SportsDirect (USC Dundonald)

Debate between Brian H. Donohoe and Jo Swinson

Tuesday 27th January 2015 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing this timely but unfortunately necessary debate. I do not think that any of us wish the situation to be as it is—particularly those who have, sadly, lost their jobs.

The concerns about the events leading up to and surrounding USC’s failure, particularly some of the allegations made about the company’s treatment of its creditors and employees, are valid and genuine, and I assure the hon. Gentleman that they are shared across the House. It is important that answers are found. As with any company failure, it is important to establish the facts of the case: what occurred in the lead-up to the administration of USC, the reasons for the failure and whether the company has been a victim of circumstance, as sometimes happens with companies, or whether the conduct of its directors has fallen below the standards that we rightly and reasonably expect. Those standards include treating creditors and employees of the company fairly and in accordance with the law.

Based on the information that we have been given, USC’s administration seems to have been due to the company’s failure to pay its rent and suppliers when they came due. On the specific questions asked by the hon. Gentleman about the winding-up orders and so on, I understand that, according to the administrators, a statutory demand had been issued to USC by a key supplier on 17 December 2014, payable by 31 December. That would have allowed the creditor to seek a winding-up order if the debt was not paid. On 6 January, the company gave notice of entering administration, and it did so on 13 January, but I am not aware that a petition for a winding-up order was made.

[Mr Donohoe]

As a local MP, the Minister knows something about Glasgow Rangers, but she might not know as much about USC. Is there an urgent need for a change in the law if, on the one hand, a creditor can seek a winding-up notice and, on the other hand, the company can frustrate that by making an application to the courts for administration?

[Jo Swinson]

This case raises many questions. We are making several changes to insolvency law, and particularly to the pre-pack regime, where there are particular concerns. The hon. Gentleman is right to say that I have some familiarity with Glasgow Rangers—indeed, Murray park, their training ground, is in my constituency. I confess that I am not a football fan, but my late grandfather was a very proud and longstanding season ticket holder and supporter of Rangers. He enjoyed many trips to matches on the supporters’ bus.

We all have to think about the context. USC was not just a small company on its own; it was just one part of a large retail group. The events are particularly concerning in that context.

[Jo Swinson]

There are a couple of different issues within that question. We will need to wait to see the specific facts that come out of the investigation. Obviously, the administrators will provide information to the Insolvency Service, and they have to file a report within six months, although the general practice is to file such reports much more quickly. Indeed, we will be shortening that time to three months.

On whether there are loopholes, action has been taken on the pre-packs issue, which I will address in a moment. The hon. Gentleman is absolutely right that employment law is not negotiable. Employment law is not something that is optional or that a company can decide to take or leave; it is the law, and it needs to be followed. Enforcement is particularly important. A range of issues have been raised, including some of the issues surrounding zero-hours contracts, which I will also address.

One of the key questions is why USC, which was wholly owned by SportsDirect, was allowed to reach the point at which its key suppliers and landlords were not just threatening but taking enforcement action. SportsDirect purchased USC’s business through another company, Republic. We have been told that USC’s key suppliers have been left out of pocket, so it seems odd that they would continue to supply Republic. There are, therefore, a lot of unanswered questions.

The law is clear that employees should be consulted where 20 or more people are being made redundant at the same establishment, and it can be a criminal offence to fail to notify the Secretary of State of proposed redundancies. Tribunals can make protective awards where employees are not properly consulted.

[Mr Donohoe]

Will the Minister and her Department do that through the criminal courts in this case?

[Jo Swinson]

I am not going to give the hon. Gentleman that assurance in the Chamber today, but I reiterate that we will be looking very carefully at all the facts that emerge and at the picture created from the information that comes from the administrators. There is a wide range of both investigation and enforcement powers, and it is important that they are used wherever it is found that companies have not behaved properly, and particularly when directors have not behaved properly.

--- Later in debate ---

[Jo Swinson]

I will be happy to look into the specific issues that the hon. Lady raises. Although the powers already exist, we recognise that making it more explicit that breaches of law can be considered in the disqualification process will make such cases easier. That is why we are changing the law. I will happily look separately at the specific case that she is pursuing.

I turn now to pre-packaged administrations, or pre-packs. They have been discussed in this House on many occasions, because there are understandable concerns about them. In a pre-pack, the sale of the viable parts of an insolvent company’s business is arranged before the administration starts and concludes shortly after the administrator is appointed. In the case we are debating, the administration has allowed the majority of the business, including more than 600 jobs across the UK, to be transferred to the purchaser, Republic, although unfortunately another 84 employees have lost their jobs.

It is important that we establish whether the pre-pack represented a necessary step to save an insolvent business, or if, as has been suggested, it was an abuse of the insolvency process. I reassure hon. Members that officials are looking at that as a matter of urgency. The changes that we are making, following the review of pre-packs by Teresa Graham, will mean that by spring there will be new checks and balances on pre-pack administrations where the sale is to a connected party, so that there is independent evaluation of whether that party is a viable business with a viable underlying business model that will not simply run into the same problems as the business in administration; there will also be evaluation of whether the sale represents the best value.

