailed answer from the Minister. I am sure that she will have that answer by the time I have finished.

I move on to the wider financial elements of the regulations. It is apparent that savings can be quickly made by reducing the activities of the regulators, but will those savings lead to longer-term costs? What work have the Government done to ensure that cost concerns and economic concerns, as well as concerns about health and safety, are being considered for the longer term? What would be the point of making short-term savings? The Minister and her colleagues in her Department and across Government are rightly committed to long-term growth, and they are happily now committed to an important industrial strategy, which was not the case with some of her predecessors. How can we be sure that the reductions in regulation will not lead to longer-term cost?

I will give an example that was raised in the Small Business, Enterprise and Employment Bill Committee by my hon. Friend the Member for Wakefield (Mary Creagh). She talked about the challenges of getting environmental regulation right. She quoted evidence that suggested that the benefits of environmental regulation—some of which can be quantified straightaway and some of which take longer—cover the costs three times over. The implication of that analysis is that, if environmental regulation is reduced, costs increase in the long term. How will increased costs to the economy and to business be avoided by reducing regulation, whether that is for the environment or the range of other areas covered by the organisations listed in the schedule?

If the Minister could answer those questions, I would be extremely grateful. I am sure it is not the Government’s intention to lose out in the long run just to make a short-term gain and to get some headlines on reducing red tape. We on the Opposition Benches fully support the need to reduce big business regulation, to improve conditions for business, to make the economy more vibrant and to create fair markets. If changes to regulation can help to achieve those objectives, that is absolutely the right way to go, but if they reduce the potential for a stronger economy in the long run, that cannot be right.

It came up during the consultation that a request from business is absent from the draft regulations. Tax accounts for a large amount of regulation that causes huge cost to business and which businesses object to massively, so why are HMRC and other bodies responsible for tax not covered by the regulations? That would be an obvious place to start and an obvious way to reduce regulation, bearing in mind the absolute purpose of reducing the cost to business. I am curious to hear the Minister’s answer to that question, which was raised in the consultation, and I look forward to her other answers. Perhaps I will pursue certain issues further through interventions as she responds.

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[Margot James]

I will start by clarifying the purpose of the regulations, in response to the questions asked by the hon. Member for Rutherglen and Hamilton West. The measures do not direct regulatory bodies to reduce regulation. They are about bringing them into the scope of the Enterprise Act such that the regulators listed will be required to assess the economic impact on business of their activities that qualify against the target. That assessment will be verified by the independent Regulatory Policy Committee, so there are safeguards in place. I hope that that reassures the hon. Lady.

On the questions asked by the shadow Minister, the hon. Member for Sefton Central, we agree that we are not after more regulation with these provisions. This sensitive approach to regulators brings them into scope such that they have to assess the economic impact of the regulations for which they are responsible. It is not a directive to the regulatory bodies to reduce regulation. Our concern in respect of regulators is that the regulations are designed to ensure that business benefits from reduced costs in complying with regulations. That does not mean they might receive less regulation, but we want them to be given every opportunity for reduced cost in compliance with regulations, so there is greater emphasis on reporting and transparency among the regulators that have been brought into scope through the regulations.

As the hon. Gentleman mentioned, tax is exempt from the target and therefore exempt from the regulations. I reassure him that HMRC is subject to a separate target of reduced regulation as regards the tax regime. Its target is that it should reduce the impact of tax regulations by £400 million by 2020. So it is subject to a reduced regulatory target, but that is not part of the business impact target—there is a separate target for which it will be held to account.

[Bill Esterson]

I am grateful for the Minister’s explanation, but it baffles me. At the start of my remarks, I mentioned quarterly reporting and the estimate by the Federation of Small Businesses of the average cost—£2,600 a year—to businesses. If HMRC is increasing costs to millions of businesses across the country in that way, it really is going to struggle to hit that target—unless she can tell me something I have completely missed.

[Margot James]

It is always difficult when one is talking about a measure that is currently under discussion. The requirement on businesses to report quarterly and digitally to the Revenue for their taxes will be introduced, but the exact mechanics of that proposition are still under discussion and review. The FSB, which I met to discuss the issue, accepts that this is not set in stone yet. It is, in fact, quite encouraged by the response it has received from the Treasury on the threshold below which businesses would not have to comply with the regime. I think it does accept that in the long run this new quarterly approach and the digitisation of tax returns will save business money, while it does not dispute that it will perhaps have a regulatory burden effect on some businesses in the short term. As I said, it is a bit premature to be bandying figures around when we do not know the exact shape of the new digitisation of tax and quarterly reporting requirement.

I will move on to the concerns that the hon. Gentleman rightly raised about regulators such as the Food Standards Agency and others in health and safety—Public Health England and so forth. I draw his attention to the exclusions; there is a list of exemptions from what we are debating this afternoon. The exemptions include any regulations relating to civil emergencies and relevant to the delivery of large infrastructure projects. He also mentioned the FCA, and there is an exemption to any provisions relating to systemic financial risk. There is a large number of exemptions and that is how we have tried to allay concerns such as those he expressed.

[Bill Esterson]

I am grateful for that explanation, but who will determine what is in and out of scope? Many people will be extremely concerned about all those points but, to take the FCA as an example, who will make the determination? How will we know in advance whether something will contribute to a future financial problem or indeed a crisis? Is there not a danger it will be too late? What is the mechanism for avoiding that happening?

