Enterprise Bill [ Lords ] (Second sitting)

Hannah Bardell Excerpts

Tuesday 9th February 2016 Public Bill Committees

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Ms Buck. I want to focus on the issue of retentions, which relates to amendment 39 and new clause 12. I spoke about retention on Second Reading, and one of the reasons I wanted to serve on the Bill Committee was to push for this.

We have already had two votes—very much partisan votes—on amendments that I had imagined were uncontroversial. This is a major issue for the industry, so I was hoping for some cross-party consensus on these amendments. I note the intervention from the hon. and learned Member for South East Cambridgeshire, which seemed to be an intervention against new clause 12 and amendment 39. If the setting up of the new small business commissioner was a way of addressing this long-standing issue, I do not think the business experts would be lobbying so hard for these amendments to resolve it. Also, if this was a method of dealing with it, it seems strange that the Government should set up a review specifically to looks retentions. That seems counterintuitive to me.

Just to recap the main issues, retentions are basically to do with a cash-flow problem. Retentions usually equate to about 5% of the cost of a job, which is held until the end of the maintenance period, which is usually a year after completion and commission of the main job. That 5% quite often equates to the profit margin, especially for small companies, so if major companies are not releasing these retentions, then companies do not have access to their profits. That is a major cash-flow issue, and it does not take a genius to see that if there is no profit, there is no company in the long run.

We heard earlier that up to £3 billion can be held at any one time in retentions. Last year, £40 million was lost due to insolvencies—that is, one company going bust that was holding retentions that were due to other companies. Those companies lose that money and, of course, end up paying off workers.

The cash-flow issue also means that companies cannot invest in training and apprenticeships. I tried to draw a parallel on Second Reading, in that one good aspect of the Bill is the attempt to create new apprenticeships in England and Wales, yet retention actually prevents the creation of apprenticeships in the engineering industry. These are specialist apprenticeships, which can lead to rewarding and well paid jobs. We should be doing everything we can to sustain that industry, to sustain those jobs and that training.

The suggested model is for a retention deposit scheme, modelled on a tenancy deposit scheme. This accords with housing legislation in this country and legislation in other countries that, as we have heard, have already looked at resolving the matter of retentions. Retentions in trust still provide a waiver over subcontractors who pay cash retentions. It is still a method of getting subcontractors back on site if there are defects to be fixed, or it provides money that can be accessed to pay for the defects. More importantly, it means that subcontractors can get the money that is legitimately due to them.

I urge Members to think carefully about amendment 39, which would help to address the question of cash retentions, and new clause 12, which would resolve the matter once and for all.

[Hannah Bardell (Livingston) (SNP)]

It is a pleasure to serve under your chairwomanship, Ms Buck.

I want to speak briefly to amendment 38 and new clause 16. Small and medium-sized enterprises have a vital role in driving the UK’s economic recovery, and it is a vital task of Government to ensure that finance is available to them to encourage investment and growth.

We welcome the findings of the British Business Bank’s small business finance markets report, which was published this month. It paints an encouraging picture of lending to small businesses in the past year, with an increase in equity finance for smaller businesses—there was growth of 43% in the year to October 2015. Bank lending, which continues to be the main form of finance for smaller businesses, continues to improve too, but obviously there are still significant challenges there.

However, as was mentioned earlier, 56% of smaller businesses are looking to grow their turnover this year. It is essential that suitable finance should be available to support those growth ambitions and that the Government should not rest on their achievements of the past year. By accepting the amendment, which we support, the UK Government would give the small business commissioner the power to champion lending for small businesses and to make constructive recommendations to the Government on how to encourage lending to SMEs.

As for new clause 16, we recognise that new rules were introduced for venture capital trusts, enterprise investment schemes and seed investment schemes by the Chancellor, and that the scheme would be a mechanism for incentivising investment in small enterprises. Again, we support the new clause, and encourage the Government—I hope we can see some cross-party consensus—to bring forward details and guidance about the availability of the scheme. What we are talking about is somewhat of a marketing exercise, but it is a question of getting the information out. All too often—certainly when I worked in the private sector, in the oil industry—the schemes that were available were various. Companies were not aware of what was available. It is important that we market schemes and put them out there, so that as many companies as possible take up opportunities.

[The Minister for Small Business, Industry and Enterprise (Anna Soubry)]

It is a pleasure to serve under your chairmanship, Ms Buck. I join the hon. Member for Sefton Central in welcoming you to your Committee Chair role for the first time. I am sure that we will all do all we can to make your experience one that you will remember enjoyably.

I will speak to the amendments—and oppose them—beginning with cash retentions. We had an extremely good debate just the other week in Westminster Hall. It was called by the hon. Member for Upper Bann (David Simpson), who rightly brought the matter before the House yet again. It is fair to say that there is absolute cross-party agreement about the need to reform cash retentions in the construction industry. I am very open about it: I think they are outdated and I do not think they are fair. They are particularly unfair to small businesses.

