Enterprise and Regulatory Reform Bill Debate
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Iain Wright
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Enterprise and Regulatory Reform Bill
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Richard Fuller
My hon. Friend makes an excellent point. All of us are aware that the Labour party has trouble understanding aspiration and even more trouble in rewarding aspiration. I am sure that Opposition Members will reflect deeply on the point that he has made.
Richard Fuller
The shadow Minister does not agree with me, but let me point out to him the way in which the hon. Members for Walthamstow (Stella Creasy) and for Edinburgh South (Ian Murray) have spoken about Mr Beecroft. Somehow, a person becomes a word, which becomes something to be thrown around and handled in the most insulting of ways. There is no understanding of what Adrian Beecroft has done.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
New clause 25—The UK Green Investment Bank: prohibition on investment in nuclear power or the nuclear industry—
‘The UK Green Investment Bank may not engage in activities that involve facilitating or encouraging investment in nuclear power or the nuclear industry.’.
Amendment 77, page 1, line 11, clause 1, at end add—
‘(3) In undertaking investments in accordance with the green purposes outlined in subsection (1), the UK Green Investment Bank will identify opportunities in which small and medium-sized enterprises can be awarded contracts.’.
Government amendments 1 to 3.
Amendment 76, page 3, line 24, clause 4, at end add—
‘(7) Subject to the approval by the European Commission of the State aid notification concerning the establishment of the UK Green Investment Bank, the Secretary of State shall provide the European Commission with State aid notification concerning the intention to allow the Bank to borrow, including borrowing from the capital markets.
(8) The duty in subsection (7) must be fulfilled no later than 31 December 2013.
(9) It is the duty of HM Treasury and the Secretary of State to either—
(a) permit the UK Green Investment Bank to begin borrowing from the capital markets by April 2015, or
(b) to present to Parliament a report within one month of the passage of this Act giving a clear, certain, alternative date for the UK Green Investment Bank to begin borrowing, based on Office for Budget Responsibility forecasts for the public finances and advice from the Green Investment Bank on its need for borrowing powers,
both subject to the European Commission approving the State aid notification concerning borrowing.’.
Amendment 89, page 3, line 24, clause 4, at end add—
‘( ) Subject to approval by the European Commission of the State aid notification concerning the establishment of the UK Green Investment Bank, it is the duty of the Secretary of State to provide the European Commission with State aid notification concerning the intention to allow the Bank to borrow, including borrowing from the capital markets.
( ) The duty in the above subsection must be fulfilled no later than 31 December 2013.
( ) In the event the European Commission approves the State aid notification concerning borrowing, it is the duty of the Treasury and of the Secretary of State to permit the Green Investment Bank to begin borrowing from the capital markets no later than 30 June 2015, or, if State aid approval has not been received by that date, no later than one month from the date of approval.’.
Government amendments 4 and 5.
Amendment 78, page 4, line 9, clause 6, at end add—
‘(5) The Secretary of State will be required to receive independent expert review of the performance of the UK Green Investment Bank.
(6) The Secretary of State will be required to receive such a review no less than every five years.
(7) An interim review no less frequently than every two and half years.
(8) The independent expert review in subsection (5) must, in particular, include or contain information relating to—
(a) an assessment of the UK Green Investment Bank’s environmental performance in fulfilling the green purposes as set out in section 1.
(b) an analysis of the main trends and factors likely to affect the future development, performance and investments of the UK Green Investment bank,
(c) macroeconomic analysis, including assessments of demand in the UK economy and international factors likely to affect green investment and skills within the relevant industries,
(d) assessment of the competitiveness of the UK Green Investment Bank in securing competitive advantage for the UK in green and low carbon economies relative to other countries, and
(e) recommendations to improve the UK Green Investment Bank’s impact in fulfilling its green purposes in section 1.
(9) Prior to the commencement of a review in relation to subsection (5), the Secretary of State must request the views of—
(a) The Secretary of State for Energy and Climate Change,
(b) The Secretary of State for Environment, Food and Rural Affairs,
(c) The Committee on Climate Change,
(d) Ministers from the devolved administrations,
(e) investors and interested parties, and
(f) members of the public,
and provide a copy of the results of the consultations to the person or persons undertaking the independent review.
(10) The Secretary of State, in the capacity of shareholder, must provide such information as he considers reasonable to enable the person or body undertaking the review to fulfil the requirements of this subsection.
(11) A review made in relation to subsection (5) must be published and laid before both Houses of Parliament.’.
Mr Wright
Those hon. Members who served on the Committee will recall that we spent a great deal of time considering whether the green purposes of the green investment bank, as set out in clause 1, were appropriate—namely, whether they were too restrictive or limiting to prevent long-term investment in innovative low-carbon technologies or too wide or broad as to mean that high-carbon investments could not be considered by the bank. As I said, we deliberated over this issue in Committee at length.
Of the five criteria, only one needs to be met to justify the appropriateness of investment by the bank. Was clause 1(1)(b), which refers to
“the advancement of efficiency in the use of natural resources”,
sufficiently tight and robust to deal with the need to ensure that the green economy and the transition to a low-carbon economy are put into effect? In Committee, I used the example of a gas-fired power station that might be marginally more efficient in its use of the earth’s natural resources given 2012 levels, but might well be seen as hopelessly dirty and inefficient by 2030.