[Margot James]

Each regulator has to provide an assessment of where it sees the impact of its regulatory activity being. That is then assessed by the Regulatory Policy Committee and, ultimately, Parliament can hold Ministers to account. The scope is designed to ensure that agencies ensure that the impact of their regulations is fully transparent. The environmental regulation impacts are included in that.

I am confident that savings are not going to lead to additional long-term costs. We are not necessarily reducing regulation. The measure is about minimising the cost to business to achieve the outcome that the regulations require.

I thank Members for their comments in Committee. The business impact target plays a central role in the Government’s agenda to improve the quality of regulation in the UK. Businesses tell us that the actions of regulators are as important as the content of legislation in determining their experience of regulation. The draft regulations will provide greater clarity and transparency for business about the impacts of the regulatory activities of Government and independent regulators. They will do so without undermining the core purpose of those regulators, and they will help to deliver smarter regulation, creating a healthier business environment, which will be good for British business.

Question put and agreed to.

Draft Claims in Respect of Loss or Damage arising from Competition infringements (Competition act 1998 and other enactments (amendment)) regulations 2017

Bill Esterson Excerpts

Wednesday 22nd February 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

I broadly agree with the Minister. We support the implementation of the regulations. It is absolutely right that we do so, because this is about ensuring fair markets and, as she said, the protection of consumers and of smaller businesses. It is really important for the success of our vibrant economy that we do all those things and, as she said, that we retain the principle that cartels cause harm.

It is very good to hear the Minister express support for that principle. Opposing undercutting and exploitation is crucial, and that applies to suppliers, workers and consumers. The regulations are consistent with those principles. She mentioned the Consumer Rights Act and how the regulations build on legislation already on the UK statute book. She also mentioned the fact that this country has a proud record and is ahead of the curve on many of the areas she covered.

I am happy to support the regulations. However, a number of questions arise from what the Minister said and from the legislation, not least what will happen to the regulations after we leave the European Union. Many businesses wish to avoid divergence of regulation as far as possible. What is the Minister’s response to that?

The Minister said that the provisions may take some time to take effect. Perhaps she could be a bit more prescriptive in describing the timescale. It might be suggested that she is saying they will not take effect at all because we will have left the EU before they come into effect, which would seem rather odd, to say the least. Will she explain the exact position of the regulations after we leave the EU and say whether, indeed, they will come into effect at all before we leave the EU?

The Minister mentioned what happens down the supply chain and the way that SMEs are involved. My understanding, from what she said, is that the regulations allow a degree of protection for smaller firms that are involved through supply chains. Something that springs to mind is the way in which the Groceries Code Adjudicator operates. The GCA has only direct suppliers in scope. There are about 7,000 of them, and something like 300,000 indirect suppliers in the grocery market. I appreciate that the Minister may need to come back to me on this, but I wonder whether the regulations have implications for the way in which the GCA operates. Would they result in a change in its role and would they draw in indirect suppliers in the grocery sector? That point occurred to me as I listened to the Minister.

The energy market is a good example of long-standing concern about cartels in this country. The Competition and Markets Authority inquiry looked at the problems of cartels and the big six. There is significant concern, some of it voiced by the Government—I think the Prime Minister has mentioned it—about continuing problems in the energy market and high prices, which have risen significantly in recent times.

The inquiry discussed the challenge of vertical integration and the relationship between supply and retail. It considered whether the relationship was healthy and whether the way in which the big six operated meant that more intervention was needed to help consumers and smaller entrants to the market. Will the regulations assist with challenges in the energy market? Will they, in the Minister’s opinion, be part of an opportunity for new entrants and consumers to challenge pricing and the service they receive in the energy market?

We fundamentally support the regulations, because in principle they are helpful to the achievement of fair markets and enterprise. We shall not oppose them. However, if the Minister can answer my questions either today or in writing, I shall be extremely grateful.

[The Chair]

Ms Gibson.

--- Later in debate ---

[Margot James]

I thank hon. Members for their questions. I shall first answer the shadow Minister’s question on Brexit, together with that of the hon. Member for North Ayrshire and Arran. In line with other European directives, all European law will be transposed into UK law via the great repeal Bill, and this measure is no exception. It is not necessarily possible to give a view about what will happen next in all cases, but I can safely say that the Government will not only transpose the directive into UK law but will recommend that it remains UK law. We have always been against cartels, and we remain against cartels. We accept that there are advantages in the parts of the directive that we have introduced and which will strengthen UK competition law vis-à-vis cartels. As for the time it will take for the measure to take effect, it was initially a bit more difficult for me to understand that.

[Bill Esterson]

If this remains in UK law and European competition law changes over time, what would happen?

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 31st January 2017 Commons Chamber

[Greg Clark]

My hon. Friend is absolutely right and, as a councillor, he knows how important it is that that very direct connection is made. It is one of the measures going through the House that I was proud to have proposed when I was Secretary of State for Communities and Local Government, and it is something for which local government has long campaigned. I am delighted that it was this Conservative Government who were able to deliver it.

[Bill Esterson (Sefton Central) (Lab)]

Bank lending is essential for local business success, and yesterday’s HBOS convictions are a stark reminder of the way that smaller businesses were treated by some banks during the financial crisis. Does the Secretary of State accept that lending has fallen over the last year? What is he doing to give confidence in the banks, unlock support and increase lending?