[Mr Donohoe]

May I ask to be kept posted, within reason, on anything that happens in the Department and whatever action or otherwise is taken by BIS?

[Jo Swinson]

I happily give that assurance. Obviously, certain elements remain confidential because of specific legislative requirements, but I am happy to keep the hon. Gentleman updated on the issue.

I will touch on the important matter of the employees and support for them, before coming to some of the specific issues raised about Mike Ashley. Obviously, whenever people are made redundant, support is crucial. That is why the Jobcentre Plus rapid response service is available and can provide everything from information to help with job search, identifying skills gaps and, ultimately, training to update skills or learn new ones to ensure that people can move back into employment. That is particularly important for those individuals.

In terms of redundancy payments, employees are guaranteed to receive their wages and other payments owed, subject to certain limits. That money comes from the national insurance fund.

[Jo Swinson]

I will certainly come to that issue. The redundancy payments service has begun processing claims—I understand something in the region of 30 claims have already been put in. It aims to pay 80% within three weeks of receiving the claim form and 93% within six weeks of receipt of the form.

Obviously, within the group of people who have been made redundant, there is a mix of those who were on fixed-hours permanent contracts and those who were on zero-hours contracts. However, it would not be accurate to say that somebody on a zero-hours contract has no right to a redundancy payment. The calculation for the payment tends to be made on the basis of an average of, I think, the 12-week period running up to when they were made redundant. I hope that will provide some reassurance to the hon. Lady’s constituents who may find themselves in that position. Guidance on redundancy pay for any employer affected is available on gov.uk.

Hon. Members have raised significant concerns about the behaviour of Mike Ashley, and I share those concerns. He seems determined to show that rules are for other people. We know that he bought nearly 10% of Rangers football club, and in doing so rather skirted the edges of the SFA’s rules on owning two clubs. Despite being blocked by the SFA from increasing his shareholding further, he appears to be looking to expand his influence. The rules that prevent the same person from owning two clubs are there for a good reason: to prevent conflicts of interest and to safeguard the integrity of the sport.

We are talking about a man who, according to media reports, forced through a £200 million bonus scheme at SportsDirect and subsequently withdrew his own participation amid speculation that he introduced the scheme simply to show his investors who was in charge. Some 90% of SportsDirect employees are reported to have zero-hours contracts, so they would not be eligible for the scheme. At least one worker was allegedly told that a zero-hours contract meant that she would not receive holiday pay. I cannot emphasise enough that that is against employment law.

There are serious questions to be answered about USC and many of its practices. I have outlined that the Insolvency Service has the power to receive information from the administrators and to investigate any company that it believes has questions to answer. I welcome the suggestion that Select Committees may also wish to ask questions.

I believe that zero-hours contracts have a place in a flexible labour market, but they are not a substitute for proper business planning. I fail to understand how a retailer can get away with employing the majority of its staff—up to 90% of the work force of 20,000 at SportsDirect—on zero-hours contracts. Apparently, SportsDirect operates some 420 stores, but it has a permanent work force of perhaps only a couple of thousand people. I do not see how a retailer can reliably open its stores every day if the workers on zero-hours contracts genuinely have the power to say that they will not take any given shift. A zero-hours contract should mean that the employer is free to offer work or not to offer work, and the employee is free to accept or decline that work.

I am at a loss to see how such use of zero-hours contracts can be deemed to be in any way responsible, and I think there are even questions about whether it is in line with employment law. Certainly, exclusivity clauses, which must be part of the way in which SportsDirect operates zero-hours contracts, will soon not be legal in such contracts as a result of the action we are taking in the Small Business, Enterprise and Employment Bill, and rightly so. Using zero-hours contracts to fill the gaps by requiring people to turn up for work but not giving them guaranteed hours is not a responsible use of such contracts.

Cases have been brought against SportsDirect by people such as Zahera Gabriel-Abraham. That case was settled out of court, but some of the media reports were concerning. The Guardian reported that

“the retailer will have to make clear in job adverts, contracts and staff rooms that it does not guarantee work, sick pay or holiday pay”.

I do not believe that that is the full story, because it is not for an employer to decide whether their employees get sick pay or holiday pay; it cannot simply opt workers out of their statutory rights. One of the barristers from Leigh Day summed it up well:

“Zero hours workers are not second class workers. They have the right to be treated fairly and with respect. They have the right to take holidays and to be paid when they take them. They have the right to statutory sick pay. They have a right to request guaranteed hours. Sports Direct will now have to make that crystal clear to staff.”

I hope that the reports do not suggest that those staff have not been getting sick pay, holiday pay or their other statutory rights. I encourage anyone at SportsDirect or anywhere else who thinks that they have not been receiving their proper rights to contact ACAS or the pay and work rights helpline on 0800 917 2368. Breaking employment law is absolutely unacceptable, and compliance will be properly enforced.

There are certainly questions to be answered about the matters in the USC administration and pre-pack sale, and the Insolvency Service will be looking at the information that it has received. The hon. Member for Central Ayrshire asked a wide variety of questions, and I appreciate that time is short—

[Mr Donohoe]

Will the Minister write to me?

