(5 years, 1 month ago)
Lords ChamberMy Lords, my experience is of building up a business from small beginnings. That was some time ago, and the business environment was very much as the noble Baroness described it. But things are changing.
This was brought home to me when, early in January this year, I was shown a letter from the chief executive of BlackRock, perhaps the world’s largest investor. It was a letter addressed to chief executives saying that companies needed to do more than make profits. He said that they must make a positive contribution to society and he planned to hold them to account. Companies needed to show that they had a purpose, not just high-minded mission statements. How do we achieve these social ends, as well as being efficient, productive, progressive and technologically advanced? We achieve this by government and business working together to move in this direction.
For instance, we played an important part in preparing the UN agenda for sustainable development and we are committed to achieving its goals, which include a commitment to tackling injustice and inequality, particularly in employment. We have declared a climate emergency and signed up to environmental standards. The noble Baroness mentioned education. Several universities have now opened business and society departments. The Government have committed themselves to a civil society programme, using public procurement to create social value and public good. This is our modern business environment and it will become even more so as the next generation takes over.
However, it is still widely accepted by some that tax discourages economic activity, and that tax cuts will raise revenue. There is absolutely no empirical evidence for this. Indeed, recent analysis of business growth and investment in the UK economy seems to show that, as a result of tax cuts, large corporations are investing more money in dividends and share buy-backs than in sustainable business growth. This is reflected in our stagnant productivity.
It has been widely reported that, as the noble Baroness mentioned, the large digital companies pay a pittance in UK tax because they profit from favourable cross-border tax arrangements. I am grateful to UKCloud, a cloud-hosting company, for its briefing. It says that by 2020, Amazon Web Services will have captured some three-quarters of the total public sector cloud market. It has the advantage of paying significantly less tax as a percentage of its revenue than UK-based companies. UKCloud also tells me that the forthcoming digital service tax will not go far enough to combat this tax advantage. By awarding contracts to such companies, the Government give tacit approval to such tax practices and, by consolidating the market power in the hands of a small number of large providers, reduce the opportunity for others to enter the market. We all know the dangers of that; we have seen them over the last year.
This overall reliance by the Government on big suppliers helps explain the reported rise in business becoming concentrated in fewer, larger hands. It is much easier to scale up an intangible digital business, because once you have written the software, there is little more direct investment or employment as required. This is opposite to most other businesses, and part of the digital effect which the noble Baroness spoke of. This concentration is certainly not the kind of business environment that we should be seeking. It is to help deal with this, and to introduce a fairer form of bidding for government contracts, that the British Standards Institution has now introduced BS 95009. I make no apology for raising this once again in your Lordships’ House.
I remind the Minister again that with this standard, firms of all sizes can demonstrate their competence and suitability. It simplifies the process because, by achieving this standard, firms will have demonstrated their credentials across a whole range of criteria and their ability to carry out good practice. As well as reducing concentration, it is entirely in keeping with the Government’s stated civil society programme and the UN sustainable development goals target, to both of which the Government are committed. Will the Government now support this initiative?
To borrow a phrase from Tomorrow’s Company, the economy requires stewardship. That is the kind of environment that we must see—a way of doing business with a focus on human purposes; to see things long term, and to look after the wealth creation system, so that we can pass it on to our successors in better condition—an environment that rewards everybody fairly, proportionately and sustainably. The Government can have an immediate effect by influencing the rules and incentives that they lay down and the behaviour they encourage. This is the kind of business environment that we are now seeking, and which the next generation wants to see. Will the Government help create it?
(5 years, 2 months ago)
Lords ChamberTo ask Her Majesty’s Government what steps they will take following the adoption by the House of Commons on 1 May of a motion declaring an environment and climate emergency.
My Lords, the Government recognise the urgency of tackling climate change and protecting our environment. Following the Committee on Climate Change report, we have introduced legislation to achieve net zero emissions by 2050.
My Lords, contrary to the Prime Minister’s misrepresentation, we on these Benches support the Government’s climate change initiative, but can we not do better by establishing a model that other nations can follow? When setting the model, will the Government ensure that there will be no creative accounting in carbon by offsetting imports, using international credits or carrying forward over- performance, and that we will introduce environmental stress testing and report? Then, we can be really proud of our achievement.
My Lords, I am grateful for the support of the noble Lord and the party opposite. I regretted its Motion on Wednesday last week because, as I made clear in the debate on the statutory instrument, I thought that it was unnecessary. We have set realistic targets following the advice that we received from the Committee on Climate Change—targets that we believe we can and should meet—and, as we set out in the order, we will aim to meet them.
