Enterprise Bill [ Lords ] (First sitting)

Catherine McKinnell Excerpts

Tuesday 9th February 2016 Public Bill Committees

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

It is a pleasure to serve under your chairmanship, Sir David.

Does my hon. Friend share my view that this is such an important issue for small businesses because we know that the issue of late payment, in particular, is a real challenge for them? It is in the Government’s interest that this body is as influential and powerful as it can be and that those small businesses see it as a visible presence and feel that it is their champion, not the Government’s or anybody else’s.

[Bill Esterson]

My hon. Friend is absolutely right. This is why we have tabled not just these amendments, but others, which are about making the post as effective as possible, so that it really is about championing business. This is the Enterprise Bill: it is about promoting enterprise as best we can. Small businesses are absolutely critical to driving enterprise, pushing forward productivity and improving the overall state of the economy. Getting this post right is a great opportunity to do just that. The interventions of both my hon. Friends just now demonstrate the importance of getting that appointment process right, so that the best person possible is appointed. As my hon. Friend the Member for Wakefield said, opening it up to the widest field possible is an important way of doing just that.

The commissioner will be someone whose terms of reference are quite clear. As things stand, he will be the creature of, and appointed by, the Secretary of State, and will have little security of employment, given the ability of the Secretary of State to dismiss him or her at the drop of a hat. He will be capable of being thrown out at the whim of a Minister. It would afford the business community a sense of confidence if our amendments were adopted. A small business that has problems with payment and other concerns about administration will find that this place person is in a job that affords the small business little or no protection or opportunity for redress of an independent character. At the end of the day, the operation of the office, as things stand, will be subject to the most minimal scrutiny and the report will be given, not to Parliament, but to the Secretary of State alone, which leaves one with grave concerns.

In the other place, the Minister said that if the commissioner was ineffective, there would be grounds for abolition. Surely the point is to set the post up in the first place to ensure that it is effective by giving him or her the necessary powers and independence. That means being outside the control or remit of the Department or the Secretary of State.

The Regulatory Reform Committee made an assessment which said:

“We therefore consider that it is inappropriate for the Bill to confer on the Secretary of State a Henry VIII power to abolish the Small Business Commissioner without any of the procedural restrictions (beyond the need for an affirmative resolution in each House) of the nature set out in the Public Bodies Act 2011, particularly that requiring consultation”.

I am concerned, as are my hon. Friends, that the general perception of how this provision was planned and developed under-appreciated the role that the body should play. The estimate is that it will deal with 500 complaints. I mentioned the Victoria commission in Australia. It dealt with 430 complaints of a comparative nature in its first year. Victoria is a state with 5.8 million people, a GDP perhaps one-tenth the size of that of the UK and with perhaps one-fifteenth of the number of small businesses. It had 430 cases, while our commissioner is planning to handle 500. That does not seem very ambitious for the role of the small business commissioner. Perhaps that is related to the way that it has been set up as part of the Department, reporting directly to the Secretary of State.

If the small business commissioner is set up only to address a tiny amount of work, it might raise the question how serious the Government are about making a difference to small businesses. Some might even suspect that the Government do not really intend for the office to be a great success and that therefore they will be in a position to deliver abolition down the line. It would be a great shame if that were the case.

The Government say that they envisage the role of the small business commissioner evolving over time. The workload grows and as businesses grow accustomed to the idea that there is someone to turn to, that is a likely development. If that happens, how will the office cope with the increased workload? Perhaps the Minister will consider that in her response. Remember, BIS faces sizable budget cuts. How will the small business commissioner be protected from those cuts, let alone be in a position to recruit additional staff?

We know that late payment is a significant problem, as my hon. Friend the Member for Newcastle upon Tyne North reminded us in her intervention. The 500 anticipated cases a year will be the tip of the iceberg. What will happen if the small business commissioner does not have the opportunity to expand his or her office? The issue of who appoints and whether the office can be abolished by Ministers is part of the wider question of whether the office will be effective or not, a point made very well on Second Reading by the hon. Member for Huntingdon (Mr Djanogly). It was also made many times by Members of the other place across the parties.

[Catherine McKinnell]

My hon. Friend is making a very important point. I wonder whether the Government have considered the importance of the role of the small business commissioner and the number of businesses that are likely to get in touch with them, because there is such a gap in the market for advice for small businesses. I know that from my constituency postbag, many small businesses come to me looking for advice and signposting for where they can get help and advice. My hon. Friend rightly points out that the proper resourcing and independence of the post are important for businesses to feel confident in the service provided.

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[Catherine McKinnell]

To clarify, I feel the reason so many businesses come to me as an MP for advice on this issue is because the support and assistance provided to small businesses under the previous Labour Government disappeared in 2010. That has had a huge impact on small businesses and their ability to understand and navigate the system to find help and advice. Therefore, they come to their MP. I am always pleased to hear from businesses but it is a gap in the system in that they do not know where to go locally.