If the Committee will forgive me, let me say that the amendment has come too soon, and the reason is the work we are doing. We have set up a full review, and I am grateful to the Construction Leadership Council. Andrew Wolstenholme, the chief executive of Crossrail, is overseeing a full review of cash retentions in the construction industry. His work will not be completed until some time in March. His review will then come forward with recommendations.

It could be that the trust—an idea that I am familiar with—is the best way to make sure we sort out the problem of cash retentions, but there are other ideas that were debated in Westminster Hall. For example, a better way to do it might be some sort of bond scheme. Many hon. Members will be familiar with that from section 106 agreements in our work in our constituencies. To make sure that roads in housing developments are completed, the developer has to put money into a bond scheme.

There may be merit in what is being proposed, but now is not the time to do it. I think that the hon. Members for Livingston and for Kilmarnock and Loudoun have come to it too soon, because there may be alternatives. It may be that, as a result of Mr Wolstenholme’s review, other things might need to be added to legislation in the future. I think it has come too early, though I have huge sympathy for where it is going in its thrust.

[Hannah Bardell]

I am grateful to the hon. Lady for her comments. I appreciate that we are in the middle of a review, but is she not tempted to put this in legislation, given there is such support for it across the parties and the industry? I met with the specialist contractors association recently. We are talking about businesses that are going out of business because of this issue. I wonder whether the hon. Lady would consider a pilot scheme—perhaps we will write to her collectively.

--- Later in debate ---

[Bill Esterson]

That is a fair point. I will come back to some of the challenges and our concerns about the portals. Many small businesses do not use the web, so encouraging greater digital use is one of the many challenges for the Government.

There is great concern about retentions. The amendment has cross-party support, and hon. Members who spoke made their points extremely well. Often, between 2.5% and 5% of moneys are retained under the cash retention system, so it is massively difficult for small businesses to be as effective as possible. The hon. Member for Kilmarnock and Loudoun made a point about businesses not taking part in apprenticeships and not investing in the future as a result of the scale of retention.

[Hannah Bardell]

Does the hon. Gentleman agree that it is important that the review and these proposals are added to the Bill before Report?

[Bill Esterson]

It is incredibly important that that happens as quickly as possible, but SNP Members are in the same position as us: we are ultimately dependent on the Government for this to work, so we have to take the Minister’s bona fides. She is now on the record as saying that she will take action. I made the point that the recommendation was first made 52 years ago and it has been made on numerous occasions since. The problem is that businesses do not understand why we are waiting and why the Government and Parliament are taking so long to act. It is probably not until we come to this place that we start to understand why.

The Minister said it is too soon. A similar point was made in the Lords, and Labour peers accepted similar comments from Baroness Neville-Rolfe. We will wait and see for now, but if the review is finalised in March, the Bill’s Report stage may happen at about the same time.

I leave this thought with the Minister: if there is the opportunity, will she consider tabling amendments to take that into account? Let us challenge her Department and officials to table such amendments on Report to satisfy Members on both sides of the House. With that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn,

Clause 1 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 2

Small businesses in relation to which the Commissioner has functions

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Bill Esterson]

I beg to move amendment 42, in clause 3, page 3, line 29, at end insert—

“(5A) The Commissioner may assist small businesses by taking an active and direct role in resolving, mediating or facilitating the resolution of disputes.”

This amendment would give the Small Business Commissioner the power to take an active role in resolving, mediating or facilitating the resolution of disputes.

We are talking about the important topic of mediation and facilitating the resolution of dispute, which is sometimes known as alternative dispute resolution. The amendment looks to learn from what goes on in Australia and would provide the commissioner with the opportunity to insist on mediation as a better way of solving disputes between two business parties than going to court, for example.

In the foreword to the July 2015 BIS publication “A Small Business Commissioner”, the Minister said:

“In Australia, the Victorian Small Business Commissioner is having a real impact on the ground.”

She told us earlier about her meeting with him. One reason why that commissioner is having an impact on the ground is that he has so many more powers than is proposed in the Bill. One such power involves being able to insist on mediation and to ensure that unfair payment practices are dealt with on a case-by-case basis. That is not what is being proposed here. If the Minister really wants the United Kingdom’s small business commissioner to match the performance we see in Australia, she must give them the same tools and powers to do the job.

The staff of the New South Wales small business commissioner are formally trained in mediation. In Australia, attendance at mediation may be legally required by a court, and the small business commissioner may insist on mediation after the initial consideration of the complaint. Any decisions or agreements reached during mediation are signed by both parties and are returned to the small business commissioner, who can hold them to account if they do not keep their side of the agreement. Mandatory mediation is vital as far as the Australian model is concerned. The office of the Australian small business commissioner says:

“Mediation is so successful that most of all matters referred to us for mediation are resolved prior to having a court decide the matter… The mediation process is essential in minimising the costs of business and commercial disputes.”