That is the purpose of new clause 22—to deal with concerns that investments by the bank might not be in keeping with its green purposes, or at least the spirit behind those purposes. That is why we thought that making an explicit link with the Climate Change Act 2008 would be the best way for an appropriate balance to be struck between giving the bank the flexibility to consider its investment portfolio and ensuring that it cannot and does not decide to fund high-carbon investments. New clause 22 therefore proposes that the green investment bank assesses whether its investment portfolio helps the achievement of carbon budget and greenhouse reduction targets as set out under the 2008 legislation.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Do the criteria that the hon. Gentleman has noted extend to nuclear energy?
Mr Wright
We can consider that when hon. Members debate new clause 25. We had considerable debate about it in Committee. The question now is: what is the purpose of the green investment bank? Is it to ensure that we can kick-start innovative technologies that cannot have market buy-in, or is it a question of ensuring that the targets set out in the 2008 Act are met? There is a conflict there, which we considered in Committee at some length. I think that there is potential to consider nuclear, certainly in respect of the nuclear supply chain and ensuring that we can achieve these objectives. I am keen to hear the debate on this matter in the next few moments. It is important to probe the Government on whether this is an appropriate avenue for the bank to invest in.
Neil Carmichael
I thank the hon. Gentleman for that generous introduction. I am glad I stood up when I did. The danger of the shadow Minister’s speech so far is that he is focusing on energy, where, of course, a green investment bank should be considering many other technologies and many issues other than energy. That is one of the problems with new clause 22.
Mr Wright
I understand that. The hon. Gentleman will recall that I posed a number of questions in Committee: could the green investment bank invest in forests or in the supply chain for the automotive industry to ensure that we have low-carbon engines? There was a whole range of different debates in Committee, which I thought were useful. As I said, there is a balance to be struck, and that is what new clause 22 is about. Is the aim to achieve what we all want to achieve—igniting, for want of a better term, the green economy—or is the provision too prescriptive? There is a balance between being too broad and too narrow.
David Mowat
I thank the shadow Minister, but I am a bit disappointed by the tone of his remarks. I want to get clarity about the point that was raised a few moments ago about nuclear, so that I can understand the position of those on the Opposition Front Bench. Would Sheffield Forgemasters, for example, which is a nuclear supply chain company, be eligible for assistance from the bank?
Mr Wright
The hon. Gentleman will recall that I mentioned this issue at length in Committee, when he quite rightly probed me on it. I reiterate my answer to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) a few moments ago. There is a conflict here. What is the purpose of the green investment bank: is it to ensure that we have innovative technologies where there is current market failure making it difficult to get investment, or is it to ensure that we do as much as possible to tackle carbon emissions, meet low-carbon targets and so forth? Within that, nuclear could be a source of investment.
Mr Wright
Before I give way, I should declare an interest in that I have a nuclear power station in my constituency. I would quite like another one, and I think that part of that supply chain could be considered by the green investment bank. I would certainly like more clarity on this from the Government.
Caroline Lucas
To be honest, I do not see this contradiction. Given that nuclear takes so long to get up and running, it is not going to help us to meet our carbon targets fast enough. It also requires Government subsidy, which is why the whole of the EMR—electricity market reform—is being rigged to deal with that. Also, the jobs that we hope the green investment bank will create will surely be jobs that we would like to see here in the UK. If we use the bank to subsidise nuclear, what we are doing is basically subsidising jobs in places like Russia, China and France.
Mr Wright
I shall come on to this in a few moments. Because of a huge lack of clarity in the Government’s energy policy—anywhere, but particularly in respect of the renewable energy component—many foreign investors will not view the UK as the destination of choice for investment in any case. We have huge potential to be the market leader for renewable and low-carbon technologies, but I think we are missing a trick when it comes to the scale of ambition and the time scale of the green investment bank. The purpose of the new clause is to probe and challenge the Government to ensure that we make this part of a growth strategy rather than to allow it to happen somewhere in the future in a way that makes it virtually meaningless.
Matthew Hancock
Given the shortage of time, it may be helpful if I deal with two points now. I can confirm first that the European Commission has granted state aid approval to the green investment bank, and secondly that the Commission strongly discouraged the inclusion of nuclear in our application for state aid. Its inclusion would have delayed approval, and nuclear projects are therefore not in scope in respect of the current application.
Mr Wright
I thank the Minister for his clarification. It is somewhat at odds with what was said in Committee by the then Minister, the hon. Member for North Norfolk (Norman Lamb), but we are where we are—and I am very grateful to the Minister for his announcement about the state aid application, because it gets rid of at least a paragraph of my speech.
Let me now deal with amendment 76, which makes an important point about what the green investment bank should be doing in the light of its potential, the huge opportunities that it provides, and the equally huge scale of the challenge presented by the need for us to decarbonise our economy. If we are to achieve what we want to achieve, we need active government. Working with business, the Government must assess our present comparative advantage in this sector, and work out how we can maintain or enhance that advantage in the future.
Mr Wright
I know that the hon. Gentleman is a keen advocate of manufacturing in this country, but we require policy certainty. I hope that he will address the point made in an excellent article by Camilla Cavendish that appeared in The Times last month. She wrote that
“instead of building the equipment in England”,
companies were building offshore wind turbines elsewhere:
“These companies remain uncertain about investing in the UK… the impression that the coalition is split has spooked companies whose boards need to commit capital for 20, 30, 50 years, whether in wind or nuclear power, biomass or solar.”
Is not the lack of the long-term certainty that is so necessary undermining the chances of jobs and growth in this crucial area?
