Enterprise and Regulatory Reform Bill
Debate between Brian Binley and Chuka Umunna
Mr Umunna
I was wondering when a Government Member would seek to intervene. I will give way shortly.
Watering down employee rights will not boost demand but is highly likely to do the opposite. As the Chartered Institute of Personnel and Development said last week, increasing job insecurity is more likely to damage growth and consumer confidence than increase them. I say to the hon. Member for Bedford (Richard Fuller) that the Federation of Small Businesses has been in contact with us today about the Government’s proposals to allow no-fault dismissal, with fewer employment protections for those working in small businesses, for which he has argued. It has said that
“those who do take employment in small firms could be lower skilled, less productive workers willing to accept lower protection, making it even more difficult for these firms to grow”
and that
“there is a question that with weakened rights, employees in small firms would find getting access to credit more difficult. If so, that would make labour recruitment for small firms even harder.”
Mr Umunna
I say to the hon. Member for Bedford and to the hon. Member for Northampton South (Mr Binley), who says that that is absolute nonsense, that I have quoted the Federation of Small Businesses word for word. It has made it clear that replacing the need for good management with a hire-and-fire culture does not fit with its views on good employee relations.
Mr Umunna
I will expand on that point in more detail later, but what I can tell the hon. Gentleman now is that when I ask businesses what is currently holding them back, most say a lack of orders and demand, not the rights that their employees enjoy at work. If we are looking to encourage businesses to hire people, why not give all micro-businesses a national insurance break—I believe he has a seat in the south-east—when they take on extra workers? That would do more to help them grow their businesses.
Mr Binley
I know that the shadow Secretary of State admires experience. He knows that I founded two companies that collectively employ 260 people. He knows that we deal with many, many small businesses, and I am involved with them on a weekly basis. I can tell him that many small businesses are frightened to take people on because they are frightened of being blackmailed, should it not work out. That is a real problem, which his party needs to face up to.
Mr Umunna
I acknowledge the hon. Gentleman’s great wisdom and experience, but I respectfully disagree with his overall depiction of employees blackmailing their employers willy-nilly. I say that as a former employment law solicitor who has advised business people like him, but employees too.
Mr Umunna
I stand corrected. On my hon. Friend’s point about the resourcing of ACAS, we do not know what its budget will be for the next three years. We shall study that question carefully in the light of the, I think, £12 million reduction in its budget over the recent period.
I shall return to the composition of employment tribunals. The Bill envisages simple or low-value claims being decided by a legal officer without the need for a hearing. That might assist in the rapid resolution of disputes, which would be welcome, but it is important that any decision made by those officers should be able to be reviewed by an employment judge if either party so wished. We are currently considering a four-track system: simple claims covering issues such as amounts of holiday pay could be dealt with outside the tribunal, perhaps by a legal officer; standard unfair dismissal claims would be dealt with by tribunals in the usual way; complicated equal pay claims could be dealt with by a specialist court; and high-value claims could automatically be dealt with by a higher court.
We do not welcome the Government’s proposal that all employment appeal tribunal cases be heard, in the main, by a judge alone, instead of by a panel including lay members. We oppose that—[Interruption.] The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for North Norfolk (Norman Lamb) says, “For goodness’ sake”, but lay members are very much welcomed by employees and employers as they provide balance and perspective to deliberations. That extends to deliberations in the employment appeal tribunal on legal issues.
Before I move on to the competition aspects of the Bill—I am aware that I am going on—I want to mention that there are other employment proposals that we will address in more detail in Committee.
Mr Umunna
I will make some progress, so that the hon. Gentleman will have more time to speak later.
Principally, those proposals include: the provision of financial penalties to be paid by employers where there are aggravating features to their wrongdoing; the introduction of a public interest test to whistleblowing—which we have concerns about—to clear up the uncertainties in that area; and changes to the annual increases to the limits to statutory redundancy pay.
I will now deal as quickly as possible with the competition aspects of the Bill. Healthy, competitive markets reward the innovator, the insurgent, and the risk taker. They keep incumbents on their toes, benefiting consumers, and they create the disciplines at home that drive success abroad. That does not happen by itself, however, because markets are not always efficient. I know that that view is not shared by all Government Members. So even when policy frameworks can correct market failures, markets require active stewardship, constant vigilance against unhealthy concentrations of power—News International —and, above all, the deliberate promotion of competition through a strong, robust competition regime.
The Government said in their consultation paper on options for reform published last year:
“The Government acknowledges that it has inherited a competition regime which has been independently assessed as world class.”
In 2010, the Global Competition Review awarded the Competition Commission its highest rating of five stars, and the Office of Fair Trading was awarded four and a half stars, with both bodies appearing in the top five agencies in the world. We Labour Members are rightly proud of the legacy our Labour Government bequeathed to the current Conservative-led Administration.