[Greg Clark]

The hon. Gentleman is absolutely right to draw attention to the misbehaviour of the banks, especially with regard to small businesses, when they were inadequately supervised as a result of the destruction of the supervisory regime under the previous Labour Government. That has now been put on a much sounder footing. He will know that the lending opportunities for small businesses have been transformed, but the industrial strategy Green Paper is very clear that we want to make further opportunities available, particularly outside London and the south-east.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 13th December 2016 Commons Chamber

[Jesse Norman]

My hon. and learned Friend is right. She will know that I have been a pretty tireless campaigner for superfast broadband, especially in relation to BT and Openreach. I agree with her about the importance of broadband. The autumn statement announced a £1 billion package for fibre and 5G connectivity, prioritising business connections across the UK. That follows the superfast broadband programme, which is due to deliver 91% coverage in South East Cambridgeshire by mid-2017 and a new universal service obligation.

[Bill Esterson (Sefton Central) (Lab)]

Fifty thousand businesses die unnecessarily every year because of late payment. Some £31 billion is owed and small firms alone spend £10 billion chasing outstanding invoices. While the duty to report and the small business commissioner have been much delayed, just 378 of the largest 55,000 businesses have signed up to the prompt payment code. When will the Conservative Government start doing something about the scourge of late payment? Put some teeth into it, so that small businesses can act.

[Jesse Norman]

The hon. Gentleman is right to point the finger squarely at the issue of late payment. It is a serious matter that we will continue to press forward on, but one must see it in the context of the thriving small business economy that I have outlined.

Retail Store Closure: Boxing Day

Bill Esterson Excerpts

Monday 12th December 2016 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

This has been an excellent debate, Mrs Moon. I congratulate my hon. Friend the Member for Warrington North (Helen Jones) on making a comprehensive, passionate plea to support working people in the retail sector. That was supported by nearly everybody who spoke, and the contributions made by hon. Members around the Chamber were entirely consistent with what she said. The hon. Members for Belfast East (Gavin Robinson) and for Kettering (Mr Hollobone) were entirely sympathetic, as were my hon. Friends the Members for Makerfield (Yvonne Fovargue) and for Newcastle upon Tyne North (Catherine McKinnell) in their interventions. The one discordant note came from the hon. Member for Morley and Outwood (Andrea Jenkyns), who frankly gave a description of retail that many workers in the retail sector would not recognise.

On Christmas day, my children will wake my wife and me early—we are still in that stage of family life. We will go and visit other family members, and we are lucky to be able to do so, but such a happy family scenario is not available to everybody in this country. As other hon. Members have mentioned, many workers in sectors beyond retail have to work over the festive period, for very good reasons. My hon. Friend the Member for Warrington North said that shopping is not a matter of life and death, but for key workers in the NHS, the care sector and in our police and fire services, working is a matter of protecting life and sometimes dealing with death. Sadly, that includes on Christmas day and Boxing day. We can take this opportunity to thank everybody who works in the emergency services and the care sector for the contribution that they make every day of the year, and especially at the festive time, when most of us are able to take time to be with family and friends.

Many people have to work in the hospitality sector over Christmas, as has been mentioned, and it is right to recognise the realities for such people. There are also some in retail, in small shops, who work on Christmas day and sometimes Boxing day—typically shop owners. The Association of Convenience Stores has said that smaller shops tend not to want what it describes as “paid staff” working—staff who are not owners or family members—because of the costs. However, it recognises as part of that equation the desirability of paid staff—again, the ACS’s term, not time—being able to have time off to spend with their families.

That leaves us with the large stores. The successful USDAW campaign saw the private Member’s Bill introduced by my hon. Friend the Member for North Durham (Mr Jones) become law in the Christmas Day (Trading) Act 2004. At the time, the internet was not as advanced as it is now—I will come to some points made about online trading later. What happens to staff on Boxing day is increasingly a concern, and it has led to this petition, which has been signed by a very large number of people. The petition was the result of an increasing number of large retailers opening on Boxing day—and opening earlier and for longer.

As we have heard—I have heard this from constituents of mine—people are finishing later and later on Christmas eve. They still have to prepare for Boxing day, sometimes on Christmas eve, and sometimes on Christmas day itself. I heard a story about a major high street retail name that opens at 5 am on Boxing day, and staff have to be there at 3 am or 3.30 am. They have to travel—what time do they get up? Are some of them even starting on Christmas day? What kind of a Christmas is it for someone who knows they have to be at work at 3 am or 3.30 am on Boxing day? I cannot even begin to think what that must be like. However, that is where some large retailers are headed—that is the reality—and why there has been this petition. When we look at the consequences for family life, I think we can all understand and share people’s concerns—as everybody in the Chamber did, with one sad exception so far, although we have yet to hear from the Minister.

Like my hon. Friend the Member for Warrington North, I am a very proud member of USDAW. Its survey said that 16% of workers say that they face working longer hours this year, 7% say the hours will be shorter and 77% say the number of hours will be much the same. The number of hours that staff are being asked to work is therefore increasing. We have heard about the impact of long hours in the run-up to Christmas and about the inability of most staff to take time off for a considerable time—time off that would enable them to recuperate—and about the impact on families, especially those with children. Parents who finish late on Christmas eve then have to come back and put the stockings together.

[Helen Jones]

Put the toys together.

