Lord Hodgson of Astley Abbotts
Main Page: Lord Hodgson of Astley Abbotts (Conservative - Life peer)(8 years, 10 months ago)
Grand CommitteeMy Lords, this is a simple probing amendment. If we have confidence in the Small Business Commissioner to deal with payment issues, and we are determined to build it up so that it has real authority and expertise, then it is the natural body for small businesses to go to for all late payment issues. So why do we not include public authorities as well? We know that it is better to have information and services all in one place. It simplifies and makes it easy for complainants to know where to go, as a last resort, to get matters resolved. Obviously, if there are other facilities available, they can be referred back. However, if there are genuine problems, why can the Small Business Commissioner not deal with them? Are we saying that there are no problems involving the public sector? Just the same issues emerge: small businesses find themselves dealing with big, anonymous organisations. There is a fear of falling foul of them, so they do not complain and the issues are not resolved.
The issues are the same whether we are dealing with small, medium or large businesses or public bodies. Why do we not have the Small Business Commissioner as a simple one-stop shop where these payment issues can be resolved as a matter of last resort? I beg to move.
My Lords, this is an interesting amendment and worthy of further debate. Before I go any further, I ought to apologise to the Committee and the House for not having been present for Second Reading. Unfortunately, I was abroad, but I have obviously read the debate with care. I need to declare various interests, all of which are on the register of your Lordships’ House. I am a director or chairman of various companies both public and private; I am a regulated person under the Financial Services and Markets Act; I have undertaken various reports for the Government looking at difficulties involving the growth of small business, particularly in the charity and voluntary sector; and I am currently undertaking a review of Part 2 of the transparency in lobbying Act for the Government. All of those cross over various parts of the Bill, so it is important that I get that on the record at the beginning.
I am concerned about the situation with regard to what the Minister writes in her response:
“I want the Commissioner to act as a disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them assert themselves in contractual disputes and negotiate more effectively”.
What the Government propose to do is splendid, but I would like it to go a bit further—in fact, I would like it to go rather further than the noble Lord, Lord Stoneham, suggested in his opening remarks—to make it possible for public authorities, in particular, to be brought within the purview of the Small Business Commissioner. I know that this is an issue with which the Federation of Small Businesses is concerned, and I suspect that Members of the Committee will have received briefings from it.
When I prepared for the Government the report called Unshackling Good Neighbours, which looked at the inhibitions that were affecting small businesses, particularly in the charity and voluntary sector—whether they were voluntary groups, community enterprises or, indeed, limited companies—it was clear that such organisations are playing an increasingly important role in the delivery of services to some of the most challenging and challenged parts of our society. The Government can provide the vanilla flavour solutions, but local organisations can provide answers to what are often very deep-seated and difficult challenges because they are more flexible and responsive to local conditions.
In all those cases, a public authority will directly or indirectly be the employer. The difficulty that those organisations have with public authorities can be widely demonstrated and evidenced, and it is a pity that the Government, who want a vibrant voluntary third sector, are not prepared to allow this to be part of the remit of the Small Business Commissioner. There are three particular aspects of the relationship of those groups with public authorities: the issues of commissioning, operating and payment. I could make a long speech about all of those, but I will not, I will just pick out a couple of points on each.
For commissioners, it is always easy to make a safe award: to award the contract to a big business, not a small one. The sunk costs of competitive tendering are not always understood. If you have a contract for £250,000 or £400,000, of course you need to get value for money for the public, the taxpayer, and you need to have some competitive tendering, but you must remember that if you ask 10 different voluntary groups to tender, nine of them will lose money because there is only one winner and the costs of their submissions are lost. There is not always clear enough consideration of the costs of making each and every tender in relation to the costs of the tender itself. This puts small companies, charities and voluntary groups under a very great disadvantage. The Minister might like to ask her officials to give her a copy of the report, published about 10 days ago. It states:
“Commissioning is failing charities and failing those they support … Commissioning is a significant challenge for small and medium sized charities for many reasons but not least their difficulty in competing against large, national and/or commercial providers who typically win larger contracts. These are often priced to work with those with less complex problems and those who are easiest to help—when small and medium sized charities are typically working with those with more complex needs who require more help. The commissioning process promotes competition over collaboration, making it harder for smaller organisations to participate and work together to benefit those they reach. Too often if they are involved they end up as ‘bid candy’”.