David Mowat
I thank the shadow Minister for telling me what I should say in my intervention. What I was going to say was that, although I did not catch the name of every company in the list that he read out, I am pretty sure that the headquarters of all of them are outside the UK—as, by the way, are those of the major manufacturers of offshore wind. And, yes, it is a problem.
Mr Wright
That is why I am pleased that the hon. Gentleman will be supporting our amendment 77—which is intended to promote the growth of small and medium-sized enterprises in the supply chain and to ensure that we can realise the great potential of the green economy—and will object to the Government’s amendments 1 and 3, which state that investment can take place not in the UK but elsewhere. As someone who wants to support manufacturing in the UK and the ability of home-grown businesses to provide jobs, growth and export potential for our companies, he will doubtless be supporting us in the Lobbies.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Time will be limited for later speeches, so let me say this now. My hon. Friend read out a list of companies that had expressed concern about the mixed messages coming from the Government. I know from private discussions that I have had with people in some of those companies that they are very worried about where the Government are going, and want more clarity. The amendment provides a good way of clearing up the confusion created by the Government, and making their commitment stronger again.
Mr Wright
I agree. The same point was made by the CBI, which concluded in a report produced this summer entitled “The Colour of Growth: Maximising the potential of green business”:
“while business wants to keep up the pace, they are equally clear that the government’s current approach is missing the mark, with policy uncertainty, complexity and the lack of a holistic strategy damaging investment prospects.”
The Government and the Minister—when he is listening—must respond to that. They must provide policy certainty so that investment can be made in the UK.
In Committee, when we discussed the green investment bank and its borrowing powers, I said that we had thought long and hard about the issue. At the time the then Minister, the hon. Member for North Norfolk, said:
“The Government have also committed that the Bank will borrow from April 2015”,
although he then qualified that by using the stock phrase
“subject to public sector net debt falling as a percentage of GDP.”—[Official Report, 12 July 2012; Vol. 548, c. 793W.]
However, given the Government’s failures in relation to its own borrowing targets, that commitment is so far from being achieved as to be virtually meaningless. I would contend that a deficit reduction plan without an accompanying growth and employment programme is no deficit reduction plan at all.
Ours is one of only two G20 countries in recession. In March, the Office for Budget Responsibility reported that the Government might meet their debt target by the skin of their teeth, but since then borrowing figures have been significantly higher than forecast. The deficit is now going up—borrowing is now going up; it has increased by 22% so far this year, as a direct result of this Government’s policies. Citigroup forecasts that the Treasury may have to borrow £48 billion more than it originally forecast by 2015-16, meaning that the Chancellor’s key fiscal target of having public sector net debt falling as a proportion of GDP by 2015 will not be reached. It is widely anticipated that the Chancellor, in his autumn statement to be held in winter, will have to carry out a humiliating climbdown from that important target of his, based largely on his misguided economic policies.
Where does that leave the green investment bank? At a time when our potential as a leading market for green business is under threat, both from intense overseas competition and from uncertainty from this Government, what impact does this failure of fiscal policy by the Chancellor have on this growth area? That is the context behind our amendment 76. We want the green investment bank to be able to provide a stimulus for growth in our economy as soon as possible, but we are equally mindful of the double-dip recession that the Chancellor’s policies have inflicted on the country. Our amendment would ensure that state aid approval on the green investment bank’s borrowing power would be sought and achieved no later than 31 December 2013. What the Minister has said about that is certainly welcome, but what impact will it have? Does it mean that borrowing will take place earlier than 2015? When does he imagine borrowing from the capital markets will be permitted?
Our amendment proposes that the bank must be able to begin borrowing by April 2015 or, if that is not achievable, Parliament must be provided with a clear and alternative date as to when such borrowing may be permitted, based both on OBR forecasts regarding the state of the public finances and on advice from the green investment bank on the need for borrowing powers to achieve its objectives.
Caroline Lucas
I wonder why the hon. Gentleman is insisting on that caveat, as the position shared by his Front-Bench colleagues not that long ago was unequivocal in saying that as of June 2015 the bank should be permitted to borrow. The Opposition are now moving away from that position and I simply do not understand why. They are watering down what was there before and is contained in my amendment 89.
Mr Wright
My firm policy commitment is to ensure that we have the green investment bank borrowing as soon as possible, as a stimulus to growth. We were mindful of amendments that we tabled in Committee about that, but we also have to consider the appalling financial mess that the Government are dealing with in respect of increased borrowing. Borrowing was going down prior to the general election, but now it is going up. We do not know what the circumstances will be in 2015, so we need to ensure that there can be certainty, based on the imperative to have the green investment bank borrowing from the capital markets as soon as possible while being mindful of the need for rigour and discipline in the public finances.
Neil Carmichael
Is it not possible that the green investment bank can encourage other private organisations and banks to step in and start contributing to the green economy, as that is really what this is all about? It is about providing the right confidence, on the basis of a framework of some certainty, which the Minister has asked for and the Government are giving.
Mr Wright
Absolutely, and that is why the hon. Gentleman will be supporting our amendment 77 and rejecting Government amendments 1 and 3.
If our economy has sectoral strengths, it is right, in an active industrial strategy, for the Government to be looking to maximise those strengths. They also need to seek to develop further capabilities, as the hon. Gentleman rightly said, that could lead to greater investment, growth and employment opportunities here in the UK and, we hope, to the exporting, for commercial gain, of some of the work, expertise and capability here. We want economic benefits to flow to companies within the United Kingdom. That is not to defend protectionism, or to deny the need for competition and foreign direct investment, but to ensure that the Government, as part of a fundamental, active, industrial strategy, work with business to see how this country can gain and maintain market advantage.