[Bill Esterson]

Yes, and the toys—I thank my hon. Friend. They also have to prepare the food for Christmas day with very little time to enjoy themselves.

[Mr Hollobone]

I am enjoying the hon. Gentleman’s speech hugely. We are all sympathetic to the plight of retail workers at Christmas time. I am not a member of USDAW, but my grandparents were small shopkeepers. To my mind—and in answer the petitioners who have gone to such efforts to draw this plight to our attention—the point is that the Christmas Day (Trading) Act 2004 prohibits large shops from opening on Christmas day. Are Her Majesty’s Opposition in favour of a Boxing day trading Act, which would prohibit large shops from opening on Boxing day?

--- Later in debate ---

[Bill Esterson]

I had not realised just how much I had in common with the hon. Gentleman. Like him, I had grandparents who ran a cornershop—I am assuming his grandparents ran a cornershop?

[Mr Hollobone]

indicated assent.

[Bill Esterson]

The hon. Gentleman is nodding; so we both had grandparents who ran cornershops.

[Mr Andrew Smith]

You’re not cousins, are you?

[Bill Esterson]

I am struggling to make progress, Mrs Moon, because I am being given all sorts of interesting suggestions.

My grandad told me that if people cannot afford to pay decent wages, they should not open a shop. That is a good piece of advice about being a responsible employer. He might have amended that, in the context of this debate, to say that if employers cannot give decent time off over Christmas, they should not be opening a shop, especially on Christmas day and Boxing day. The hon. Member for Kettering is suggesting one option. Only 1.5% of the thousands of staff surveyed by USDAW said they wanted to work on Boxing day, so something needs to be done and it needs to be addressed. One option, undoubtedly, would be to amend the Christmas Day (Trading) Act 2004; another would be to have a Boxing day trading Act. I wait to see what the Minister has to say on that score. I suggest to the hon. Gentleman that if nothing is done through that piece of legislation, there should be action to ensure—this goes back to his earlier comments—that staff who do not want to work on Boxing day will not be under pressure to do so.

The hon. Gentleman reminded us that he voted against the Government’s attempt to include relaxation of Sunday trading in the Enterprise Bill in Committee and on Report. He will remember from that debate that points were put forward very forcefully and that extremely strong evidence was presented to us that many staff are simply unable to take time off on Sundays because of concerns and pressure, and the same applies to Boxing day, even though the legislation is different unless Boxing day is on a Sunday. We have to find some way of addressing the issue. I do not think the answer is necessarily for the Opposition to be prescriptive, but we need to get to a point where no one has to work in a large store on Boxing day unless they want to. Like the rest of us, they want to enjoy Christmas. They want to travel, see family and enjoy Christmas eve, not to feel under pressure through to Boxing day.

USDAW’s view is that the only staff who should be available to those large retailers at that time are volunteers. I suppose the point it is making is that if a store could manage purely with volunteers, there would be no objection in principle to that store opening. However, if stores are relying on only the 1.5% of staff who are prepared to work and the 5.5% of staff—I think that was the figure —who are non-committal, most stores would struggle to open without forcing staff to work.

Let me turn to the points about online trading. Things have changed since 2004. The nature and scale of online trading is very different. A number of hon. Members have made points about the impact of online trading on high street and, indeed, out-of-town stores. Perhaps the time has come to look at the needs of staff working in the warehouses such as those that the hon. Member for Kettering described in his constituency. Perhaps it is time to look at what the Government’s responsibility is towards staff who work in warehouses or for internet retailers, and the way in which they are treated. Those staff have a right to a Christmas day and at the moment they are not covered by the Christmas Day (Trading) Act, let alone by what we are talking about for Boxing day. The time has come to consider how that might be addressed and how we might get the kind of fairness that we would all expect for our own families.

Points have been made about the level of trading over Christmas. One estimate is that more than £77 billion will be spent in the Christmas period in the retail sector. Most of the people who work in retail, of course, are very low paid. As we have heard, premium pay is now a thing of the past in most businesses. In that context, is it too much to ask of the major retailers to do more to support their staff by not trading on Boxing day? Remember that those major retailers all have their own internet retail presences, so it is not as if they cannot trade online. By the way, plenty of people go online on Christmas day. It is not just Boxing day, is it?

Some online retailers do not necessarily fulfil orders. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) made the point from his own experience in the internet retail sector—he may want to intervene to set me straight on this—that there are plenty of opportunities to delay fulfilment of orders. There are plenty of retailers that do just that, so they are not open 24/7.

[Drew Hendry]

I am grateful for the opportunity to underline that point. There is room for retailers to be innovative by using the new technology—what would in other circumstances be the challenge of internet retailing —to help to create a much more equitable situation with in-store retail. The big benefit of having in-store staff is that they can give advice. Boxing day is a day when people are picking up units. They do not need advice; it is just about picking up the goods at a discount.

[Bill Esterson]

I am grateful for the hon. Gentleman’s intervention because it really adds to everybody’s understanding of the challenges, opportunities and some of the realities. Perhaps the Minister can take some of these points away and, as well as responding to them, look at how online and offline retail operate and at what might be appropriate in supporting staff in both parts of the industry.

I want to talk a bit about some of the retailers who have so far resisted the pressure to open on Boxing day, because not every major retailer does. The initial consultation for the Christmas Day (Trading) Act, which was carried out in 2002, suggested that competitive pressure was one reason the Act was needed. Although at the time not every retailer by any means was opening on Christmas day—indeed, it was only a few—the sense was that in the end everybody would have to do so to keep up or they would lose ground.