[Bill Esterson]

That is an excellent point. Like my hon. Friend, I find myself performing some of the roles and responsibilities set out for the small business commissioner on behalf of my constituents. Having been owner of a small business, I have sometimes been able to point them in the right direction. We would expect the small business commissioner to be in a position to give advice, support and encouragement. Later amendments will look at how that might be achieved if that office is to be given additional responsibilities.

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[Anna Soubry]

It is a pleasure to serve under your chairmanship, Sir David. I hope that I am right in this, but I would like somebody to check: I note that 50% of the members of this Committee are men, which means that membership is half men and half women. I do not know whether that is a first, but it certainly must be for a business Bill going through this House. It is a welcome development. Too often, in my experience, the highest levels of businesses tend to be dominated by men. I just thought I would say that.

[Catherine McKinnell]

I very much agree with the point that the Minister has made, but I must say that it is Labour that has upped the ante in terms of female representation on this Committee. As ever, in terms of 50:50, the Government are letting us down.

[Anna Soubry]

I am not responding to that; the hon. Lady may be right.

I will address my comments to the amendment moved by the hon. Member for Sefton Central. I will rebut much of what has been said by establishing the history of how the small business commissioner came to be placed within the Enterprise Bill. I agree with everything he said about the value to the economy of small businesses. We are absolutely and utterly agreed on that. We understand their huge value and their importance to building a successful economy.

The idea started with the Conservative party manifesto commitment to consider setting up a conciliation service specifically on the point of late payment, which as we all know is a serious matter for concern, notably for small businesses. Having come into office, as I considered how to achieve that, it became obvious that there are already a number of ways to supply such a service. That is the sort of matter that we will undoubtedly debate in this Committee. Having learned of the great workings of the Australian small business commissioner—hon. Members will hear much about the work of Mark Brennan; I have spoken to him at length—I came to the conclusion, and I assure hon. Members that my Secretary of State absolutely agreed, that a small business commissioner should be created specifically to address the problem of late payment.

I put it on the record clearly: it would be utterly bizarre of this Government to want to positively create an office with the apparent intention of abolishing it at some later date. The idea has come from me and the Secretary of State; it is a position that we want. We would love for the position to abolish itself in time, because we would love it if there were no complaints about late payment. Unfortunately, we think that is an ideal that we will not achieve, however much we might strive.

[Anna Soubry]

It would not be abolished at the whim of any Minister.

[Catherine McKinnell]

I agree that the Minister is making a reasonable point, but does she accept that the Government are being cautious in setting up the body, possibly out of fear that it could become more powerful than she anticipates? If it begins to direct any concern towards the Government or state changes that the Government ought to be making to support small businesses, it will run the risk of a conflict of interest with the Government’s direct appointment of the commissioner.

[Anna Soubry]

It may be a surprise, but I do not agree with the hon. Lady. I can understand why she might raise that concern, but I honestly believe that because of how we are introducing the office—it will be a public appointment just like any other—the sort of proposal made by the hon. Lady through the shadow Minister would not make much difference, if any, to the person appointed. I am going to explain why that is.

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[Anna Soubry]

Hon. Members on both sides need to have confidence in the system that exists, whereby the person we appoint will have all the qualities that we know they must have in order to do the job. That person is going to be the most critical factor in the success of this office. We absolutely know that.

[Catherine McKinnell]

rose—

[Anna Soubry]

I am not going to give way; otherwise, we will be full of interventions.

[Anna Soubry]

I am sorry, but we need to make some progress. The appointment of the small business commissioner by the Secretary of State will not compromise his or her independence. It will be a public appointment, subject to all the usual public appointments rules and procedures. There would be little material difference to the appointment process if this were a Crown appointment.

[Catherine McKinnell]

While the Minister is on her feet, will she clarify exactly why this should not be a Crown appointment, rather than a ministerial one? Will she clarify that for the Committee and members of the public, because it is not clear why that is the case?

[Anna Soubry]

I absolutely will. A Crown appointment is made on the advice of Ministers. Effectively, we get exactly the same process, but with a different stamp on it. This will be a public appointment that will go through the usual procedures. It will be advertised. As for the idea that this is going to be somebody from the cocktail and canapés circuit, forgive me, but those days have long gone. That is certainly not the way that I operate or that my Secretary of State operates. We take considerable care to make sure we get the right person in place. I actually take a little exception to the idea that I go to cocktail and canapé parties to select someone. I personally make a great effort to ensure that we have people who represent the diversity in our society. I am quite robust in my views, as I am rather anti-establishment, and I will bend over backwards to ensure that we get the right person in place. I am confident that when we advertise this job, a large number of people will come forward with exactly the sort of qualities we need.