In principle, we support the Bill’s proposals to improve our competition regime. There is definitely some sense in combining the OFT and the Competition Commission into one body, removing duplication and concentrating expertise in one place. However, the yardstick against which we will measure these reforms is whether they will improve on the existing regime. The OFT estimated that in ensuring a level playing field, our competition regime benefited businesses and consumers to the tune of £700 million last year. As the Financial Times has pointed out, the expected savings of £1.3 million a year from the merger could be smaller than the cost to consumers and businesses if these reforms change our competition regime for the worse.
In addition, the lack of competition is, sadly, nowhere more stark than in the small and medium-sized enterprises lending market where 85% of SME lending is concentrated in the hands of our four biggest banks. This can be contrasted with Germany, where just 14% of business loans come from its biggest banks and 60% come from its smaller local and co-operative banks, which I met when I was in Germany in February. It is a shame that the Government have shown no interest in pursuing the idea that we have been promoting for some time—of having a British investment bank to help address this issue. It is a concept that enjoys the support of the British Chambers of Commerce, among others. We are also concerned about the withdrawal of consumer competences entirely from this new body. Indeed, we have argued that the Queen’s Speech should have delivered a fair deal for consumers with a consumers Bill that would give new powers to the Financial Conduct Authority and the Competition and Markets Authority to stop rip-off surcharges by banks, low-cost airlines and pension firms.
Let me move on to part 5, which deals with the reduction of regulatory burdens. We should seek to reduce regulatory burdens where we can, but—very importantly—not by compromising the rights of employees or the health and safety of employees and customers. This is an issue not just of the quantity of regulation, but of its quality, too: regulations should be drawn up with the small guy in mind—people who do not have the resources to pay for an army of lawyers, accountants and risk managers to advise on how to ensure compliance. As I said earlier, with that in mind, when in government, we introduced the primary authority scheme so that any business operating in multiple local authorities could, to ease the regulatory burden locally, form a partnership with a single local authority to access advice and support for its regulatory responsibilities. I welcome the fact that the Government seek to extend the scope of the scheme through the Bill.
What are far less welcome in part 5 are the measures touching on the Equality and Human Rights Commission, which the Secretary of State has just referred to as “regulatory tidying-up”. This Bill seeks to amend the Equality Act 2006 by repealing the commission’s general duty to exercise its functions with a view to encouraging and supporting the development of a society in which people’s ability to achieve their potential is not limited by prejudice or discrimination, in which there is respect for and protection of each individual’s human rights and respect for the dignity and worth of each individual, in which each individual has an equal opportunity to participate in society, and in which there is mutual respect between groups based on the understanding and valuing of diversity and on shared respect for equality and human rights.
This Government have an image problem. They are seen as out of touch, and they are seen as implementing policy changes that adversely impact particularly on vulnerable and poor people. Just yesterday, the Prime Minister’s former speech writer said the Government’s latest proposals on immigration policy showed that the Conservatives were a “nasty party” that risked losing votes among ethnic minority communities. In this context, why on earth are this Conservative-led Government seeking to repeal this general duty that seeks to promote fundamental values of humanity and decency in our society? I am at a complete loss to understand why they should seek to do this when that duty enjoyed cross-party support when the Equality Act 2006 progressed through Parliament.
The Government also want to change the commission’s statutory remit, contract out its helpline, stop its grant programme and slash its budget by 60%. This is not regulatory tidying-up; it is undermining the effectiveness and independence of the organisation. If what we are seeing here is the beginning of the end of the commission—and in the light of what I have said, it is entirely reasonable to raise this as a question—for the avoidance of doubt, let me say that this party will fight tooth and nail against any such move.
Finally, I shall deal with part 6, which puts in place additional measures to deal with executive pay. In order to build a more productive and responsible capitalism, it is important to ensure that we bring an end to excessive pay and rewards for failure, which are bad for our economy and for our businesses. The Prime Minister and the Chancellor have sought to insinuate that proponents of reform in this area are being “anti-business”, but the recent wave of shareholder revolts has shown just how out of touch they are with business and investor opinion on these issues. Shareholders at Citigroup, Credit Suisse, Barclays, Mann Group, Aviva and other companies have all either been protesting or voting against remuneration packages over this last couple of months. WPP shareholders will be voting on the remuneration of that company’s senior executives later this week.
In fact, the highly respected business leader, Sir Michael Darrington, the former group managing director of Greggs plc, has founded a pressure group—“Pro-Business, Against Greed”. Its aim is to reduce the excessive and growing difference in net pay between the highest paid and the majority, which he says
“is intended to help promote a happier, healthier and fairer society as well as being better for pensioners and investors.”