A similar pressure now applies with Boxing day. So far, retailers including Lidl, Aldi and John Lewis have resisted the pressure, and have done so successfully, which suggests a public appetite for delaying shopping to a degree. In the last year, those retailers have seen their trading figures go up at the expense of some of their competitors, but we do not know for how long that will continue. Earlier evidence suggests a concern across the sector that businesses will ultimately all have to work and trade on Boxing day unless there is Government intervention—nobody else can make such an intervention.

The Conservatives say that this is nothing to do with them—that it is a free market and that it is up to businesses to decide what to do. The problem, if we follow that argument, is who will prevent abuse. The problems with Sunday trading, and now with Boxing day, mean that workers are unable to take time off. Who will intervene to look after workers and ensure fairness between employers on the one hand and staff members on the other?

We have seen far too many abuses recently. We have seen the behaviour of Sports Direct, and some of Amazon’s behaviour in Scotland was highlighted over the weekend. A number of us will have constituents who have been affected by the cuts in pay and conditions at Marks and Spencer. It is all our responsibility, and particularly the Government’s responsibility, to intervene on the side of working people, whether on fair pay or hours of work.

Who looks after responsible businesses? The businesses I mentioned, Lidl, Aldi and John Lewis—and there are many more like them—want to do the right thing and act responsibly. How will they be encouraged and supported unless the Government introduce the necessary conditions so that they can do that without succumbing to competitive pressures? As we discussed when we were considering a statutory instrument last week, the Prime Minister is consulting on boards having a representative with responsibility for staff. It is regrettable that the Government appear to be walking away from having elected worker representation on boards, but will such board representatives be strong enough? Will they have the interest to ensure that staff are treated fairly? The concern is that the measure just will not go far enough. This is an example of where Government intervention cannot just be left to the market. It cannot just be voluntary.

Perhaps the time has come to consider a cautionary tale. We can either go down the route of supporting responsible businesses and treating workers fairly, or we can consider what has happened historically. I have mentioned some of the more recent cases, but we saw all sorts of horrors before there was Government support. I am not suggesting that the Minister is in any way interested in repeating what happened hundreds of years ago, but my mind goes back to “A Christmas Carol”. I wonder who Ebenezer Scrooge might be in this scenario. Surely not the Prime Minister.

Where is the line if the Government say they will not intervene? We used to send children up chimneys in Victorian Britain, and I know the Minister is not suggesting that, but let us remember the ghost of Christmas past and make sure that the ghosts of Christmas present and Christmas future show fair treatment for workers and responsible businesses. That is the way forward, and the right solution will ensure that workers are looked after on Boxing day, that family life is protected, that responsible businesses are encouraged and that there is the right balance between online, high street and out-of-town shopping. I challenge the Minister to deliver on that.

--- Later in debate ---

[Margot James]

It would be interesting to look at the picture when Boxing day falls on a Sunday. Presumably that would give people greater rights, at least on those rare occasions. Any changes to the legislation that I have mentioned would require primary legislation. I would hope that there were other ways to afford shop workers some protection without recourse to primary legislation. The law is a balance that Parliament has accepted, and the Government are reluctant to disturb that balance. To change the law would risk opening new disagreements; new primary legislation would create new demands and new risks.

[Bill Esterson]

The Minister is making some reasonable points, but she said that she hoped that there was some recourse for the Government other than primary legislation. I thought that she was going to tell us what it was, but she seems to have moved on to another point. If I can bring her back, what does she see as the recourse, other than primary legislation, to ensure that staff who want time off get it?

[Margot James]

I have no suggestions at the moment to put to the hon. Gentleman, and I would not like to give the impression that the Government are exploring that. We are opposed to a ban on retail trading on Sundays. More generally, Boxing day is a day on which some people like to get out of the house. It has long been a major day for shopping and other events, and I have covered the point that an increasing number of workers in other sectors are busy at work.

Another argument against banning offline retail—that is what it is now—from opening on Boxing day is that many other workers would want to know why we were making an exception for the offline retail trade when employees in other sectors work on Boxing day. There are many aspects to the issue other than the threat posed to retailers by an outright ban, particularly, as I have mentioned, to retailers without a strong online presence.

May I respond to a few of the points made by the hon. Member for Warrington North in her interesting and well researched speech? Workers have many protections under the working time regulations, including entitlements to rest breaks, daily and weekly rest periods, and a maximum working week of 48 hours, normally averaged over 17 weeks. However, workers can choose to opt out of the 48-hour limit, and I accept that some jobs are more or less conditional on their exercising that opt-out. The qualifying period for unfair dismissal, which the hon. Lady also mentioned, is intended to strike the right balance between fairness for employees and flexibility for employers.

Draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

Bill Esterson Excerpts

Thursday 8th December 2016 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Margot James)]

I beg to move,

That the Committee has considered the draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016.

It is a pleasure to serve under your chairmanship this morning, Ms Buck. The main purpose of the draft regulations is to fulfil our obligation to transpose into law the non-financial reporting directive, or NFRD. While we remain a full member of the European Union, we will continue to implement EU legislation in a positive and cost-effective fashion. That is why we are in Committee today.