Neil Carmichael
I thank the hon. Gentleman for that. It is important to understand the length and complexity of supply chains and that we do not tie ourselves down to thinking that the supply chain is just within Britain, as it goes further than that. We need appropriate co-operation from the supply chain in big operations. The Government are rightly focusing on supply chains more generally, but we need to bear that in mind.
Mr Wright
Absolutely. I think the hon. Gentleman can go to the toilet now. Recent research has concluded that capital expenditure costs for something as important and significant as offshore wind projects, in which my constituency could play a leading part, could fall by a third in the next decade if a greater proportion of the parts were made in the UK. We need to be mindful of that and the Government must work with business to enhance the supply chain possibilities, opportunities and capabilities in the UK. I suggest to the hon. Gentleman, with the greatest of respect, that that is not happening, largely because of policy uncertainty. That is what amendment 77 is designed to address.
Caroline Lucas
The hon. Gentleman is talking passionately about policy certainty, yet his amendment 76 reintroduces uncertainty. I cannot emphasise enough that it is amendment 89 that would ensure that the bank would be able to borrow from 2015. It is actually what the Liberal Democrats agreed at their party conference only a few weeks ago. If the hon. Gentleman wants policy certainty, why will he not support amendment 89?
Mr Wright
I know that the Liberal Democrats have such power and significance in the coalition that they will be able to advance that proposal. If it is one of their manifesto or conference commitments, it will certainly happen. That might not look as sarcastic as it should do in Hansard, Mr Deputy Speaker.
The serious and important point at the heart of amendment 76 and amendment 89, tabled by the hon. Member for Brighton, Pavilion, is the question of the extent to which we can have the green investment bank operating at scale as quickly as possible, ensuring that it can borrow from the capital markets as quickly as possible and be a major ingredient in the stimulus for growth while at the same time being mindful of the deterioration in the public finances that has largely been caused by the Government’s economic policies. The emphasis on austerity means that tax receipts are going down and benefit payments are going up, so borrowing figures have had to rise by more than a fifth in the past year alone.
Let me go back to the point made by the hon. Member for Stroud (Neil Carmichael). I mentioned Government amendments 1 and 3 and I find it baffling that the amendments state that investments can be considered
“whether in the United Kingdom or elsewhere”.
I fully appreciate and support the need to tackle climate change and the transition to a low-carbon economy on an international and multilateral level. The hon. Gentleman was quite right to say that supply chains are somewhat more complex than they would be if they were solely domesticated. How on earth, however, do these Government amendments to an enterprise Bill that was supposedly designed to improve the competitiveness of the UK economy help to stimulate enterprise and economic activity in this sector in Britain? Is there not a huge risk that Britain’s potential as a world leader in this field will be lost as a direct result of the Government’s amendments? I ask the Minister to think again and to reflect on the amendments we have tabled and on the new clause.
As we have only 17 minutes left to debate this subject, which is incredibly important for the future of this country, I shall now take my seat.
Matthew Hancock
I shall try to answer all the questions that have been asked and then leave some time for further comments from other Members who have tabled amendments and new clauses or who wish to speak.
The green investment bank will play a powerful role in promoting the green economy. What we heard from the Opposition suggested that they had introduced such a measure themselves, but this is a coalition measure that is testament to the coalition. It is widely and strongly supported by Liberal Democrats and Conservatives alike and will, I think, help the UK to make a successful transition to a low-carbon economy. I am pleased to have been able to confirm that the European Commission has allowed the bank to make commercial investments in a wide range of sectors. We are therefore fully on track for the bank to be operational within a matter of weeks.
Mr Iain Wright
Will the Minister talk us through a scenario in which an investment decision might be made, say, for offshore wind capability, where prices may be cheaper in, say, Germany than in the United Kingdom? Will cost or the achievement of the bank’s purposes be the key consideration? What conflict and tension exist between cost, value for money and the supply chain capability here in the UK?
Matthew Hancock
Clearly, one reason for establishing a green investment bank is to ensure that it delivers against the green purposes. Of course cost is vital. That is why we are setting up the bank so that it will act on a commercial basis. The crucial point is that it must act in accordance with one or more of the green purposes; otherwise there would be no point in it being a green investment bank.
Mr Iain Wright
I beg to move amendment 93, page 51, line 23, at end insert—
‘(1A) A representative of the company’s employees must be consulted in the preparation of any such revision.’.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Amendment 95, page 52, line 5, leave out ‘ordinary’ and insert ‘special’.
Government amendment 25.
Amendment 86, page 52, line 11, leave out subsection (b) and insert ‘(b) and annually thereafter.’.
Amendment 96, page 52, line 17, leave out ‘ordinary’ and insert ‘special’.
Government amendments 26 to 30.
New clause 27—Information about payments to recruitment and remuneration consultants in respect of directors’ remuneration—
‘After section 413 of the Companies Act 2006 (Information about directors’ benefits: advances, credit and guarantees) insert—
“413A Information about payments to recruitment and remuneration consultants
The Secretary of State may make provision by regulations requiring information to be given in notes to a company’s annual accounts about payments made in the relevant accounting period in respect of recruitment and remuneration advice relating to directors, including information specifying any fees that have been paid in proportion to the remuneration agreed for a director.”.’.
