Small Business, Enterprise and Employment Bill

Lord Cope of Berkeley Excerpts

Tuesday 3rd March 2015 Lords Chamber

[Lord Cope of Berkeley (Con)]

My Lords, I also have doubts about the terms of the amendment, both for the reasons that my noble friend has just given and because we have to consider who is laying down the payment terms. The amendment refers to the supplier’s payment terms as though the supplier—the small business that we are thinking of—is able to say that it wants payment within a certain time. However, in the instances that the noble Lord, Lord Mitchell, gave just now of large companies extending the terms in which they make payments, it is of course the customer who lays down the terms. If you do not like those terms—the extension to a larger number of days—then you do not supply. A big company in a powerful position in its market will be able to lay down its terms and that will drive a coach and horses through the amendment. Therefore, I do not think that this is the solution.

I do not for a moment say that there is no problem—of course there is. I entirely accept what was said earlier and in Committee about the difficulties of late payment, and these are not new difficulties; we have had them for years. I think that the amendment to the existing law proposed in the Bill is a step forward. I would like to see that come into law rather than the more prescriptive version suggested by the Opposition.

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[Lord Mitchell]

My Lords, I have addressed your Lordships’ House many times to take the Government to task for the slow take-up of new schemes designed to provide finance to small and medium-sized businesses. My theme has been constant. There have been so many initiatives over the period of this Government that even I, who really ought to know about these things, am confused. If I do not get it, how can small businesses understand the options when they seldom have to deal with them?

I have cited Funding for Lending as an example. I know that the Government think that it has been a resounding success, but that is not what I hear at the coalface. One banker said to me, “What am I to do? The Government throw money at us, and I have a choice: whether to deploy these funds on small businesses, which are risky and difficult and costly to analyse and administer, or else use the cheap funding to build my mortgage business where I can assess the risk, and it is easy to run”. It is also not what the figures show. More often than not, one quarter followed by the next quarter, the amount of funding extended by Funding for Lending has gone down.

While all these government initiatives have been sputtering along, there has been a very acceptable growth in non-government schemes. The market for alternative finance has exploded, largely as a result of the paralysis of the high street banks, and we on these Benches think that that is to be encouraged. Challenger banks have made a very big impression. Metro Bank, Aldermore and others, such as Santander, are changing the landscape. Peer-to-peer lending has taken off and is becoming a major force. We, as I say, welcome these changes. The traditional banks have let down small business, and it is perfect that alternative sources are stepping into their shoes.

We need, however, to know what is happening in the marketplace. So many questions are asked in your Lordships’ House on this issue, and the truth is that no one seems to know the answer. This amendment will place a duty on the Secretary of State to conduct a review of alternative forms of finance available to small business. This review will examine how the banking sector is catering to the finance needs of SMEs and how SMEs are being encouraged to use alternative forms of finance.

We need the facts, and only an obligation on the Secretary of State will give us the information we require. I beg to move.

[Lord Cope of Berkeley]

My Lords, as the noble Lord, Lord Mitchell, has said, we have debated access to finance and all the various schemes, both government and private sector, on a number of occasions. I agree with him that there is an awful lot going on in this field. A lot of improvements have been made, by the Government’s efforts, these new forms of alternative finance and so on. I go along with the noble Lord, Lord Mitchell, on all that and on the difficulties of assessing quite what is happening and where the best developments are.

Where I get into trouble with Amendment 6 is the last little bit—proposed new subsection (4)—which says that, at the end of this review, when it is laid before Parliament:

“The Secretary of State may, by regulations, act on the findings of the review”.

That is an incredibly sweeping power, which I would be wholly reluctant to give the Government. I heard what the noble Lord, Lord Stevenson, said at the end of the debate on the previous amendment, but this is a very sweeping power indeed, about which I am very cautious.

[Lord Myners (Non-Afl)]

My Lords, I support the amendment of the noble Lord, Lord Mitchell, and will be very surprised if the Government do not see merit in it. The coalition Government have made very serious efforts to address the impact on the economy of a shortfall in credit availability. They have launched multiple schemes, as the noble Lord, Lord Mitchell, indicated. The previous Government, of which I was a member, did likewise, and we found it extremely difficult to stimulate sensible extensions of credit to support business. The coalition Government found that they finally got lending going largely through the mortgage market. Only time will tell whether that has long-term economic benefit.

The Government have encouraged us to leave relatively undisturbed the dominance of the major banks. The market share of our major banks would be sufficient in normal circumstances to have triggered a competition inquiry many years ago. The dominance of the major banks is reflected largely in the absence of any differentiation in their products and pricing, and their basic business model is the same. They do not compete aggressively for market share; they do so at the margin but, on the whole, they sit on large legacy books of existing relationships. We know that, statistically, one is more likely to divorce than to change one’s bank.

Therefore, the Government should be encouraged to promote new forms of lending and should see this as an important adjunct to their own policies to support the economy. In those circumstances, I should like to believe that the Government would see real merit in the amendment of the noble Lord, Lord Mitchell, thereby ensuring that we get clarity about how the banking and credit availability system is working. I do not think that Santander is a challenger bank; it is the old Abbey National. Aldermore, Virgin, Metro and Bank One are challenger banks, but not Santander. However, if progress is not made by these banks, that is precisely the circumstance in which the Government would want to reach to independent evidence to show this.

I do not quite share the anxiety of the Benches opposite about the sweeping powers implied by the final part of the amendment. I imagine that they could be exercised only within the powers of existing law. I hope that a Government who are committed to furthering and promoting competition and transparency will not put themselves into contortions to reject the amendment. If they do so, they will stir continued anxiety that sitting opposite are a Government of bankers, for the bankers, rather than for society and our broader economy.