[Jo Swinson]

I will happily write to the hon. Gentleman in full to pick up on any points that I have not addressed, and I will write further to keep him updated. I thank him for giving us the opportunity to debate these important issues.

Question put and agreed to.

Parliamentary Contributory Pension Fund

Debate between Brian H. Donohoe and Jo Swinson

Monday 17th October 2011 Commons Chamber

[Mr Donohoe]

I will explain. That individual would be responsible only for representing the Ministers’ section of the pension fund. A former Minister would have a different contribution rate. I see the Leader of the House agreeing with me on this. The pension fund administers that at present and will continue to do so, but by virtue of the contribution, it will come from the Department that the person was in or from the civil service. The Government are not going to start playing a part in the Members’ pension fund. I hope that that answers the hon. Gentleman’s question.

There was originally a proposal in the Bill that members of the board of trustees could be removed by IPSA. That has now been forgotten, and the eight members of the board will continue to be appointed by this House and no one else. They will continue to be elected or selected from this place or from among former Members. At our trustees’ meeting on Thursday, we thought it sensible to determine that we would lose two members at this stage so that this whole process could be carried out smoothly. Otherwise, all sorts of complications could have arisen. As a consequence, I would like to put on record my appreciation—and that of the other members of the board—for my hon. Friend the Member for Lewisham West and Penge (Jim Dowd) and the hon. Member for Watford (Richard Harrington), both of whom have now withdrawn as trustees.

The increase in contributions is the main point of any argument on this matter. I have already argued, and I want to reinforce the point, that IPSA must be seen in every respect as independent. I see no reason why the House should indicate that it would like our pension contributions to be treated in the same way as those of other public service workers. IPSA has a statutory duty to act independently of Parliament, and by giving such an indication, the House is putting undue pressure on IPSA. It should not be influencing IPSA in that way. IPSA must undertake its role as laid down in statute, and in no other way.

[Jo Swinson (East Dunbartonshire) (LD)]

Surely it is important, however, for the House to make it clear that MPs should not be treated differently from other public sector workers. In particular, we should try to avoid a repeat of the bizarre situation earlier this year in which we had to take back powers to set our own pay because the Senior Salaries Review Body had recommended a pay rise for MPs in a year when the rest of the public sector faced a pay freeze. Any such pay rise would have been entirely inappropriate.

[Mr Donohoe]

I have to disagree with the hon. Lady, and I will tell her why. If we put things out to independent arbiters such as the Senior Salaries Review Body, and they make recommendations after consultation with all sorts of bodies, I would argue that the Government should not intervene. In that case in particular, we should not have overturned that decision. This is where we have gone wrong so many times in the past. In the great number of years that I have been a Member of Parliament, I have seen this happen time and again, and my research leads me to believe that every Prime Minister since 1945 with the exception of John Major has interfered in the conditions of service of Members of Parliament to the detriment of those conditions.

I feel strongly about this—so strongly that, as the arch-enemy of IPSA, I argue on the basis of what I have seen that it is far better for it to have that independence, which is clearly documented in legislation, than to have this constant interference in the conditions of service of Members of Parliament. There has not been a great understanding by the Government of some of the elements of the arguments with IPSA.

Given that pay and pensions are linked, it is only sensible for IPSA to take stock not only of all elements of conditions of service, but of the whole question of pensions, which I have always believed to be deferred income for any individual in employment who has a pension fund.

Other considerations relating to IPSA in consultation with trustees include the fact that it has to wait for a valuation. Here, as I say, the Government have not fully understood the position on Members’ pensions or the calculations of where they should go in respect of any increase in contributions, any increase in the age of retirement or any other element affecting those pensions. Clearly, the results of the 2011 valuation of the scheme will shortly be finalised, which I take as a very strong argument for leaving the decision about increases in contributions, if there are to be increases, to IPSA itself. As far as we are concerned, we are in a cost-sharing scheme, as a result of which we must see what the actuary says about any changes to contribution rates before taking a decision that puts us in line with anybody else. As Members will know, there have been increases to pension contributions over a relatively recent period, which I do not think any other members of the public sector have had to face. I suggest that it is important to take that into account, as we are told it will be by IPSA.

I suggest that trustees would also recommend giving further thought to other cost-saving measures in the scheme to make it simpler and to make the benefits clear in a way that everybody understands. From the discussions I have had with Members of Parliament over the last few weeks, I believe that there has been a misunderstanding of many aspects of the scheme. That needs to be taken into account. We also need to consider, if possible, as a means of getting away from increases in contributions, the whole question of increasing the pension or retirement age. It could be part of the answer to some of the problems we face.

Another misunderstanding is the view that this scheme is expensively funded in itself. Schemes like this should be treated differently from unfunded or notionally funded schemes, as assessing changes to member contribution rates should take into account any excess returns generated by funded schemes from the investment strategy. I understand that the London Pension Fund Authority scheme, which is a funded scheme, might not be subject to the general contribution increase that the Government hope to implement. If there are exceptions there, they can be made anywhere else. I am convinced that an awful lot of negotiations are still to take place, and these will bring to the fore some of the elements of the pension fund that are not best understood.