Mr Wright
Amendment 93 is in my name and those of my hon. Friends. This important part of the Bill deals with directors’ pay. We rightly spent time in Committee dealing with this, and I do not want unduly to inconvenience the House by repeating the same points, but at the heart of the debate is a disconnect between executive pay and average earnings, and between executive remuneration and the performance of the companies they lead.
As I mentioned in Committee, in 1980 the median pay of the highest-paid directors in FTSE 100 companies was £63,000, and median wages were £5,400. By 2010, the median pay of FTSE 100 directors was £2.99 million, while median wages had risen to £25,900. The ratio of directors’ and employees’ median pay had risen from 11:1 to 116:1. That trend is not confined to the UK, but has been seen throughout the developed world, most notably in the US, where, by 2008, executive pay was 200 times the median household income. Despite the difficult economic times and financial misery faced by millions, average compensation for an FTSE 100 chief executive rose by 12% in 2011, while average wages rose by only 1.4%.
In that environment of growing pay, there is no meaningful correlation between high pay and high corporate performance. Empirical evidence from research carried out in 2009 concluded that companies that pay their chief executive officer in the top 10% of remuneration earn negative results of -13% in terms of both profits and share price in the next five years.
Opposition Members support some of the Government’s reforms—in the interests of cross-party agreement, I should say that they build on work done by the previous Labour Government. However, as we said in Committee, the Government could go further and be slightly bolder. That is the basis of amendment 93, which would ensure that
“a representative of the company’s employees must be consulted in the preparation of any such revision”
to a director’s remuneration package. We anticipate this ensuring that an employee representative could sit on a firm’s remuneration committee in an advisory capacity.
Richard Fuller
The hon. Gentleman is arguing for things he would like to see, but as he is well aware, it is already within the purview of corporations to put an employee on their boards, and shareholder votes can already be held on compensation and can influence that compensation even if they fall short of the 50% hurdle. What compels him to want to make it a legal requirement, rather than to use the market to make these decisions itself?
Mr Wright
It is because, as I tried to explain in my opening remarks, over the past 30 years we have seen market failure and a huge disconnect in the level of remuneration paid to top executives, but that has not ensured commensurate performance among the companies they lead, which is what we need. I think that the Government are onside on this. The shareholder spring and activism that we have seen, including at Trinity Mirror, has largely been the result of initiatives put in place by the previous Labour Government on annual advisory votes on directors’ pay and so on. I know that the hon. Gentleman is very familiar with these issues and will support us in ensuring that shareholders—the people who own these companies—have a proper say.
Richard Fuller
I appreciate the shadow Minister’s point, but unfortunately, as is often the case, the Opposition are like the ambulance that turns up two days too late and to the wrong address. The market is already responding to these issues, and measures are being taken to change how compensation is made, as he said. The Opposition always rush to legislate restrictive control and put a hand down on aspiration, when the market itself will solve, and is solving, these problems. I fully accept that there is an issue about employee representation in companies and about the historical lack of alignment between compensation on boards, but he is going the wrong way about resolving it.
Mr Wright
The purpose of the amendments, which have buy-in from Mr Rossi, Fidelity and elsewhere, is not to seek the death of aspiration, but to encourage, incentivise and try to ensure that companies achieve as much consensus as possible on directors’ pay policy—that was also the position of the Secretary of State earlier in the year—ensuring that companies start early in the process and avoid the use of what is a somewhat blunt and brittle tool, whereby the issue is discussed only at the annual general meeting or what-have-you, which can cause tension. Getting in early and talking to shareholders means that the owners and managers of a business can reach some sort of consensus. That is the purpose that amendments 95 and 96 seek to achieve. I quoted Mr Rossi in Committee, and I will do so again:
“Companies have nothing to fear if what they propose is fair and reasonable and clearly aligned to what is good for long-term shareholders.”
The hon. Member for Bedford (Richard Fuller) is a strong and experienced Member of this House and a good champion of businesses. I disagree with what he says about regulation and employment legislation, but he will recognise that getting good consensus on directors’ pay and ensuring that shareholders have the tools at their disposal to hold managers to account is in all our interests.
Amendment 86 would have the effect of creating an annual binding vote on pay policy, an issue that, again, was much deliberated in Committee. I still firmly believe that an annual vote is hardly disproportionately onerous or somehow unduly bureaucratic. Shareholders are used to, and expect, annual corporate reporting on matters such as the annual accounts—whether they are a true and fair view—and the reappointment of auditors. I reiterate the point that I mentioned in Committee and throughout the passage of the Bill: I fail to see how such a proposal can be seen as onerous. In Committee I had a well-thumbed Financial Times editorial from June 2012, which said that
“the business secretary has missed a trick in not going for annual pay votes…His worthy hope is that this might encourage more medium-term thinking about pay. But an obvious worry is that such votes may degenerate into another exercise in box-ticking, with shareholders voting on boilerplate policies rather than specific deals.”
It went on:
“Executives will restrain their demands only when they perceive a real risk in flouting social norms on pay. Fund managers, who naturally shy from conflict with companies, still need to be encouraged to challenge bosses more—especially on this sensitive topic. Annual votes would at least put them firmly on the spot. Mr Cable’s triennial polls, however well-meaning and thoughtful, may not.”
That point was echoed by the head of the High Pay Commission, Deborah Hargreaves, who stated in evidence to the Committee:
“If you vote every three years on pay policy, it is important that that policy is detailed enough for you to have an effect. The danger is that it could turn into a box-ticking exercise, where you vote on general boilerplate policy recommendations, rather than nitty-gritty details and figures. I felt that an annual vote would include more figures and more detail, and give shareholders more power to make informed decisions about what is going on in relation to pay at the company. If it happened every three years, the fear is that they may be voting on something vaguer and more bland.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 21 June 2012; c. 137, Q294.]