The amendments made by the Government in the other place have already increased the independence of the commissioner by giving him or her a separate legal identity as a corporation sole. As we know, the commissioner can appoint staff and receive public funding. Those are the key hallmarks of an independent body. Nothing stands to be gained in practice from the suggested amendments, which would only add considerable delay and complication to getting the commissioner up and running. It is normal practice for the Secretary of State to be able to terminate public appointments. The Secretary of State cannot dismiss a commissioner at will, but only if the individual is unable, unwilling or unfit to perform their functions.

It is good that we are having this debate so that we can give people the confidence in what we hope to achieve and in the mechanisms by which we will make the appointment to get what we all want—an independent small business commissioner who will be utterly focused on looking at late payments, free from any form of interference or abuse of office. The commissioner will have an independent spirit but will come from the right background, so that they have the confidence, most importantly, of small businesses to be their champion in solving the problem of late payments.

[Bill Esterson]

Thank you, Sir David. I apologise for omitting your title earlier. I thank the Minister for her brief response, but I do not think that she has really answered the questions we posed. I am glad that there is broad agreement about the value to the economy of small businesses, and I reiterate that our approach to part 1 of the Bill is about trying to strengthen the post as much as possible so that businesses and the wider economy really can benefit from it. I understand why the post has been set up to look at late payments, rather than at some of the wider issues, as the problem of late payments has existed for more years than many of us will remember. I understand why the Government have gone down that route, although it is a shame that the commissioner has not been set up to draw on some of the successful experiences as well as the remits of the arrangements in America and Australia.

The Minister said that the commissioner would not—I am not sure whether she said “could not”, so I will assume that she said “would not”—be abolished at will. However, the role can be abolished by affirmative resolution of both Houses and, in Parliament, that is pretty close when one party has an overall majority in the Commons. It is unlikely that the Lords would object. I take on board the point that if it were proved that the commissioner was not up to the job, the commissioner would be removed, but there is a difference between that and abolishing the post.

The Minister said that the small business commissioner needs to command the respect of large and small businesses alike. I completely agree but there is a concern among the representative organisations that the lack of independence that comes from being an effective part of the Department will make it difficult for the commissioner to command that respect, particularly the respect of the small business community. Large business is effective at lobbying and has effective relationships with the Government, and that is much harder for individual small businesses and for small businesses collectively.

[Catherine McKinnell]

The Minister gave a short but fairly robust response to some of the concerns that our amendment seeks to address. Would my hon. Friend agree that it is not just about the reality—whatever that might be—but about the perception as well? It is really important for small businesses to have confidence in the commissioner. Perhaps the Minister is not taking on board some of the concerns that people have, whether real or perceived, about the Government’s relationship with big business.

[Bill Esterson]

That is right. We are trying to achieve a level playing field. This is not about preferring small business over large, it is about making sure that the relationship is equitable. In the same way, the Groceries Code Adjudicator was set up to make sure that the behaviour of some of the large supermarkets was not excessive and their relationship with their suppliers was fair and equitable.

I did not get the sense of an answer or a justification of why this should not be a Crown appointment. I thought the Minister’s argument could equally have reached the conclusion that it should have been a Crown appointment. For that reason, I would like to test the will of the Committee and press the amendment to a vote.

Question put, That the amendment be made.

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[Bill Esterson]

My right hon. Friend makes a very good point. The public sector is an incredibly important part of the economy in many parts of the country. We have a collective responsibility, whether in Parliament or elsewhere, to get this right and ensure that the public sector is doing its bit. That is really important.

[Catherine McKinnell]

Speaking of areas of the country that depend on these issues, I have a useful figure that may help my hon. Friend. The accounting, payroll and human resources corporation Sage, which is based in my constituency, has suggested that £55 billion in outstanding invoices is currently owed to the UK’s small and medium-sized businesses. That is an astounding figure and of great concern. The CBI’s recent survey of north-east SMEs found that 53% of the worst offenders are large firms, but that a third come from the public sector, so the public sector represents a significant proportion of the significant sum of money that is outstanding.

[Bill Esterson]

Yes, and those figures are higher than in the 2012 Federation of Small Businesses survey. The figures demonstrate that, as I touched on earlier, the smallest firms that lack the ability to pursue cases are the most vulnerable to the problem of late payment, wherever it comes from. Certainly in the case of the public sector, we have a duty and a responsibility to ensure that payment is on time and to look after the smallest firms in particular and business in general. That is an important part of what the Government should be doing to encourage and generate our enterprise culture—this is the Enterprise Bill—and to ensure that the economy is successful through the support that the public sector can give to business.