The NFRD builds on provisions in the EU accounting directive, which requires certain business entities to disclose a range of non-financial information alongside their accounts. The accounting directive applies only to certain types of business undertaking that have limited liability, including certain types of partnerships known as qualifying partnerships, as well as groups of business entities. I will generally refer to companies for simplicity’s sake, but the Committee should please bear in mind that my remarks apply also to qualifying partnerships and groups.

The NFRD applies only to large companies that are defined as public interest entities and that have more than 500 employees, or to groups with a public interest entity parent, which are large groups having more than 500 employees within the group. Public interest entities are entities whose activities are of major interest to the public and include banks, insurance companies and quoted companies. We estimate that the total number of UK companies impacted by the NFRD will be about 260 such public interest entities. However, some 15,000 subsidiaries of public interest entities will also be impacted by the need for reporting across the corporate group.

The requirements of the directive were strongly influenced by the UK’s existing regime for non-financial reporting. Consequently, the new framework broadly mirrors the requirements that apply to all the UK’s quoted companies, regardless of their size, so the regulations will not significantly change company reporting. In one change, the regulations will cover all large public interest companies, not only those quoted on the stock exchange. Companies do not have to be quoted for their activities to have far-reaching consequences.

At present, all companies except those eligible for the small companies regime must publish strategic reports. Within the strategic report, companies that do not qualify as medium-sized are required to provide analysis about the company’s development and performance using non-financial information, which includes employee and environmental matters. Quoted companies must also publish information about social, community and human rights issues, including information about any company policies in relation to those matters. They must also give specific disclosure on gender diversity for directors, senior managers and employees.

The strategic report is the narrative element of a company’s annual report. It should provide colour and context for the accounts and be forward looking to provide reassurance on the company’s direction of travel for investors and suppliers. The report should contain a fair review of the company’s position, as well as risks and uncertainties that are not easily quantified. Issues such as cyber-security and employee matters can be as significant as the fiscal issues covered in company balance sheets.

The draft regulations build on that by requiring eligible companies to disclose, to the extent necessary for an understanding of the company’s position, information on environmental, employee, social and human rights matters. That is already required by the UK’s existing regime for some of those companies, but the regulations also require disclosure of anti-corruption and anti-bribery matters.

Companies must also describe any policies they pursue in relation to any of these matters and identify the principal risks relating to them. These disclosures will provide companies with an opportunity to bring discussions on these issues to the boardroom and to demonstrate to shareholders and other parties that they are considering issues in their proper context and addressing potential risks.

The regulations strengthen the current regime by requiring companies that do not have policies in these areas to provide an explanation for not doing so. I stress that companies are not required to make policies in order to have something on which to report, but they will have to consider whether they should have policies on such matters. Furthermore, if they decide they should not, they will have to explain their reason for the omission.

The regulations also bring benefits by providing shareholders and investors with a greater level of consistency and conformity with EU counterparts in relation to non-financial information. This is important. Bringing entities of a certain size and type up to the same level will mean that UK companies within the scope of NFRD that currently provide such information will not face greater reporting requirements than EU counterparts.

The regulations are sufficiently flexible to enable disclosure to be specific to the company. This balance between specifying categories and allowing companies flexibility to provide relevant information should ensure that reporting is meaningful and cost-effective. Disclosure is important to ensure that shareholders can act as a critical friend to directors.

It is worth mentioning by way of reassurance that the regulations will not require disclosure of information about impending developments if the disclosure would be seriously prejudicial to the company’s commercial interests. However, non-disclosure should not prevent a fair and balanced understanding of its position or the impact of its activity.

In our consultation earlier this year, stakeholders recognised the need to transpose the NFRD. During the consultation, stakeholders raised concerns about how the requirements would interact with the UK’s existing regime. The regulations provide that a company that reports under the NFRD framework qualifies as having complied with overlapping elements of the UK’s domestic regime. They also permit voluntary compliance with the NFRD disclosure requirements, so that companies can avoid the complexities of moving between reporting obligations during their life cycle as their size, in financial terms or staff numbers, increases or decreases year by year. I acknowledge the contribution from representatives of business, professional bodies and national regulatory bodies throughout the development of the regulations, including KPMG and PwC. I am grateful to them for their engagement.

Another aspect that I must mention briefly is that regulation 3 contains a minor correction to the transposition of the accounting directive. This ensures that the parent company of a small group cannot benefit from an exemption from the requirement to produce group accounts just because that member is established under the law of a European economic area state and not in the UK. If a member of a group is a public interest entity in any EEA state, the exemption should not be available.

I am aware that some businesses struggle with regulatory change to financial reporting. The regulations do not fundamentally change the UK’s regime for annual reports. Many companies within the scope of the regulations will have to adapt their reporting only slightly. Although the changes are not substantial, I believe they will add value to company reporting in the UK.

[Bill Esterson (Sefton Central) (Lab)]

This statutory instrument and the non-financial reporting that the Minister is describing follow the recent announcement about a change in corporate governance. I wonder whether she could tell us how the regulations fit in with the Government’s plans for corporate governance.

[Margot James]

The regulations complement our framework in the corporate governance Green Paper but they do not touch directly on the main thrust of its proposals, which are mainly about the voice of workers and other stakeholders on boards and about executive pay. They are definitely in the same terrain, but I would not put them any closer than that.