Again, I cannot see how our proposal would be onerous, and I think Ministers should think again.
The final amendment in this group is new clause 27, the purpose of which is to improve transparency in the disclosure of information relating to remuneration consultants and the manner in which they are paid by companies. Evidence suggests that remuneration consultants have played a key part in hiking up directors’ pay. Work undertaken by Professor Martin Conyon found a direct correlation between higher-than-average directors’ remuneration and the use of remuneration consultants. Further studies have shown that, on average, pay for chief executive officers is 26% higher in companies that use remuneration consultants. As I mentioned in Committee, across the Atlantic the Congress inquiry led by chairman Henry Waxman concluded that remuneration consultants to Fortune 250 companies were paid almost 11 times as much for providing other services to those companies.
Richard Fuller
The shadow Minister is making some good points. Does he believe that the Government should provide guidelines to remuneration committees on how they should set directors’ pay, and on how they should ensure that the correlation with average earnings and with shareholder value growth is maintained?
Mr Wright
That is a fair point. There are already guidelines in place, including discretionary guidance from the industry. We also have the combined code on corporate governance, which provides a degree of guidance. We need to determine whether the issue is sufficiently serious that it requires legislation to provide firm guidance. I shall be interested to hear the Minister’s view on that, given that there is agreement across the House on the disconnect between pay and performance, and the link—which acts almost as a catalyst—between remuneration consultants.
Speaking as a chartered accountant who used to work for a “big four” accounting firm, I see a close correlation between these problems and the crisis in the auditing profession a decade ago. That led to the disclosure of fees and to greater transparency on the audit services and non-audit services provided by the accounting firms. The perception was that in corporate scandals involving firms such as Enron, the thoroughness and accuracy of the auditors’ opinion was called into question when audit firms secured additional, often more lucrative, work away from the statutory audit.
New clause 27 would therefore increase disclosure of information relating to payments to remuneration consultants, ensuring that the Secretary of State should make a provision by regulation of notes to a company’s accounts about payments made to the consultants, including information specifying fees that have been paid as a proportion of the total remuneration package of a director. My concern is that, if a contract is so designed, a consultant has an inherent desire to inflate the package to secure a larger fee. If that is the case, shareholders should be made fully aware of it via a disclosure in the annual accounts. As I have said, we applaud the Government’s general direction of travel, but we believe that they could go further, and I will be interested to hear what the Minister has to say about this.
Matthew Hancock
I give the assurance on the second point: the normal procedures will be used. The normal procedures will govern what goes into one statutory instrument and then, as we all know, debate on a statutory instrument covers all elements of the instrument. That is the procedure for a statutory instrument that is debated.
Amendment 75 proposes that account be taken of any feasibility study before the Government lay regulations on the orphan works scheme—that is, I think, the essence of the amendment. In principle, we understand the need for studies and consideration of such important questions, but we do not think that such a requirement is appropriate in primary legislation. If the proposal is that the conclusions of a feasibility study should automatically and immediately have legislative effect, we have to ask what would happen if the recommendations of a commissioned study could not, for good and legitimate reasons, be accepted. However, I can assure the House that the Government will carefully consider which bodies or body should be responsible for licensing orphan works, including whether they have the necessary independence, expertise, resources and processes.
Although there is some work still to do on deciding which organisation should be responsible, it is unlikely to be a new body. We looked at the arrangements in other jurisdictions: in Canada, the copyright board has that responsibility; in Hungary, the intellectual property office has it. Jurisdictions overseas locate the role in different parts of Government, according to where the appropriate expertise is found. There could be a role for collecting societies to license orphan works of a type where a collecting society already operates in that sector, but many of the orphan works held by museums and archives, for example, are not of types that are currently collectively licensed; such works include unpublished diaries, old photographs and oral history recordings.
In the light of those reassurances and given that the regulations cannot be laid until the work is completed, I ask the hon. Member for Hartlepool (Mr Wright) not to press amendment 75 and the House to support Government amendments 23 and 24.
Mr Iain Wright
I was broadly reassured until the Minister made his comments, but now I am as uncertain as ever. The Public Bill Committee spent significant time debating copyright, and rightly so, as the legislative framework—not regulation, but a legislative framework—governing copyright has been a crucial ingredient in allowing Britain to be at the heart of the global creative and cultural industry.
We lead the world in many parts of that cultural and creative sector, from publishing—as we heard, in Committee the then Minister was keen to talk in vivid and animated terms about “Fifty Shades of Grey”—to the video gaming industry, where we lead the world, to music, and I was particularly keen to talk about the Stone Roses, which was fantastic. The Minister does not strike me as being a Stone Roses man; he strikes me more as a JLS-One Direction man. I imagine that he would be keen on that. One Direction seems appropriate, given his closeness to the Chancellor.
We lead the world in different parts of the sector. With a rise in the global middle class, which wants to be entertained, it is important that we continue to lead the world. There are many reasons for our pre-eminence in the industry, not least the solid legislative framework governing copyright and intellectual property. We lose that at our peril.