That is the position that the small business community should be able to consider. The same is true of operations. The monitoring costs of these contracts can be out of all proportion to the value of the contract. Not only that, but half way through the contract the basis for monitoring is changed, so that the small business is put under considerable administrative costs or has to change the way in which the contract is being looked at. They also come up against the operational requirements of other government departments. One of the examples I came across was from the Medway towns, in which a small voluntary group wanted two or three volunteers to assist the expansion of its operation. It asked the local jobcentre for help and 40 CVs were sent. They had to be considered and when requests for interviews were sent out, only about 15 turned up, and in the end it made only one of the three expected appointments.
When we inquired why that was the case and why 40 had been sent, the jobcentre said that it was interested in fulfilling its requirements for jobs offered and could put 40 ticks in the box if it sent along 40 CVs. If it had sent only 10, it would get only 10 ticks in the box. These are the sorts of practices and burdens imposed on small businesses, particularly in the voluntary sector, which the Small Business Commissioner should be able to tackle. The commissioner can do so by publicising difficulties, intervening to prevent repetition and facilitating co-ordination between government departments, but to do that, the commissioner needs to have the power when necessary to stand up and get involved with public authorities.
I hope that my noble friend will be able to reflect on this as we work our way through the Bill and we come to the later stages. It is in line with the Government’s thinking, and it would help greatly in the development of a vibrant civil society.
My Lords, I apologise to the Committee that I was unable to speak in the Second Reading debate. I had a funeral to attend elsewhere.
My contribution is very small but I want to enforce what my noble friend has just said. Having worked in the voluntary sector for many years, I can say that it was always one of the problems we had. It has become increasingly more difficult over recent years with the economic climate in which local authorities have to work. We can understand in some ways why this has been geared up. It is a very real issue. Perhaps I should declare an interest. I do not have many to declare but one of them would be affected by this. I am president of the Leicestershire group for young people. It used to be called Clubs for Young People, but it is now called Young Leicestershire. It is a good example of an organisation that looks to get some financial support from local authorities. Again and again, it is a matter of how much information has to be given, how much possibility of acquiring it, and how much time is given to it. I hope the Minister can reflect on this because if we do not include the public authorities, it would be an opportunity missed. Unless the Minister can tell us that it is already covered by something else, it is an issue to which we will return later. I encourage her to reflect on it.
My Lords, the proposal before the House is set out in the Bill. I think we have all agreed that this is quite a challenging office to set up. We want to get off on the right footing, and for today’s purposes the focus is on where this imbalance of power is.
Before the noble Lord, Lord Stoneham, finally withdraws this amendment, I hope that, if he is to persist in this at a later stage of the Bill, he will reflect on how one distinguishes payment from monitoring and contract. If you accept a payment-by-results contract, you are committed to it long before you get to the payment stage. If you change the monitoring methods in the middle of the contract, the payment flows from that because it is then paid a different way. The yardsticks, the key performance indicators, will be different. While it is very neat for the Government to say this is about payment, it washes back up the chain to what was done before. I understand what my noble friend Lord Cope and the Minister said, but these are not discrete silos. They are all interlinked.
I have one final question. The Minister said that this of course addresses the issue about the imbalances of power. What is the size of a particular business and the circumstance of a transfer of goods which defines whether that imbalance of power exists? Is that defined by size, turnover or number of staff? What is the definition of power that allows this to take place?
My Lords, Amendments 6, 7 and 35 are probing amendments, designed to explore the Government’s thinking about how the Small Business Commissioner will actually work in practice. This goes back to some of the ground covered by the noble Lord, Lord O’Neill of Clackmannan, in an earlier debate. I hope that my noble friend can enlighten the Committee about the sort of experience the Government expect the Small Business Commissioner to have. I am sure it will be tempting to say, “It depends, it depends”. At one end of the spectrum they could be the doughty Whitehall—or ex-Whitehall—warrior, practised in the ways of government. At the other end is the practitioner with a successful small business record behind them. Those two would lead to very different approaches in the way that the commissioner carries out its functions.