We congratulate him on that initiative because change and reform must be led by people like Sir Michael, who is also a shareholder in Aviva and Trinity Mirror, with Government backing.
In government—it is a shame that the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) is not in his place to hear this—we started to improve corporate governance in this area and to empower shareholders. We introduced advisory shareholder votes on remuneration reports, which are creating so many headlines at present. It is not fair to say that we did nothing about this matter in government.
Currently, there is a prohibition in statute on the remuneration of executives of quoted companies whose pay is contingent on the outcome of a shareholder resolutions. This Bill will remove that prohibition, paving the way for further reform. It will enable the Government to build on our reforms by, for example, having an annual binding vote on future remuneration policy, increasing the level of support required on votes on future remuneration policy and so forth. I was glad to hear the Secretary of State confirm that he intends to bring those reforms forward as amendments to the Bill as it passes through this House. That is welcome.
On the annual binding shareholder vote in particular, we agree with the suggestion put forward by asset managers Fidelity Worldwide Investment that a 75% majority should be required in respect of a binding vote on future remuneration policy. I would be interested to hear what the Secretary of State thinks of that, as I must say that it was with great disappointment that we read that he is likely to row back not only from that proposal, but from the one to have these votes on an annual basis. That represents quite a watering down of his initial proposals. If he would like to disabuse me of that, I would be happy to give way to him now.
Policy for Growth
Debate between Brian Binley and Chuka Umunna
Mr Binley
That is absolutely incorrect. Construction has played its part, but not house building. If the hon. Gentleman looks at the size of growth in the manufacturing sector, he will see that it has been a major element of our growth.
I had intended to talk about manufacturing exports, but time forbids that now. I will say, however, that all of that is good, but the sector is not getting the money it needs, and we must pay attention to that. The banks say that lending to business is increasing, and that it rose by 0.9% this August, compared with the previous August. That sounds pretty good, but when we look beneath the surface, we find that most of that money was lent in foreign currency to foreign businesses outside this country. The truth is that lending to British businesses dropped by £400 million.
Mr Umunna
I recognise the hon. Gentleman’s comments about lending and about the struggles of small businesses and businesses in general. Was he disappointed, as I was, to see very little on lending in the comprehensive spending review Green Book? On page 30, we see mention of the £1.5 billion business growth fund, which was put in place by the British Bankers Association, but does he agree that that is woefully inadequate, given the difficulties that businesses are facing in getting access to finance?
Mr Binley
I want to see more, but we must also recognise that the mess that the last Government got the banks into is one of the reasons that they are not lending money now. That is why we need to encourage them to find more creative ways of lending.
Small and medium-sized enterprises are concerned about how the banks are dealing with them. Thousands are talking about the breakdown in relations with the banks. The number of complaints to the banking ombudsman is up by 119% this year alone, and 14% of all SMEs are now using credit cards to pay for their business expenses. That is an horrific figure. According to the Federation of Small Businesses survey, 31% of SMEs—that is 1.4 million small businesses in this country—say that bank lending is the most important way of improving growth prospects in the sector. When are we going to get the message? Those figures underline the great importance of this matter.
The reasons that growth is important, and that small businesses will not be able to play their part unless they get the money to finance their growth, are very simple. Most of the money they need to finance growth is short-term money for extra labour, extra materials and extra resources. Those are all short-term requirements, and businesses must have them in place before they can grow. The truth is that the payback time is relatively long term. Businesses often go bust more in an upturn than in a downturn because there is no other way of paying back that cash flow drag than through retained profit. They go bust because they try to over-trade but without having the finances to complete the process. Those businesses need our understanding. What are the Government going to do about this? They need to take action for the short term very soon. I know that my hon. Friend the Minister is sympathetic to that view, so this is not a criticism in every sense.
Basel III allows banks to lend money to the Government while still classifying that money as capital reserve. It is a complicated business and I am sure that it needs quite a lot of thought to decide how we use that opportunity to help to finance SME growth. The Minister is a very clever chap, as is the Chancellor, and they have some very clever people in the Treasury. I am sure that it is not beyond the wit of that group of people to give us answers today on how we might release that money to help the small businesses that are in such great need. I repeat that we need to provide money for small businesses in order to make the strategy work. That is the important factor in this debate.
We also need to look into providing businesses with a greater choice of banks in the high street. That is longer-term work, but it still needs to be done as soon as possible. We need an extension of the enterprise guarantee scheme, and we need to know how the Government are going to implement it. We also need the Government to get tough with the banks, and to point out that there is a real need for them to be more interactive with small and medium-sized businesses, because that is not happening. But fine words butter no parsnips, as my grandmother would have said. I want to hear what action the Minister is going to take to ensure that small businesses get the money they need.