It is greatly to our advantage for the UK to maintain its reputation as a hub of global transparency. However, as our future relationship with the EU becomes clearer, it may lead us to examine whether certain aspects of company law are cost-effective. In the meantime, I am sure Members will agree that building on the reputation of UK governance and the reliability of annual reports can contribute to making the UK an attractive place to invest. I commend the regulations to the Committee.

[Bill Esterson]

I am grateful to the Minister for her summary of the regulations. As she said, while we remain members of the EU, we continue to implement its directives. Some members of this Committee may be considering the irony of that situation, but that is where we are.

I raised the question of corporate governance because it struck me on reading the regulations and the Government’s response to the consultation that this was an opportunity to pick up on many of the points considered in the Green Paper at an early stage, including, but not exclusively, worker representation on boards. At one point the Prime Minister was very keen on having elected representatives, but we seem to have gone into reverse on that. Perhaps the Minister will correct me if I am wrong, but my understanding is that a director will now represent workers, small businesses/suppliers and customers, and presumably that director will be appointed by the board.

A number of aspects of the regulations seem worthy of further debate. If we are to make the most of the opportunities afforded by non-financial reporting, matters such as how companies deal with worker representation and their relationships with suppliers and customers will fit directly with that approach.

[John Redwood (Wokingham) (Con)]

Does the hon. Gentleman not think that this sums up the EU perfectly: no financial benefits, plenty of financial costs and we cannot do anything about it?

[Bill Esterson]

Just when we thought we had escaped the debate about the EU this morning.

There are opportunities, regardless of whether we are part of the EU. I happen to think it a very good thing for companies to report on their approach and attitude to wider stakeholders, because I think companies should behave responsibly. I hope hon. Members on both sides of the Committee agree with that. Section 172 of the Companies Act 2006 has provisions, which have never been enforced, about directors’ long-term responsibilities to have regard to employees, suppliers and customers, to the community and the environment, to standards of business conduct and the importance of the company’s reputation, and to the way they treat fellow directors and shareholders. Those matters would fit very well with duties to report non-financial matters. Do the Government intend to consider section 172 as part of this statutory instrument? What does the Minister think will be contained in the reports after it passes? We have no intention of dividing the Committee, because this instrument is a thoroughly good move, but perhaps she could tell us what she thinks will be in the reports.

The Minister mentioned gender reporting. Again, the diversity of company boards is exactly the sort of thing that should be seen in company reports, but is it also an opportunity to consider gender equality in terms of pay, or the difference between the top pay and the pay of everybody else in companies? Is it an opportunity to examine pay policy and have it clearly set out in the non-financial as well as the financial part of company reports? She mentioned that there will be omissions. Can she explain what those omissions will be and why things will be omitted, as well as whether she agrees about the areas that I would like to be included?

The Minister discussed the importance of employees. She also said that because of their security implications, cyber matters—I think that was the phrase she used—were as important in reports as financial matters. I agree, but that led me to think about electronic reporting. She can correct me if I am wrong, but I think the Government are still considering requiring small firms, which are clearly outside the scope of the legislation—[Interruption] —she is confirming that to me by nodding—to undertake significant additional bureaucratic responsibilities by reporting quarterly using digital reporting. The feedback that I get—we have discussed this before, and I am sure we will discuss it again—is that that is time-consuming and expensive for many small firms that simply do not have the resources in-house to address them. Does she consider it ironic that, although she made it clear that she did not want to extend the responsibilities in these regulations any further than necessary beyond the largest firms, when it comes to electronic reporting, she is making small firms comply with time-consuming additional responsibilities?

I mentioned the importance that I think we should attach to the wider stakeholders when it comes to the responsibility of business to society. These regulations are a move in the right direction. Non-financial reporting is extremely important, and I hope that the Minister will take on board the opportunity that the regulations present, alongside the corporate governance Green Paper, to partner with business to develop the relationships and arrangements with the wider community and society that are the hallmarks of a successful business environment and a prosperous economy and country.

[Margot James]

I thank the hon. Gentleman for his thoughtful comments and questions. He mentioned the Green Paper on corporate governance again and asked whether we were going backwards on certain of the commitments made, particularly in relation to the voice of workers, suppliers and other stakeholders on boards. He mentioned one particular proposition in the Green Paper to have a non-executive director responsible for ensuring that those voices are heard, but that is just one of several options. The Green Paper is not prescriptive at all. We are consulting at this stage, and he is welcome to contribute his thoughts. We will be collecting the thoughts of many other stakeholders with a view to reaching conclusions in future, but it is certainly not prescriptive at this stage.

I agree with the hon. Gentleman when he points to section 172 of the Companies Act 2006. Since the Act came into being there has perhaps been an over-emphasis on the undoubtedly vital subject of ensuring that the board of directors ensures a return for investors. However, inadequate attention has been paid to the other requirements on a board of directors that contribute in their entirety to the long-term future of the company and to the responsibility of directors to secure that long-term future by their decision making. I very much hope that the outcome of our consultation on the Green Paper and the steps taken as a result will up-weight those other requirements on directors. That is an aspiration and not in any way prescriptive, because at this stage it is all a consultation.

The hon. Gentleman talked about gender reporting and the gender pay gap.

[Bill Esterson]

I want to work with the Minister on these points, so just to be clear and in no doubt, can she say whether she and the Secretary of State—and, as far as she knows, the Prime Minister—are open to all the elements of section 172 being implemented in full? [Interruption.] That is obviously a call from the Prime Minister to answer my question. This is an important issue for the wider stakeholders, so will the Minister please clarify whether the Government are open to that?