Amendment 6 suggests the appointment of an advisory panel, with membership drawn from different sectors and geographical regions. This is because it will be exceptionally difficult for a commissioner to grasp the full range of the commercial and industrial challenges that small businesses face with payments and other things. Those challenges will be different depending on whether you are operating in Stockton-on-Tees or deepest Devon. The first question, therefore, is whether he or she can have an advisory panel to provide routes into information about and detailed knowledge of how different industries and different parts of the country operate.
Amendment 35 is intended to make sure that the commissioner does not become M25-centric, which is always a danger if one gets bound into Whitehall. It requires the annual report, specified in the Bill, to contain information about visits made around the country. We can therefore be reassured that real-life knowledge is being gained. This is part and parcel of the philosophy which I hope the Government can reassure us will be espoused. Amendment 7 is slightly focused and deals with the issue of relationships with regulators. We will deal with regulators in more detail when we come to Part 2, but this amendment—if the Government were minded to consider it—would give the Small Business Commissioner a particular duty or locus in highlighting specific areas of concern relating to regulators. Small businesses, individually, simply cannot take on regulators because of the time involved and the fear of what might happen. There is a role here for the Small Business Commissioner to assist in the Government’s deregulatory agenda. The Government are very keen on deregulation and an amendment on these lines would assist in that process.
It is always worth while remembering how one gets regulatory creep and how the tentacles of bureaucracy push on outwards. Noble Lords may be familiar with the PAT: the portable appliance test. They will recall that one used to push the flex into the back of the kettle then switch it on. This meant that the flex was used a lot and frayed; water and electricity do not mix well together. After some staggering and terrible accidents, the PAT was introduced and these appliances had to be inspected. That quickly morphed into an inspection of all portable appliances, because they all had flexes and were all equally dangerous. By the time this happened, the electric kettle was no longer a problem because, as noble Lords will know, one now buys a kettle with a stand it goes straight on to; the flex does not move at all. So the whole rationale for the portable appliance test had been morphed around.
Now we have a situation where, although the regulations require an inspection only every three years, small businesses are often encouraged to have inspections every year. It costs about £1 a shot to have your portable appliances tested. An enormous amount of time, money and effort is being wasted to no great avail. These are the sorts of things about which the Small Business Commissioner, in dealing with a regulator, could say, “Actually, there is an issue here that you could tackle and help with”. I know it is outside the scope and it is widening the Bill, but it is an area in which small businesses could be greatly helped.
I take part in the Lord Speaker’s outreach programme, talking to schools. It is a wonderful thing to do and I learn an awful lot every time I go to a school. I often finish by having a cup of tea with the headmaster. At a school I went to last year, the headmaster asked me whether I knew about the portable appliance test. I said I knew a bit about it. He said the school had just had an inspection. The inspector went round the classrooms and found an overhead projector on the ceiling. He said, “I need to check that because it is portable”. The school said, “You can only get at it if you get on a ladder and get up there. Therefore, it is not portable and nobody can get at it anyway”. The inspector said, “Well, I think it is”. The school, quite bravely, said, “We are going to ring the Health and Safety Executive in London”. The Health and Safety Executive found in favour of the school. I asked the headmaster, “Was that very good?”. He said, “Not exactly, because they then went through the whole of the rest of the school—absolutely everything—inch by inch, and they managed to find in the bursar’s desk drawer an electric pencil sharpener which had not been inspected for three years and they therefore failed the school”.
Those are the sorts of costs that are being applied to businesses, and if we had a Small Business Commissioner he could draw attention to those sorts of things and do something about relieving the burden. These are probing amendments at this stage. They are designed to try to find out what sort of person is going to do this job and then to try to find a way in which they can do things to assist the Government’s deregulatory agenda and the operational efficiency of small businesses. I beg to move.