(5 years, 2 months ago)
Lords ChamberMy Lords, on his first point, the noble Lord is wrong to say that the Chancellor was trying to squash this: he was merely pointing out potential costs. As was made clear in the Statement, the climate change committee estimates that the annual cost of delivering a net zero target is within the same range as the 80% target was when it was set in 2008. Our own assessment of costs is within that range. It is right that the Chancellor takes an interest in the likely costs—after all, he is responsible for these measures.
The noble Lord is right to point to the importance of what we do about homes. We have an appropriate target and have announced what we want to do about energy efficiency by 2025. We will stick to that date, which will allow us to meet our target.
My Lords, in the Statement the Minister spoke of a review in five years’ time. Why is this necessary, particularly after what the noble Baroness said? Surely this will be interpreted as showing less commitment? It would provide an excuse to delay investment for five years because it provides too short a timescale. Will the Government give this more consideration?
My Lords, the noble Lord will remember that the idea of a five-year review was part of the original 2008 Act—which I am sure he supported, because the Act was introduced by a Government of which he was probably part at the time. We will continue with this idea, but we can review matters further if there are changes and developments as we commit. We are bound to review every five years but could do so earlier.
(5 years, 4 months ago)
Lords ChamberTo ask Her Majesty’s Government what steps they are taking to raise public confidence in, and support for, business and industry through better corporate governance.
My Lords, we have reformed our corporate governance framework to make businesses more open and accountable. A revised UK corporate governance code gives employees a stronger voice in the boardroom and new legislation requires companies to report on their executive pay ratios.
My Lords, we are all aware of the declining confidence in companies, particularly those delivering public goods and services, such as Carillion. Care homes are going bust and the probation service is in crisis at the moment. Led by Tomorrow’s Company—I declare an interest—thought has been given as to how we might restore public confidence in the trustworthiness of such companies. The proposal is that the Government should support the use of a British standard for the corporate governance of companies delivering these goods and services, in the same way that British standards enable us to trust public transport and health services.
I am confident that British standard 95009 will be published next month. My question to the Minister is this—
Will the Government insist that companies delivering products and services to the public must satisfy this British standard, and that procurement bodies must also abide by it?
My Lords, I agree with the noble Lord that public trust in companies and their governance is very important. I assure him that, according to the most recent survey, levels of public confidence are increasing rather than decreasing, as he put it. I am also aware of the work being done by the British Standards Institution in developing two new specifications on sustainable investment management and sustainable finance. It is premature to say whether the Government should expect suppliers to comply but we will obviously consider it carefully in due course.
(5 years, 9 months ago)
Lords ChamberTo ask Her Majesty’s Government what assessment they have made of the impact of work-related stress on productivity.
My Lords, an estimated 15.4 million working days were lost last year due to work-related stress, depression or anxiety. That is 57% of the total days lost due to work-related ill health. The 2017 Stevenson/Farmer review of workplace mental health made 40 recommendations, all of which were welcomed by the Government.
I thank the Minister for that reply, but the Government’s latest skills and employment survey told us that we are working harder than ever and are under increased strain. In spite of this, productivity has stagnated. Recent research by McKinsey seems to show that less prescriptive management empowers staff to be more productive and reduces stress. What can be done to encourage this good practice? It would certainly help with the productivity puzzle. It also costs little and could relieve some of the mental health problems we hear about every day.
My Lords, the noble Lord is right to draw attention to productivity problems, which my right honourable friend the Secretary of State raised in the Industrial Strategy last year. He is also right to talk about work-related stress, which was recognised as a problem by my right honourable friend the Prime Minister in January 2017. That is why she commissioned the review from the noble Lord, Lord Stevenson, and Paul Farmer, which produced its report in October last year. The Government then responded, accepting all the recommendations. The Government will do whatever they can both as an employer, to help to reduce work-related stress, and through setting an example to others and encouraging employers in other fields. We will also take note of the noble Lord’s suggestions.
(5 years, 10 months ago)
Lords ChamberMy Lords, I can assure the noble Baroness that much has happened since the publication in November 2017 of the industrial strategy; indeed, I could speak at length listing all the things that have happened. Again, I ask the noble Baroness to be patient: we will announce the membership of this committee shortly, but we want to make sure we have the right people in place to look at the long-term development and success of the strategy.
The White Paper promised us a separate council, the purpose of which is to stimulate and motivate action from the Government. Is this why the council has not yet been appointed?
No. The point of the council, as I made clear to the noble Baroness in my earlier answer, is to look at the long term and at the development of the industrial strategy, and to ensure its success. That is why it is very important that we get the right people, all representing themselves, rather than any particular sector, and covering a whole range of areas and the entire United Kingdom, as I said to noble Lord, Lord Stevenson.
(6 years, 1 month ago)
Lords ChamberMy Lords, I beg to move that the draft Companies (Miscellaneous Reporting) Regulations 2018, which were laid before the House on 11 June, be approved.