[Margot James]

I am sorry to disappoint the hon. Gentleman, but I have said all I can say about that particular matter.

The hon. Gentleman also asked about gender reporting and the gender pay gap. Gender pay reporting is in legislation at the moment. We intend for that to lead over time to a closure of the gender pay gap. It may not be adequate to the task in and of itself, but it has to be given a chance. I very much share the hon. Gentleman’s concerns about the unacceptable level of the current gender pay gap.

The hon. Gentleman mentioned the subject of omissions in the context of this directive being—

[Bill Esterson]

Before the Minister moves on, I have a question about gender reporting. The Government’s response referred to senior managers in gender reporting. Is the Minister saying that it applies to all employees, not just senior management?

[Margot James]

I am so sorry; I do not think I can answer that at this point. It is actually in relation to boards of directors, senior management and the entire workforce, I believe. If I am incorrect about that, I will write to the hon. Gentleman.

To continue answering the hon. Gentleman’s point about omissions, the directive places the obligations on companies on a “comply or explain” basis. He mentioned the quarterly reporting of financial information and the pressures that that bears on small and medium-sized enterprises, particularly the very small companies.

I have met the Federation of Small Businesses and listened to its concerns. This is a Treasury matter—it is not actually my or my Department’s area of responsibility —but I have also met the relevant Treasury Minister to raise the concerns expressed to me by the FSB. The Treasury is consulting on the matter of quarterly reporting and is prepared to make certain changes that the FSB has told me will be of benefit to its members. There is a move. It will not fundamentally alter the requirement for quarterly reporting, but it raises the threshold for a company’s turnover before it qualifies as being required to comply with the regime and in certain cases the requirement will be delayed. However, that is really a question that the hon. Gentleman should raise with Treasury Ministers.

I thank hon. Members, in particular the hon. Member for Sefton Central, for their valuable comments during this debate. The regulations strike the right balance between offering flexibility for companies to report on those issues of risk that relate to their activities and provide a structure that makes the disclosures meaningful. The regulations should help to increase the transparency of how our companies behave and better equip shareholders to be active stewards of the companies they own.

Question put and agreed to.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 8th November 2016 Commons Chamber

[Margot James]

I thank my hon. Friend for her plans to get involved in Small Business Saturday on the first Saturday of December. My Department will support Small Business Saturday with events across the country to which hon. Members are invited. In particular, they should contact their LEPs to see what is going on locally and join the hon. Lady, and all of us, in visiting a small business on the first Saturday in December.

[Bill Esterson (Sefton Central) (Lab)]

In the United States, 23% of federal Government direct spending is with small businesses; in this country, the like-for-like direct comparison is just under 11%. Is it not time that we learned from President Obama’s success in government? If we did, we would improve quality and value for money for the taxpayer, support growth for small firms and help rebalance the economy. That is what I call a plan.

[Margot James]

I certainly agree with the hon. Gentleman that we need to invest more in support for SMEs, and that is precisely what we intend to do in my Department.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 13th September 2016 Commons Chamber

[Greg Clark]

Free trade courses through the veins of this country. It is one reason why we have been most successful. I was surprised to hear a commitment to free trade described as dogma last week. It is one of our strengths, and my hon. Friend has my absolute assurance that it will be very much to the fore of our reputation in the future as it was in the past.

[Bill Esterson (Sefton Central) (Lab)]

I welcome the Secretary of State to his new post. He certainly has his work cut out. Australia says that it will take at least three years after Brexit before a trade deal can be in place with the UK, while the United States, Japan and China have all expressed their views about the prospects for foreign investment and trade with the UK. What is he doing to get behind UK businesses and deal with the concerns of our international partners following the Brexit vote? He could not do better than to start by telling his Cabinet colleagues to get behind business and stop insulting it.

[Greg Clark]

I would be interested in the support of the Labour party for promoting British business around the world. The hon. Gentleman will know, from our previous work on local growth, that he will always have a willing ear and assistance from me in doing that. He was kind enough to welcome me; I welcome the Opposition Front Bench team. The hon. Member for Hemsworth (Jon Trickett) was my shadow in my role at the Department for Communities and Local Government. He has followed me here—perhaps he is not so much a shadow as a stalker, but I regard it as flattery. [Laughter.]

As I said in my initial answer, relationships are important. We can exchange letters and bits of paper, but it is important that we get to know well our partners around the world. I have done that and my colleagues have done that. As I said earlier, I visited our investors and manufacturers in Japan and India. I will continue to do so.

--- Later in debate ---

[Greg Clark]

My understanding is that the feasibility study is being undertaken. I have not received its final conclusions yet. At that point, I will look at it with the same interest as my hon. Friend.

[Bill Esterson (Sefton Central) (Lab)]

The European Commission says that Apple should cough up £13 billion in taxes for earnings generated across the EU, including in the UK. Most UK businesses pay their fair share of taxes and expect all other businesses, large or small, to do the same. Will the Secretary of State confirm that he is doing everything he can to ensure that the very biggest companies pay up and that we receive our share of the £13 billion Apple tax pie?

[Greg Clark]

The hon. Gentleman makes a reasonable point. Responsibilities come with being in business in this country, and paying taxes to contribute to the public services that we enjoy is one of them. He has my assurance that we will ensure that we pursue the correct tax from all companies that locate here.