I cannot resist the temptation to support the noble Lord, Lord Hodgson, as he was so positive about my amendments. We will see what the Government say on these amendments but I sense that there is a general watering-down of the proposals and they will be slightly reticent about the advisory panel. If there is not a board or whatever supporting the commissioner, clearly a panel is a very good idea because it will widen support. It is related to the regional issue because if this body has only 50 staff, it is difficult to see how it is going to have regional purveyance and credibility around the country. All these points, plus the duty on the commissioner to refer good advice and to deal with regulatory issues, mean that this becomes much more of a one-stop shop where local businesses can come, initially with problems related to payment, but its remit will widen as other issues are seen to be pertinent.
Amendment 35 just says,
“including details of any visits to the different regions of the United Kingdom”.
It does not say that the commissioner has to make them. If they do not say anything, we will assume that they have not gone. Without constricting or constraining the Small Business Commissioner’s judgment of the best way of executing the task, there is, nevertheless, an inherent idea that a certain number of visits should take place.
I thank my noble friend for that clarification. This is an eminently sensible approach: we need to make sure that the interests of regions are taken into account. Although we try not to be, some of us tend to be a bit M25-focused. I think my noble friend is saying that there is a wider wealth of opportunity on payment issues right across our great nation.
I have tried to respond to the various questions which have been raised and I hope that, in the circumstances, my noble friend and the noble Lords will feel able to withdraw their amendments.
My Lords, that would be excluded in the approach we have adopted in the Bill.
I am grateful to the noble Lords, Lord Mendelsohn and Lord Stoneham, for their supportive remarks. I am also grateful to my noble friend for giving a degree of assurance that we are not expecting the individual to be stuck within the M25 but to get out and about. I will, obviously, read carefully what she has said. I am interested in how we are going to have equality of arms with regulators. My noble friend made some interesting comments on that which I will reflect on. In the mean time, I beg leave to withdraw the amendment.
My Lords, I speak in support of Amendment 9 in this group. Yet again I return to the subject of payday lending. Over the past three years, noble Lords have secured some pretty impressive legislative reforms. As a result of amendments to previous Bills, the FCA is now in power to regulate the terms and conditions under which payday loans are made. The rate of interest is now regulated but the most significant change is that, under all circumstances, the total repayment of any loan is restricted to double the value of the loan itself. This is a real result, since those charming people in the payday lending industry had been adept in slipping in all sorts of unexpected and sneaky charges.
It is interesting that the perils that the payday lending companies themselves and their lobbyists forecast failed to materialise. It really was a change for good. I pay tribute to the FCA for getting on top of this abuse and I read on today’s BBC website that Dollar Financial UK has admitted malpractice and will refund £15.5 million to 147,000 customers. So it really is working. This morning I checked on Wonga’s website and saw that the APR on its loans is 1,500%—scandalous, it is true, but dramatically less than the mere 6,000% it had previously been charging.
Today’s amendment in my name is designed to give the commissioner the powers to advise small businesses in respect of payday loans and, by implication, all the short-term, high-interest category of loans. Clearly, many small businesses are often desperate for cash to meet unexpected costs. Many of them are sole traders or employ no more than a handful of people. Banks, as we know, tend to be unhelpful and for many businesses payday lending is a short-term option. We simply want the commissioner to advise the small business sector of the potential pitfalls of this type of borrowing.
I also want to address the area of EIS—the enterprise investment scheme. I state my interest that I am chairman of a small company, Instant Impact Ltd, which started four years ago with two young men based in Starbucks drinking coffee and it has now expanded to £1 million turnover. It is involved in graduate recruitment. We, too, have just introduced an enterprise investment scheme. There is also the seed enterprise investment scheme, introduced by this Government. Both schemes work pretty well. The Labour Government introduced the EIS but SEIS was introduced by the last Government and it works really well. In the area in which I am very involved—the tech sector—SEIS is absolutely crucial.
I have noticed that surprisingly few young businesspeople, older businesspeople, advisers, accountants and lawyers are aware of some of these schemes. That surprises me and I advise that the commissioner should have the power to influence the knowledge of these schemes and others that might come throughout the business community. I beg to move.
My Lords, I certainly recognise and applaud the work that the noble Lord, Lord Mitchell, has done in exposing and correcting some of the more egregious aspects of the short-term loan lending industry. I add a word of caution on the proposals.
