Corporate Businesses and Franchisees: Regulatory Environment

Gareth Thomas Excerpts

Wednesday 2nd July 2025 Commons Chamber

[The Parliamentary Under-Secretary of State for Business and Trade (Gareth Thomas)]

In the usual way, I thank the right hon. Member for South Holland and The Deepings (Sir John Hayes) for securing this debate. Having crossed swords with him when our positions were reversed, I approached this debate with particular wariness, not least because he has assembled a very distinguished cross-party group of Members to participate in this debate.

We heard from not only the right hon. Gentleman, but the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith), my hon. Friends the Members for Stockport (Navendu Mishra), for North Durham (Luke Akehurst) and for Reading Central (Matt Rodda), and the hon. Member for Boston and Skegness (Richard Tice). Each of them made important points. I very much agreed with the opening remarks of the right hon. Member for South Holland and The Deepings about small and medium-sized businesses being the backbone of our communities. They are important; they are fundamental to the strength of each of our constituencies. The Government are determined to do much more to support our SMEs going forward. That is why, on the point made by my hon. Friend the Member for Reading Central, we will publish a strategy for supporting SMEs.

The right hon. Member for South Holland and The Deepings was right that we as a country should do more to celebrate our entrepreneurs and to champion their interests. They are brave; they are risk takers; they create wealth; and they make all our communities better and richer. We are determined to encourage more people to come forward as entrepreneurs, to take risks and succeed, and to grow businesses. We have already taken a number of measures to support SMEs. The Secretary of State for Business and Trade has already committed to establishing a business growth service inspired by the US Small Business Administration. That is why one of the outcomes of the spending review was a two-thirds increase in the capacity of the British Business Bank. The vast majority of that funding will go to help tackle the considerable challenges that SMEs face in accessing the right forms of financial support.

The right hon. Gentleman rightly raised the issue of access to public procurement for British SMEs. I am sympathetic about the need to open up public procurement to SMEs. Again, we will have more to say on that in the small business strategy, when it is published shortly. Cabinet Office colleagues are very much working in this space, too.

The right hon. Gentleman also rightly raised the matter of the difficulties that small and medium-sized businesses face when legal issues arise. Again, we will have more to say on that in the small business strategy shortly. Towards the end of his remarks, he made a powerful link to an appalling miscarriage of justice: the scandal of how the Post Office treated its sub-postmasters. There are many lessons to learn from that. I hope that he will take confidence from the Government’s determination to do that when he sees the Green Paper on the future of the Post Office, which we are seeking to bring forward. I am sure that the whole House appreciates the work that Sir Wyn Williams is doing to draw conclusions about what went wrong in the scandal, and about what more we need to do to learn the lessons and ensure that nothing like that ever happens again.

[Sir John Hayes]

I thank the hon. Gentleman for the way in which he is responding. There is a close parallel between the way the Post Office is constructed—its business arrangement, and the connection between independent post offices and the centre—and the matters that I described. Will he ensure that his small business strategy includes something on franchising? That is a really important part of getting right our approach to regulation on the relationship between smaller businesses and corporate giants.

[Gareth Thomas]

I have already given a flavour of what might be in the small business strategy. I will leave the right hon. Gentleman to wait a little longer, if I may—he will have to forgive me—before he sees the strategy in full.

Let me come to the substance of the right hon. Gentleman’s concern. He rightly and understandably mentioned the experiences of a number of franchise operators who allege mistreatment and being badly let down by Vodafone during covid. No one in the Chamber will have failed to have been moved by those stories. I have read a number of them in correspondence from colleagues on both sides of the House.

There are, without question, serious allegations being levelled at Vodafone. As the right hon. Gentleman said, and as I am sure he will understand, I am unable to comment on ongoing legal disputes, but I will respond on behalf of the Government as best I can, given the ongoing nature of the case. Until now, there has not been sustained concern about the quality or effectiveness of the self-regulation of franchises in general. However, I recognise that this case has raised concerns across the House, and I will track very carefully what happens in this case, the final outcome, and the conclusion of any court case.

As hon. Members will no doubt be aware, franchising is growing in the UK, and it makes a big contribution to our economy, at just over £19 billion annually, according to the latest British Franchise Association survey. The franchising industry is covered by the same general protections in law as other businesses, and I will come on to some of those in a moment. In addition, the franchising industry also effectively self-regulates through the British Franchise Association, which has a code of ethics, and the Quality Franchise Association, which provides a code of conduct. On the whole, as the House will recognise, there are significant advantages to self-regulation: greater flexibility and responsiveness, and lower costs.

[Luke Akehurst]

Is the Minister aware—this is my understanding from the franchisees—that Vodafone left the BFA, and walked away from its self-regulatory framework and code of conduct?

[Gareth Thomas]

My hon. Friend will forgive me, but I will not comment on the particular circumstances of Vodafone and its relationship with franchisees in general, or those former franchisees who are bringing court action. However, I note his comment.

[Navendu Mishra]

I have worked with the Minister on a number of issues relating to his ministerial role, and he has always been helpful and proactive. As he is representing His Majesty’s Government, does he feel that there is a need to legislate on this issue, and that the code of conduct simply does not go far enough? Also, as my hon. Friend the Member for North Durham (Luke Akehurst) has just said, there might be cases of larger corporations opting in and out as and when it suits them.