As I mentioned in previous debates throughout the passage of the Bill, a partnership approach is needed, with Government identifying the competitive sectors in which Britain can lead the world and working closely with business and with those sectors to ensure growth and potential opportunities. We have not yet seen such a partnership approach. It did not seem to exist in the Government’s original drafting of the clause on copyright. The unilateral approach taken by Ministers, without consultation with the industry and—surprise, surprise—without empirical evidence or an impact assessment—where have we heard that before?—caused alarm and uncertainty among stakeholders in the industry and threatened significant and long-term investment decisions for this country.
I quoted in Committee, and it is worth repeating to the House, the submission from UK Music, which said:
“The inclusion of copyright clauses in this Bill came as a surprise to many copyright stakeholders. We widely anticipated copyright legislation, but we did not anticipate that the copyright legislation would be attached to this particular Bill. This ‘surprise’ generated a degree of confusion and alarm amongst our community. This was needless. Better communication between the Government and its key stakeholders would have prevented this.”
Opposition Members entirely agree with those sentiments.
The clause as originally drafted would have given the Secretary of State order-making powers to allow amendment of any exceptions via secondary legislation. This power was considered necessary to deal with the situation where, under the EuropeanCommunities Act 1972, the Government are able to amend exceptions to copyright and performance rights which may, so the Government stated, restrict the maximum statutory penalties. We argued in Committee and tabled amendments to the effect that the wording of the clause was too loose, lacked clarity and provided the Secretary of State with too wide a power to deal with this issue.
In Committee the Government stated that this was not so and that there was no case for our amendment. I therefore welcome the fact, although I am surprised, that the Government tabled amendments 23 and 24, which specify that regulations under this section may make only such provision as may be made under section 2(2) of the 1972 Act. I do not want to be churlish on this point and I am pleased that the Government have listened, albeit somewhat late in the process, to us and, more importantly, to stakeholders.
However, as we have hinted in interventions, there is not complete unanimity throughout the industry when it comes to Government amendments 23 and 24. Some stakeholders, who are looking to invest in the UK, such as British Pathé, are still concerned that the Government have misinterpreted section 2(2) of the 1972 Act. They argue that if that part of the 1972 Act gives the Government powers to change copyright exceptions by statutory instrument, the Government have that right. Nothing in the Bill would change that. There is therefore no need to clarify the point in the Bill, because the power already exists. The only reason for writing the power into the Bill in clause 57 would be if it did not exist. The managing director of British Pathé said to me in an e-mail last night that “the statement is redundant” unless that is the case.
There remains a concern among some stakeholders that clause 57 merely allows extensions to criminal penalties relating to exceptions. However, it has been noted that nearly all copyright infringements relate not to exceptions, but to matters such as piracy and theft, which are neither covered in clause 57, nor addressed by the Government’s amendments. Therefore, given the Minister’s move in this regard, which has been welcomed by much of the industry, will he respond to the specific concerns of companies, such as British Pathé and ITN, that remain despite the Government’s amendments? Will he reassure me on that point?
Kevin Brennan
Will my hon. Friend also seek an assurance from the Minister that, when in future he considers any piece of legislation containing clauses relating to copyright, never again will the umbrella body for the UK music industry be given absolutely no prior knowledge of it? Perhaps the Minister could give the House that assurance when he responds.
Mr Wright
I absolutely agree. I will take this opportunity to wish my hon. Friend a happy birthday for yesterday—a birthday he shares with several other Members, not least the eminent Chair of the Culture, Media and Sport Committee, the hon. Member for Maldon (Mr Whittingdale). My hon. Friend made two important interventions. When he intervened on me he mentioned the lack of consultation and the surprise of important stakeholders, such as UK Music, about these provisions. That is not the way to have clarity about Government policy on something as important as the creative and cultural sectors. I hope that that is a wake-up call, because we have seen the Government do the same elsewhere, for example with the feed-in tariffs and the oil and gas tax charges. To move without any concern for what stakeholders are thinking is not in the best interests of the British economy and industry.
The second point that my hon. Friend made, when he intervened on the Minister, relates to the use of statutory instruments. I rose to say that I felt more confused as a result of the Minister’s comments than I did when I entered the Chamber today. Part of our discussions in Committee was about the fear of bundling some of these points into a single statutory instrument. The Minister must have served on a delegated legislation Committee during his time in the House and will know that the only way the House can express a view on such instruments is by voting in favour or against; there is no way we can express a view on individual provisions. Therefore, will he clarify to what extent he will be able to bundle points relating to copyright exceptions into single SIs, which would not allow the House to express our views?
I now to turn to our amendment 75, which proposes that the Secretary of State
“must have regard to any feasibility study commissioned on the licensing of orphan works in advance of the regulations being laid before Parliament.”
We are not against the concept of orphan works, as I mentioned in Committee, provided that safeguards are in place to ensure that the party that wants to use the work has undertaken a diligent search. I recognise—the Minister alluded to this—the huge benefits that could be unlocked as a result of orphan works licensing. For example, I can anticipate SMEs building new platforms and applications for the re-use of digitised content, with innovation and new business models coming forward to use the content commercially so that Britain can lead the world, enriching the research and cultural environment and thereby consolidating the UK’s position as the destination of choice, whether literally or online, in the 21st century as the place for education and research, particularly in the cultural sector.
The Bill provides the legislative framework for orphan works licensing but is, as is probably inevitable and desirable in primary legislation, high-level and somewhat vague in detail. The crucial details that stakeholders will be looking for have yet to be determined and will be available via regulations. However, it would be useful to get on the record as much certainty and clarity as possible about the Government’s intended direction of travel in order to allow the industry, including existing players and potential new entrants to the market, to start gearing up to use the licences commercially. The purpose of our amendment is to probe the Minister on his intended direction of travel and ensure that a feasibility study considers certain aspects of the policy and that the Government take these findings into account, not in a completely solid way but making sure that these matters are addressed.