The short-term loan sector is like an iceberg and the noble Lord fairly and properly sought to regulate the visible part of the iceberg. He referred to the FCA, the work going on, and the effect this work has had. I applaud that. However, it is the invisible part of the industry that is really nasty. That continues to exist. The danger is that if we make it too difficult for firms in this visible part of the iceberg to operate with full disclosure it is to the invisible part that people will turn because there will always be a demand for short-term cash for one reason or another.
Given what he said about the FCA and financial regulation, I am not convinced that it is part of the Small Business Commissioner’s role to give guidance on payday loan rates and their appropriateness as that is a very difficult and problematic concept. That is something for the financial regulator. All I ask is that we avoid the risk of demonising these firms. However unattractive the noble Lord may find the interest rates charged and everything else, we should ensure that everything is above board and is done clearly and in the open. We should avoid demonising these firms while allowing the hidden part of the iceberg to continue to exist. My goodness me, that really is baseball-bat territory and not the sort of thing that any of us wish to see increase. We wish to see it eliminated. I am concerned that putting this sort of further pressure on firms that operate in compliance with the law will encourage the growth of those who operate outside the law.
My Lords, as the noble Lord, Lord Mitchell, sat down, I realised that I have some EIS investments. Since I spoke in that group, although not on the EIS, I probably ought to declare that for the record before we go any further.
Amendment 10 is concerned with the law. Here I am trying to steer between Scylla and Charybdis. Scylla, as evidenced by the Minister, is about advice to be given on supplier relationships, and Charybdis is the statement in paragraph 6 of the Explanatory Notes that:
“The Small Business Commissioner will not provide advice on legal issues relating to a specific case”.
Obviously, I understand the challenge surrounding the use of the word “specific” but there is an issue here about the way large businesses can use legal means to delay payment. I am aware that Amendment 39 in the name of the noble Lord, Lord Aberdare, focuses on the construction industry. I do not wish to run before his horse to block it. Therefore, I do not want to get involved in that industry.
My focus is on two areas. The first is the practice of finding a minor fault, or perhaps claiming a minor fault, in some goods supplied and withholding a disproportionately large proportion of the sum owed—and, when challenged, the purchaser inviting the supplier to use the law in the certain knowledge that the legal wheels can be made to grind slowly, which is one way that this can happen. The second is the use of a similar approach in matters involving intellectual property—an area where small businesses give a huge degree of help to our economy because small businesses worry away at the coalface, finding new and better ways of doing things—where a small business has made a breakthrough and developed a new product, patented it and then is sat on by a large company.
What do I mean by “sat on”? The example I have in mind is a company I knew of which developed a new freezer cabinet for supermarkets. It had various devices that made it particularly efficient and operationally effective. A large supermarket chain bought six of these—to the delight, obviously, of the small business, which thought that this was a breakthrough—only to find that the supermarket had reverse-engineered the freezer chests and was now manufacturing them itself. The small company claimed infringement of a patent—the intellectual property. The supermarket denied it and invited the small company, if it believed that it had a case at law, to take it to court. The sting in the tail in the meeting was when the person from the supermarket said, “By the way, just before you make up your mind, our lawyers say that we can prevent this from coming to court for two or three years”. The small company had no way to sustain the cash flow and the capacity to maintain the costs of a legal action for two or three years.
There will always be a degree of inequality of arms between large and small companies in legal matters, but there is a chance here, where we have supplier relationships being abused in this way, for the Small Business Commissioner to be of real help to small businesses and help redress that balance. That would be of advantage to our country and of particular advantage to the small business community. It is not about specificity or about getting involved in individual cases but, rather, about making sure that where these sorts of cases happen they are published and efforts are made to make sure that their use and abuse is minimised. I beg to move.
Briefly, I support this amendment, which dovetails quite nicely with an issue that we will raise later on the powers of the Small Business Commissioner. There are many difficult cases, on which many people receive letters, where the ability to use legal processes works massively to the detriment of small businesses, and it is exceptionally difficult to be able to extend those procedures. I think that the noble Lord, Lord Hodgson, made the point that it is not about getting involved in the legal case in and of itself but about using the convening power and sense of the Small Business Commissioner to help to get these processes streamlined to make sure that small businesses are not affected by that asymmetry. This is a very sensible and proportionate amendment and we support it.
