Enterprise Bill [HL]

Lord Aberdare Excerpts

Monday 12th October 2015 Lords Chamber

[Lord Aberdare (CB)]

My Lords, I welcome the policy aims behind the Bill and its goal of promoting the growth of enterprise by reducing some of the burden of regulation, particularly on small businesses. As a former small business owner, I sincerely hope it will prove effective in achieving that goal. I shall comment on two areas relating to the Bill: first, the clauses relating to apprenticeships; and, secondly, the issue of cash retentions in the construction sector, which is not covered by the Bill as currently drafted, but in my view should be.

Turning to apprenticeships, Clause 18 allows the Secretary of State to set apprenticeship targets for prescribed public bodies. This should contribute to the promotion of good employment practices with regard to apprenticeships in the public sector, as well as help to meet the Government’s overall target of 3 million new apprenticeship starts in England during this Parliament—both of which I welcome. However, what really matters is not so much how many apprentices start as how many complete their apprenticeships, with real skills and opportunities to gain real and permanent jobs—outputs rather than inputs. How will the Bill ensure the quality of public sector apprenticeships, not just their quantity? As with so much about apprenticeships at the moment, it is still far from clear how funding and delivery processes will actually work in future, and I can imagine that some public sector bodies might be concerned at the prospect of having to pay the proposed new apprenticeship levy and meet a target for new apprenticeships while facing budget cuts.

Clause 19 seeks to raise the status of apprenticeships by making it an offence to describe a course or training programme as an apprenticeship if it is not a “statutory apprenticeship”. I wish that there was a good abbreviation for “apprenticeship”. The obvious one would be “app” but unfortunately that has already been taken. Again, I welcome the aims of protecting the reputation of apprenticeships and seeking to promote the growth of statutory apprenticeship schemes, but I have been struck by the number of emails I have received from organisations concerned that this provision may have a stifling rather than stimulating effect on the growth of apprenticeships. Concerns expressed to me include: whether the definition of acceptable apprenticeships might exclude some vulnerable groups, such as people with learning difficulties and disabilities, from the opportunity to undertake such apprenticeships; whether it will apply equally across all the devolved Administrations, which have their own apprenticeship regimes, and, if so, how; and whether local trading standards teams are best placed and adequately resourced to enforce it.

Apprentices whose training is provided directly by their employers are excluded from the terms of this clause. There seems to be some risk of confusion attached to having such a significant exception to the prohibition on using the term “apprenticeships” for anything other than statutory apprenticeships. In any case, the Government say:

“There is little evidence to suggest that the existing scale of misuse of the term ‘apprenticeship’ is widespread”,

so I wonder whether this is really the best way to enhance the status and attractiveness of apprenticeships. Having said that, I very much support the point made by the noble Baroness, Lady Harding, about promoting other forms of vocational education as well as apprenticeships. I look forward to hearing the Minister’s—I hope reassuring—comments on these points.

The other issue I wish to raise relates to an aspect of payment practice in the construction sector that is extremely damaging to productivity and investment in the sector, especially for small businesses, but is not addressed in the Bill at all. This is the issue we have already heard about of cash retentions, whereby a proportion—typically 5% but sometimes as much as 10%—of payments due to subcontractors at each stage of a construction project is routinely withheld. Notionally this is to provide a mechanism for remedying defects if the subcontractor does not do so itself. The noble Lord, Lord Cope, mentioned the timely report on this issue in today’s Times. It was also powerfully addressed by the noble Baroness, Lady Donaghy, and the noble Lord, Lord O’Neill.

According to research done by the Specialist Engineering Contractors’ Group, which represents more than 60,000 firms with over 300,000 employees, 99% of them small businesses, the total of such retentions at any time is some £3 billion. Subcontractors may have to wait up to three to five years, or even significantly longer, to receive the payments they are owed. In some cases they do not get paid at all, when the client business that has held back money owed to them goes bust. To add insult to injury, the cash retained is often used either as working capital or to fund investment by the debtor company, while the subcontractor to which it by right belongs, having completed the work involved, is unable to use it to enhance its own productivity through extra recruitment or investment. According to the SEC Group, the amount lost by small firms in this way just this year, because of insolvencies up the supply chain, is almost £30 million—enough to employ some 3,000 apprentices. Other construction sector bodies share this concern, including the Forum of Private Business, the Federation of Master Builders, the Finishes and Interiors Sector, and the National Federation of Roofing Contractors.

The Construction Supply Chain Payment Charter, issued in April 2014 by the Construction Leadership Council set up by BIS, included 11 commitments, one of which was to aim to move to zero retentions by 2025. More than 20% of public bodies, and some leading private sector businesses, have already abjured the use of retentions. Other jurisdictions around the world, including in France, Germany, Australia, New Zealand and the USA, have tackled or are tackling this issue to boost the productivity of their small businesses. A possible solution, along the lines of the existing tenancy deposit scheme which provides protection for landlords, would be to require all cash retentions to be held in a form of trust on behalf of the subcontractor to whom they really belong. This would have the beneficial effect of protecting a subcontractor from supply chain insolvencies, and perhaps of making it easier to seek loan funding against the value of cash retentions held in trust for it.

The Bill of course creates a Small Business Commissioner to assist small businesses in payment disputes with larger ones. But nothing in the proposed powers of the commissioner would address the specific issue of cash retentions and, as we have heard, experience shows that small construction firms are likely to be extremely nervous of using the commissioner to pursue disputes with their larger client businesses because of the possible impact on their own future business if they are seen as troublesome or difficult subcontractors. This is what the noble Lord, Lord Patten, described as the fear of reprisals.

I have a simple question for the Minister. Given that movement on this issue would have clear potential to galvanise the construction sector in terms of enhanced productivity and investment—especially those small businesses which the Government are quite rightly so keen to encourage and support through the Bill—why on earth should they have to wait until 2025 for any prospect of it being fixed? It is evident to me that given the choice between resolving the cash retentions issue and setting up the proposed Small Business Commissioner, welcome as that is, the vast majority of small construction firms would plump without hesitation for the first. So why not seize the excellent opportunity presented by the Bill and tackle both?