I was talking about the four Departments that the National Audit Office looked at in detail: the Ministry of Defence, the Home Office, the Department for Business, Innovation and Skills and the Cabinet Office. The National Audit Office shows that those Departments’ apparently good payment record is skewed by a high volume of low-value e-transactions with a few large suppliers. Those payments are dominated by large companies, such as the ones the Departments use to book train tickets and order office supplies. Basically, Departments can get close to hitting their payment performance targets just by using their procurement cards and by paying their e-invoices from a few large companies straightaway.

If we dig past the misleading top line and look past the e-invoices from large companies, we see a different picture. None of the four Departments that the NAO looked at measures its performance in paying SMEs, which typically use paper invoices. Looking at the average payment time for paper invoices shows that the time taken by the four Departments to hit the 80% payment target jumps from five days to between three and seven weeks—a very different picture.

The Asset Based Finance Association conducted research in 2014 that showed that the average wait for payment is still in excess of 40 days for some local authorities, and that the average wait for payment from local authorities is virtually unchanged over the past six years, from 17.7 days then to 17.3 days more recently. EU directive 2011/7 makes make it mandatory for all public authorities to settle invoices in a maximum of 30 days from receipt. It is aimed at making pursuing payment a simpler process across the European Union and making payment on time the norm. One point that occurs to me from my experience of invoicing is that sometimes the date on which an invoice is received is a matter of great debate, because accounting departments may say that they have not received an invoice for many days, if not weeks. It will be interesting to see how that is to be defined; there are ways around the problem using electronic invoicing or recorded postal delivery, or suchlike, but most SME invoicing does not happen in those ways.

Under the directive, the failure of public authorities to pay within 30 days leads to interest of 8% being added from day one of late payment, subject to agreement on when the late payment is recognised. There is an admin fee of £40, £70 or £100, depending on whether the invoice is under £1,000, under £10,000 or over £10,000. That is a step in the right direction. However, the Local Government Association released a paper in 2014 saying that there is no evidence of any public authorities automatically adding the penalties when invoices are paid late. The Institute of Credit Management has said it is not aware that interest is automatically being paid. The House of Commons Library has also confirmed that it has not seen evidence of public authorities automatically adding the penalties—so the question is, how is this going to happen unless there is automatic addition of interest and penalties?

Although the user guide is clear, the automatic nature of the obligation is less clear when we review the specific statements in both the EU directive on late payment and the Late Payment of Commercial Debts Regulations 2013. Essentially, without automatic penalties, the interest and admin fees imposed for late payments still require SMEs to stick their head above the parapet and challenge their public sector customers. As I am sure all hon. Members are aware, that is a real problem. Once businesses start to challenge their own customers, they risk losing their custom later on, which is a real dilemma. It is the same dilemma that small businesses face with large suppliers, and it happens in the public sector as well. It is about businesses being asked to sour relations with their own customers.

I have an example from my own constituency. One start-up company had a contract with a public authority. The company was paid 30 days after the five-day terms laid out in the invoice. It had paid up front for the supplies needed to carry out the work, so it was left in a precarious financial position within six months of starting up. It could have made use of the rights available to it within existing legislation—a £70 administration fee and interest on the contract value. However, when the debtor did not automatically add the interest and fee, the company chose not to pursue it. It told me:

“As a start-up, repeat business with the public sector is no different to repeat business with the private sector: we rely on both to get by, and we know that they have more options than we do about who to do business with. Of course we don’t have to keep quiet, avoiding admin fees and interest on invoices—just like they don’t have to use us again. It’s a bad situation when you’re lurching from one loan to the next because you aren’t getting the money you’re owed. But whether it’s the public or private sector it’s the same point—you don’t bite the hand that feeds you.”

The Bill sets up the small business commissioner only to address complaints or disputes against large businesses. It currently excludes complaints against public sector organisations. Many small businesses find trading with the public sector very difficult, and we have seen some of the reasons why.

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[Caroline Flint]

rose—

[Catherine McKinnell]

rose—

[Anna Soubry]

I will give way in a moment. I know that it is difficult for Labour Members—they can dish it out, but they can’t take it. There is real evidence that we are seeing this trickling all the way down. However, as I have conceded—I am being as fair as I hope to be—I am concerned that it is not going all the way down through the supply chain. I have conceded that the name of the mystery shopper service may be a little not brilliant, but what is important is whether it delivers. There is absolute evidence that it does.

I think my noble Friend Baroness Neville-Rolfe would take exception to the rather cheap dig made about her, because she is absolutely on the side of small businesses. I know that she has been involved with a number of small businesses. For the record, she was not on the board of Tesco when it behaved in that unacceptable way. Thank goodness that a Conservative-led Government introduced the Groceries Code Adjudicator to bring Tesco to book—but we are going off the point. She gave a good example from the Ministry of Defence of exactly how the mystery shopper service is working. The more we advertise it, the better.