I thank my noble friend Lord Hodgson for his amendment and for his examples, including the IP examples—an area that he knows is close to my heart. I like the Scylla and Charybdis parallel, which one could use more broadly in public policy. I did Latin A-level, being in an era when they did not teach women science.
Clause 3 provides for publication of general advice and information relevant to small businesses and their supply relations, and to resolving disputes. Under existing drafting, obviously this could include information about the timings of and risks of delays within legal proceedings. However, I think that the intention of my noble friend is much broader than the provision of advice and information to small business. As I see it, he intends that the commissioner should shine a light on where delays in legal processes and litigation tactics are used in a manner that is detrimental to small business as they frustrate efforts to resolve a dispute, as he said in examples that he raised.
Clause 9 requires the commissioner to publish an annual report on its activities. This must include a summary of the matters raised with the commissioner by small businesses that the commissioner considers are the most significant. It can of course include any recommendations that the commissioner may have in relation to such matters. Therefore, if issues related to delays in legal processes are brought to the commissioner’s attention and she or he considers them significant, he or she may include them in the annual report.
It is difficult to develop this further without impeding the right of business to have access to the courts. However, obviously, as the noble Lord, Lord Mendelsohn, says, the commissioner has a certain convening power. I do not think that my noble friend Lord Hodgson was trying to get him involved in individual cases, and that convening power will be able to be used to survey what is happening in these areas—as I said, to shine a light on them. I therefore agree with the spirit of the amendment, which is to shine a light on delays, on aspects of the courts system or on the exchange of legal letters that are preventing or deterring small businesses from resolving disputes. However, the Small Business Commissioner has sufficient powers in this respect and I am not persuaded that we should go any further in this area.
My Lords, I am again grateful to the noble Lord, Lord Mendelsohn, for his support on this set of amendments.
I am slightly disappointed by my noble friend’s response. The reason is this. Lawyers are extremely jealous of their territory. When the Small Business Commissioner decides to say something critical of the law without having specific powers built into the Act, he will come under considerable criticism. There will be a danger that he will flunk the issue. These are tricky, difficult issues; they are not easy. There are always two sides to the argument, but we need someone who has the responsibility to speak out on specific issues, and the legal issue is one where a specific duty is important. Otherwise, I can see it being shuffled to the side and put into the pile of complaints that are too difficult to deal with. The commissioner will say, “Let us leave that, because we shall only have trouble. We will only have the lawyers getting after us for interfering with due process”—my noble friend even referred to the question of due process in her response.
I shall reflect a bit further on this but of course, in the mean time, for this afternoon, I beg leave to withdraw the amendment.
I certainly agree that the convening power is one of the key strengths of setting up a new Small Business Commissioner, joining the dots and noticing perhaps that there are a number of cases in an area and putting that into the annual report, or drawing attention to it. It may be that we are not as far apart as I had thought. We are reluctant to make amendments or change the role of the Small Business Commissioner in this area. In the light of the discussion that we have had, I hope that the noble Lord will feel able to withdraw the amendment.
We have heard a lot about navigation and the website, and how that will work. Will the Small Business Commissioner have his or her website, or will it be part of the government website? In that connection there has been a lot of criticism about navigation through the government website. The Charity Commission has now had to move into the government website and accessibility has dropped dramatically. There have been many complaints. If we were going to put the Small Business Commissioner website into the government website we would want to make sure that accessibility is better than that currently experienced. I am not asking for an answer to that question now. Perhaps the Minister can write to me about it in due course.
Of course, I am very happy to write to my noble friend. I have to say that I was a GOV.UK sceptic to start with, which is perhaps the point that he is making. I have found that there have been transitional problems, particularly with those organisations that have been unfortunate enough to have to, as it were, migrate from their website to the new website, but actually it has a lot of strengths. I think we are talking here about a new website—the Small Business Commissioner’s website. I think it would be rather odd not to have it on GOV.UK because that is where small businesses go. Obviously, it has to be a special website and suitably promoted. However, if I have any further thoughts I will certainly write or we can talk about it because we need to get this right. It is very similar to the Consumer Rights Act, where we spent a lot of time discussing how the new rules would be described to business and passed on to consumers.