The United Kingdom has an international reputation for the strength of its corporate governance framework. It is an important factor in making the United Kingdom an attractive place in which to invest and do business. One of the reasons we have maintained this reputation is that we have kept our corporate governance framework up to date.
In this spirit, the Government published a Green Paper on corporate governance reform in November 2016. The Green Paper focused on ways of improving shareholder scrutiny of executive pay and strengthening boardroom engagement with employees and other stakeholders. It also looked at the case for strengthening corporate governance in large, privately held businesses.
The backdrop to the Green Paper was public disquiet about high levels of executive pay and continuing concern about a disconnect between remuneration and performance. There were also concerns about boardrooms being remote, unrepresentative and disconnected from their employees. There was heightened interest, too, in standards of corporate governance in large private companies in the wake of the failure of BHS and some other large private companies.
The Government received 375 written responses to the Green Paper from a wide cross-section of business, professional and trade bodies, and wider society. They also had the benefit of the BEIS Committee’s report on corporate governance. The Government’s response, announced last August, set out a package of reforms combining new statutory reporting requirements, changes to the UK corporate governance code and industry-led measures.
The draft regulations being debated today will implement the new company reporting elements of the reform package. First, all large companies will be required to explain in their annual reports how their directors have complied with the requirements of Section 172 of the Companies Act, including the need to have regard to employee interests and relationships with customers and suppliers. This new information will make it easier for shareholders to hold companies to account and encourage directors to think more carefully about how they are taking account of these matters.
Secondly, very large private companies will need to make a statement about their corporate governance arrangements, including whether they follow a corporate governance code and if so, how. Thirdly, quoted companies with more than 250 UK employees will be required to publish pay ratios comparing the CEO’s remuneration to median employee pay and employee pay at the 25th and 75th quartiles. The ratios will need to be accompanied by an explanation, including the reasons for any change to the ratio from year to year and whether the median pay ratio is consistent with the pay, reward and progression policies for UK employees as a whole. This information will give shareholders new information to assess whether pay at the top is justified and consistent with pay and incentive arrangements in the rest of the workforce.
Finally, quoted companies will be required to illustrate for shareholders the impact of future share price growth on the value of share-based incentive plans. This will give shareholders a better understanding of how significant share price growth over a performance period can increase executive pay. It will also encourage remuneration committees to avoid mechanistic pay outcomes linked to share price growth. None of these reporting requirements will apply to small businesses. The measures are aimed at quoted, large and very large companies. The total costs for business arising from the new reporting requirements are expected to be £16.7 million in year one, and £9.8 million annually thereafter.
The reporting obligations complement and reinforce other elements of the corporate governance reform package. For example, the new requirement for large private companies to make a statement about their corporate governance arrangements is linked to work being undertaken by James Wates and a business and wider society coalition group to develop voluntary corporate governance principles for use by large private companies. These principles are currently being consulted on with a view to finalising them by the end of the year. Other links are with the Financial Reporting Council’s UK Corporate Governance Code. The new requirement on companies to state how they have had regard to the employee and other wider stakeholder issues in Section 172 of the Companies Act will help to underpin revisions to the code.
These changes include a new provision requiring boards, on a comply or explain basis, to establish at least one of three robust methods for gathering the views of the workforce: a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. The FRC has been consulting on these changes and expects to publish the final revised code this month. In addition, the Investment Association, at the Government’s request, has launched a public register of companies encountering significant shareholder dissent of 20% or more to executive pay packages and other resolutions. This is shining a light on companies which are not listening to their shareholders, and in particular on companies that face significant opposition in successive years.
I refer briefly to the final part of the regulations, which relates to reporting by community interest companies. The Companies (Audit, Investigations and Community Enterprise) Act 2004 requires CICs to produce a community interest company report annually, including information about directors’ remuneration. The obligation covering small CICs was inadvertently removed when associated provisions regarding small companies were repealed in the course of implementing the accounting directive in 2015. This was not part of the corporate governance reform package, but these regulations represent a good opportunity to correct the earlier error. It is uncontroversial and does not involve any change in policy. Indeed, small CICs have continued to file the information. I commend these regulations to the House.
My Lords, I welcome any attempt to raise the reputation of business and to increase the trust and confidence in business in the eyes of the public, so I very much welcome these regulations, but I wonder how effective they will be.
These regulations require public companies and large private companies to publish pay ratios and other data to show that the directors are taking into account the broader interest of customers, employees and communities, as the Minister has explained. These data are useful to provide more information to enable shareholders to question the directors and, if necessary, to vote at shareholder meetings. But who are the shareholders? Many shares are held by institutions, which are reluctant to act as long as the financial returns are as expected. Frequently they have a limited and sometimes short-term interest in the company. Also, much share trading is carried out by algorithms—and who knows on what formula they base their decisions? There are still many day traders active, and their trading, again, is based purely on numbers. As I understand it, this is the way the majority of shares now change hands.