Compulsory attendance at mediation in the Australian model is enshrined in the legislation that set up the New South Wales small business commissioner. Section 17 of the Small Business Commissioner Act 2013 states:

“If an application is made to the Commissioner for assistance in resolving a complaint or other dispute involving a small business and the Commissioner decides to deal with the complaint or dispute, the matter to which the complaint relates or the dispute may not be the subject of any proceedings before any court unless and until the Commissioner has certified in writing that alternative dispute resolution services provided by the Commissioner under this Act have failed to resolve the matter or dispute.”

There are various other requirements in other sections of the Australian legislation. At a national level, the Australian small business commissioner has similar powers. The Australian Government are undertaking to absorb the role into the proposed small business and family enterprise ombudsman, but the legislation is clear about mediation.

The value of mandatory mediation is not only in enabling the small business commissioner to see a complaint through to resolution but in ensuring that both parties follow a process that minimises cost and the risk of the complaint ending up in court. The balance of power must not be so weighted against the small business supplier that it is put off pursuing a complaint for the lack of cheap, accessible dispute resolution, something which we discussed earlier. This is about fairness, ensuring a level playing field, reducing costs, and producing commercially realistic solutions to disputes, including those involving late payment. I look forward to hearing the Minister’s response.

[Hannah Bardell]

Following on from the hon. Gentleman’s comments, we also welcome, as we did on Second Reading, the creation of a small business commissioner, but as we said then and as we believe now, it is important that the commissioner has real power and teeth to arbitrate and to take on issues when they are brought to them, rather than just to give advice. The Federation of Small Businesses has said that it is important that the commissioner is endowed with real powers to assist small business. It is important for the integrity of the office of the commissioner that it is regarded by small businesses as a route by which they can achieve a meaningful outcome. The current suggestion of a commissioner making recommendations or highlighting particular cases is simply not enough if they are to gain a reputation as a small business champion. All too often, such bodies do not have the power to bring companies into line. If we want a fair system across the board, further powers, such as those in the amendment, are important.

[Anna Soubry]

It is important to refer to our consultation because it represents the voice of small business, and it showed us that small businesses want to understand what options are available through existing dispute resolution services. Small businesses have told us that there are plenty of existing resolution services and that we should not—here comes the word again—“duplicate” them. They need support to navigate the services more easily. The commissioner will provide general advice and information to raise awareness of alternative dispute resolution and direct firms to those approved mediators. Obviously, I am an old lawyer, though, of course, I was a criminal barrister, but one thing that has struck me about the changes that have occurred in the civil side of English law—I cannot speak for the situation up in Scotland—is the widespread use now of mediation, which means that people do not end up in court.

We know the cost of going to court, we know that it can actually be very traumatic. It is not just matrimonial or family matters; a business dispute can still exert a huge pressure, especially for a small business. There is a human as well as a financial cost. So the court system, certainly in England and Wales, has bent over backwards to encourage people to go to mediation, for all the very good reasons that I hope are obvious to everybody.

When we looked at the creation of the small business commissioner and what we were seeking to achieve, I was very keen to understand—I was worried, to be very honest—whether there were enough mediation services available to businesses in the event of a dispute. I was encouraged that there definitely are enough. So it is not the job of the small business commissioner to mediate, because, frankly, there are other people out there who will do the job and are doing the job.

I should say that I have not actually had the honour of meeting Mark Brennan, the Australian small business commissioner; unfortunately I could not attend the meeting, but I spoke to him at length on the phone. I will be very blunt about it: it was one of the best conversations I have ever had in this job. He spoke with all the frankness and robustness that I was hoping for—“This is difficult, you cannot legislate for this, but in tackling late payment, which is what this is all about, what we seek to achieve is to change the culture so that small businesses no longer feel the need to complain about this problem, because it does not happen, because we have changed the culture.” At the moment there are already laws to prevent unfair terms and conditions in contracts, late payment penalties and so on. There is a code of practice and, of course, if someone has already signed up to a contract and somebody has, in effect, breached the contract, they can go to law. So there are lots of protections there, but we want to change the culture so that people are not paid late in the first place.

Mark Brennan impressed on me that it is very difficult to legislate for this; this is why we are doing it in this way. He said, “The real power I have on late payments is that when I am aware of a trend or a practice by a particular business, I pick up the phone and speak directly to the chief executive”. He said that nine times out of 10—I think it was actually more than nine times of out 10, if there is such a thing—the chief executive took the phone call. That is why we need to make sure we have somebody big business respects; there was no messing about, they took the phone call. He said that as soon as he said to the chief executive, “Do you know what your finance team are saying to a whole group of small businesses?”, the chief executive said “What? They’re doing what? This is not how this business works, I had no idea this was going on” and then he or she sorted out the problem.

That is the huge power of the small business commissioner in Australia and that is what I want ours to have. I want them to have the respect of businesses—so they will take the phone call and listen to what is being said—as well as the confidence of small businesses.

[Anna Soubry]

I completely agree with my hon. Friend.

[Hannah Bardell]

I recognise what the Minister is saying and that there is a range of mediation services. Does she not recognise, however, that in the example she gave where the small business commissioner could phone up the chief executive, it would force the hand and have greater power if he or she were able to say, “If you can’t get this sorted out, we have an overarching power”?