Will the Minister indicate the identity of the authorising body or bodies? He mentioned it briefly in his opening remarks, but it would be useful to put a little bit more meat on the bones. What sort of time scale is he working towards? When does he anticipate that the introduction of such schemes, and the laying down of regulations as a preliminary step, will take place? What will be the scope of the orphan work licensing schemes? Will this be done on a sector-by-sector basis? Will it be based on a “specific types of work” approach, or will there be a big bang in which all possible orphan work schemes will be incorporated from day 1?
Will the Minister outline how he anticipates that any diligent search on a work-by-work basis will move forward? I am fairly sure that every such search will have to be done on an individual work basis rather than by batching works together. Am I right in that thinking, or is he considering any change in the individual works versus batch approach? Could diligent searches be re-used within a certain time period? How will the Minister—again, this is part of the feasibility study leading into the regulations—strike the balance between the rights of the licensee, allowing the licence holder to commercially use the rights arising from that licence, and the rights of the relevant rights holder? What will happen in the event that the parent comes forward? How will remuneration be worked out in such an event? Will a certain amount of time be stipulated in regulations following the awarding of an orphan works licence?
We lead the world in the cultural and creative industries, and many people will want to take that away from us for a variety of reasons. We need to make sure that we can maintain our competitive advantage. That requires close co-operation, with an active industrial sector strategy between the industry and Government. Sadly, during the passage of the Bill, that has been lacking in the provisions on copyright. I hope that the Minister has learned his lesson and look forward to his comments.
Mr John Whittingdale (Maldon) (Con)
We do not have a lot of time, and I do not want to detain the House unduly. However, although it is recognised that this matter forms only a small part of the Bill, the importance of the creative industries to our national economy, and the contribution that they are making to growth, is so essential that we need to look very carefully at anything that affects the livelihoods of those working there—and the creative industries rest on the protection of intellectual property rights.
On Second Reading, I suggested to the Secretary of State that clause 57—then clause 56—could be used to make substantial changes to copyright law through statutory instruments. I am grateful to him for meeting representatives of a wide range of creative industries to discuss those concerns. That has led, to some extent, to the amendment that the Government have tabled. As the Minister said, several representatives of the creative industries, such as UK Music, the British Copyright Council, the Publishers Association and the Premier League, have said that they are now satisfied.
However, as the hon. Member for Hartlepool (Mr Wright) said, that is not a unanimous view across the industry. The Minister has assured us that this is about enforcing penalties but, despite the Government’s amendment, the clause does not mention penalties. I am therefore still not clear as to why the Government did not accept the suggestion that they make it absolutely explicit in the Bill that it is all about penalties. Instead, it talks about exceptions, and it still allows changes to be made to copyright law by statutory instrument. Following the Hargreaves report, there is still great suspicion on the part of many of those in the creative industries that there is an intention to try to dilute intellectual property rights. They fear that the clause could be used—perhaps not by this Government but by a future Government—to bring forward changes to copyright law.
Those fears have been expressed, as the hon. Member for Hartlepool said, by a wide range of organisations, including Associated Press, ITN, Getty Images, the Press Association, British Pathé, Agence France Presse and Deutsche Presse-Agentur. I will quote one sentence from the letter they have sent that sums up the problem that the Government face:
“It therefore remains our concern that…the true purpose of Clause 57…as drafted”
is that
“it will be used as a vehicle to push through a number of changes to copyright exceptions recommended by the Hargreaves Review, which we discussed with you at our meeting because of the detrimental impact to business and the creative industries as well as…ultimately…to the UK’s future economic growth.”
I welcome the Minister’s assurance that that is not the Government’s intention, but it must be of concern that a number of organisations that are important to this country retain that suspicion. Anything that the Government can say or do now to allay that suspicion and make it clear that they do not intend to implement the Hargreaves recommendations in a bundle, via a statutory instrument, would be extremely welcome and would reinforce the point that the provision is not about that, but about criminal penalties.
Matthew Hancock
I think that businesses would hope that legislation put in place for the long term will remain for the long term. The sunsetting in this Bill—as amended by the technical amendments that we are debating—is a major step forward, and the way in which it will be implemented is the right way forward. We are taking an ambitious and strong approach to secondary legislation that will ensure that Ministers and the Government have to check that legislation is working in the way it ought to. Therefore, I would resist the Opposition and non-Government amendments in the group, and I hope we have cross-party support for amendments 21 and 22.
Mr Iain Wright
I rise briefly to support the Government in this debate. As far as I am aware we have not tabled any Opposition Front-Bench amendments in this group. As I said in Committee repeatedly, we agree with the approach taken to sunset and review provisions, which are an important part of clause 50. We also set in train the primary authority schemes, which will be extended by clause 53. As for what the Minister said about permissive legislation—I think we are back to “Fifty Shades of Grey” again—and a deregulatory approach to free up business from unduly disproportionate and unnecessary regulation, that is something that we on this side of the House certainly agree with too.
Amendment 21 agreed to.
Amendment made: 22, page 42, line 39, at end insert—
‘except to the extent that—
(a) the power or duty is exercisable by the Scottish Ministers, or
(b) the power or duty is exercisable by any other person within devolved competence (within the meaning of the Scotland Act 1998).’.—(Matthew Hancock.)