I ask the Minister: even if the published data leads to naming and shaming, how effective will these regulations be in changing behaviour? I know there is a lot of concern about misleading comparisons between companies, but perhaps we should ask for other data to be published, such as benchmarking data on productivity so that shareholders can compare how well their company is doing in comparison with competitors.
Surely, there must also be concern about the reliability of the numbers. The big four accountancy firms almost exclusively audit for the large companies that are the subject of these regulations; they are also their financial advisers. In their role as financial advisers to these companies, I am sure that they will have lots of schemes to make the ratios look a lot more attractive. This joint relationship has come in for a lot of criticism recently. Is there any sign of any change so that these regulations will become more effective?
I welcome the rules applying to large privately held businesses. Most respondents in the consultation wanted to see more data about these companies and I hope that these regulations will produce it. Generally, I welcome these regulations, but would like to see them widened and made more effective.
My Lords, I first apologise to the Minister for being caught out—
(6 years, 2 months ago)
Lords ChamberTo ask Her Majesty’s Government what assessment they have made of the risk assessment published by Airbus of the impact on its business of the United Kingdom leaving the European Union without a proper agreement and adequate transition time.
My Lords, Airbus is important to the United Kingdom and we want continued investment in the UK industry from Airbus in the long term. The analysis that Airbus has published is based on a no-deal scenario, which we neither want nor expect. The Government remain committed to a trading environment with the EU that is as free and as frictionless as possible. We are confident that a Brexit agreement will be reached to our mutual benefit.
My Lords, the Minister’s reply does not actually get us any further. Indeed, Airbus is not alone. Is he not aware that it is these pious hopes and lack of clarity that force all responsible businesses to make contingency plans, to plan for the extra cost of disruption to the flow of goods and people, to plan for the absence of agreed standards on safety, certification and dispute resolution, and even to plan for possible tariffs? Will he take these concerns more seriously and respond in much clearer terms?
My Lords, I and other Ministers take these concerns seriously. That is why my right honourable friend the Secretary of State responded to this point yesterday in another place and made it quite clear that he was listening to the concerns of Airbus, just as I made it clear that we were. The important point to remember is that the analysis put forward by Airbus was based on a no-deal scenario. As the noble Lord is aware, we will continue to negotiate, and we hope that those negotiations will achieve a result that will be good for British business.
(6 years, 4 months ago)
Lords ChamberMy Lords, I note what my noble friend has to say. I do not want to rehearse all the arguments that we went through when the Grocery Code Adjudicator was established some years ago, but I accept that it is a very difficult question when we are dealing with the imbalance between the very big supermarkets on the one hand and, on the other, those further down the supply chain, particularly small producers and growers. However, I give an assurance to my noble friend that the powers of the Grocery Code Adjudicator will always be kept under consideration by my right honourable and honourable friends and by the department as a whole. Obviously we want to see fairness between the supermarkets and their suppliers, just as—this is equally important in all retail matters—we think it important to ensure that the interests of the consumer are kept first and foremost at hand. It is the consumer that we are most interested in.
My Lords, we are still members of the single market. Is this a matter large enough to involve the Commission?
No, my Lords, on this occasion the CMA will be doing this job. I think we can all say—even the noble Lord might agree—that, thankfully, the Commission will not be involved in any way at all.
(6 years, 4 months ago)
Lords ChamberTo ask Her Majesty’s Government what steps they are taking to continue United Kingdom participation in the Galileo space project after Brexit.
My Lords, the United Kingdom has made clear to our European partners our desire to continue the United Kingdom’s involvement in EU space programmes, including Galileo, provided that the UK and UK companies can continue to participate on a fair and open basis. The Government are engaging with the EU to this end.
My Lords, the Government have threatened to withdraw their support if we are not a fully participating member and not trusted with all the security arrangements. Does the Minister agree that that saying “If you do not trust us, we will go elsewhere and we want our money back” is an empty threat unless we have a practical alternative? What is that alternative and does it deal with the worrying lack of trust, which could extend to other matters relating to security, defence and our safety?
My Lords, given our history, I find the lack of trust very confusing, but certainly we can look at other options. We have made it clear in a letter that my right honourable friend has sent to all appropriate Ministers in the other 27 countries that we wish to continue to participate in this programme. So far, we have had only a letter from the Commission itself setting out its view that we should not take part. In our view, that would be folly of the worst sort: it would increase costs for the whole programme by €1 billion and possibly delay it for three years.