[Gareth Thomas]

As I said, I recognise that this case has raised concerns across the House about the quality and effectiveness of the legislation that governs franchisees and, indeed, other businesses, and about the arrangements around franchisees, and their relationships. As I say, up to now, we have not had significant representations that the quality of regulation of franchises is not adequate. However, I recognise the concerns across the House that this case has brought up, and as a result, I will track very carefully how the court case unfolds.

I was noting the advantages that, on occasion, self-regulation brings. They include freedom when it comes to contracting. Individuals and businesses have the right to enter into agreements and set their own terms, free from unnecessary Government interference. That freedom allows franchise agreements to be tailored to individual needs. People can set up shop more easily on the high street or elsewhere with the power of a big brand behind them. On the whole, self-regulation also allows the franchise industry to set standards and guidelines based on deep, industry-specific expertise. It allows the industry to adapt more quickly to market changes, too.

It is my understanding that the franchise agreements are the main instruments governing the relationship between franchisors and franchisees. Those agreements normally cover key issues such as fees, territory rights, contract duration and dispute resolution mechanisms. The Government of course encourage anyone entering a business contract such as a franchise to seek independent legal advice before agreeing to the terms and conditions laid out in those agreements.

I have talked a little bit about self-regulation and its benefits, and I alluded earlier to the fact that there are existing protections in law that cover all businesses, including franchises. For example, under the Misrepresentation Act 1967, anyone who has entered into a contract as a result of misrepresentation may be able to rescind the contract and claim damages. Misrepresentation is a false statement by one party to another that induces that person to enter the contract. Ultimately, it would be for the courts to decide whether a misrepresentation had occurred and what the remedy would be. There are other forms of legislation, too, including the Unfair Contract Terms Act 1977, which may apply to business-to-business contracts. That references the application of a reasonableness test, but that again is a matter for dedicated legal advice.

[Sir John Hayes]

The Minister is absolutely right, of course. Contract law is well established and business contracts are enforceable in the way that he sets out, but the problem with franchising is that it is a hierarchical relationship that creates a kind of dependency. The franchisee is dependent on the larger business, so there is an in-built advantage if that larger business is inclined to be permissive in the way that it applies the terms of the contract, or even varies its terms. The parallel I drew in my speech was with supermarkets and primary producers. The supermarkets have so much power that the primary producer is implicitly weakened in that commercial relationship.

[Gareth Thomas]

The right hon. Gentleman made a very interesting speech with a series of interesting analogies, and I have noted those and the points that he made. As I have said, I will track this particular court case and its conclusions. I always try to make myself available when hon. and right hon. Members want to discuss particular issues that are pertinent to my brief, and as things unfold, I make that offer to the right hon. Gentleman too.

I should stress again that only the courts can really decide on the application of contractual terms. It is absolutely right that affected businesses seek independent legal advice on the particular circumstances of their situation. As the right hon. Gentleman will be fully aware, legislation cannot prevent wrongdoing. It can deter and it can punish, but only after the event. It is important for companies, obviously, to conduct business fairly. We already have rules that encourage this, whether in relation to criminal offences of fraud, audit requirements or prompt payment reporting, which my Department has begun to strengthen and on which we will publish further proposals shortly.

I am sure the right hon. Gentleman will agree that investors and the public expect and deserve access to truthful reporting from our most important businesses on their finances and related issues. This is critical for trust, and ultimately it is critical for economic growth. That is why, through the audit and corporate governance reform Bill, we are developing legislation to uphold standards and the independent scrutiny of companies’ accounts while ensuring real accountability for company directors.

Section 172 of the Companies Act 2006 already requires company directors to frame regard in their decision making to a wide range of stakeholder interests. That includes the impact of the company’s operations on the wider community. It also requires directors to have regard to the desirability of the company maintaining a reputation for high standards of business conduct. This requirement applies to a company’s business transactions, including the treatment of franchisees. Large companies must report annually on how their directors have complied with these requirements. Taken together, the section 172 duty helps to provide assurance that companies are run responsibly and that directors are mindful of the impact of their decision making beyond the company and its shareholders.

The right hon. Gentleman touched on the additional regulation of franchises and the wider franchise model. As he will know, this Government are dedicated to implementing an ambitious regulatory reform agenda. In March, we published our action plan for regulation, outlining changes to streamline rules and regulations to support growth. While that plan includes a clear commitment to cut regulatory administrative costs for business by 25%, it also includes a commitment to strengthening accountability for regulators. That includes simplifying their duties to ensure that the regulatory environment focuses on growth, investment and, crucially, transparency.

Our modern industrial strategy also includes an ambitious package of regulatory reforms that will support our growth-driving sectors and the wider economy, but as we stated at its launch, that is not the end of the journey; it is just the beginning. Where there are changes that we can make to increase the UK’s economic resilience and channel support to the most productive parts of our economy, we want to continue to work with Members across this House to implement them.

In conclusion, let me thank the right hon. Gentleman and other hon. Members who have participated in the debate. Franchise regulation is a complex and difficult issue and, as I have said, this particular case has raised concerns across the House. As I promised, I will continue to look closely at how the case develops and ultimately what conclusions are reached. I am happy to continue conversations about this case and its implications outside the Chamber.

Question put and agreed to.