Small Business, Enterprise and Employment Bill

Lord Leigh of Hurley Excerpts

Wednesday 7th January 2015 Grand Committee

Moved by

[Lord Leigh of Hurley]

18A: Clause 5, page 6, line 43, at end insert—
“impose a duty on the finance platform to offer specified information to a designated financial adviser.”

[Lord Leigh of Hurley (Con)]

My Lords, as disclosed on the register of interests, I declare that I am a senior partner at Cavendish Corporate Finance (UK) Limited, and my involvement with BIS, which I shall amplify in a moment. Like the noble Lord, Lord Mitchell, I very much welcome the Bill as further evidence of this Government’s commitment to SMEs, and in particular to providing assistance for SME finance. Unlike the noble Lord, I would say that the Government have done a huge amount to assist SMEs on finance not just in the UK, but overseas as well. I should particularly mention the pleasure of working with BIS, and I actually travelled to China with the Prime Minister on his trade mission. That jumbo jet was full of SME businessmen. The Prime Minister made a point of taking SME businessmen to help their export trade, and as I travel around the country, I have businessmen telling me how dramatically different the Foreign Office is when working in conjunction with BIS to assist SMEs.

This clause in particular should, it is hoped, have a radical effect on assisting SMEs in the procurement of finance in difficult circumstances for them. I welcome the clause. My amendment relates to a particular and specific circumstance where an SME has gone to its local high street bank and, for whatever reason, that bank has rejected the loan. That is, of course, a minority of situations. The proposal suggests that at that point, the high street bank should put the customer on to a finance platform in order to allow other alternative sources of finance to provide the loan. I welcome the regulations that were published just in time for a Christmas read, and in particular that the Treasury has now agreed to consult the British Business Bank specifically on who will be the designated platform. I firmly believe that the BBB understands who would be the appropriate platform.

I do not intend this in a pejorative sense, but my concern is that the use of “may” in Clause 5(4) means that within the terms of paragraphs (a) and (b), only lenders will have access to those finance platforms. I believe that it would be much more helpful to SME businesses to allow them the opportunity to take advice and have access to advisers who can guide them towards the right source of such loans. Indeed, many lenders to SMEs, because of the nature of the small amount of money involved, will look at loans only if they are packaged in a particular prescribed format. The SME will not have the skills and expertise, or indeed the time, to package up the proposal in a format that suits each possible financial provider. Furthermore, some financial platforms have in mind a large number of lenders, as many as 130, while others have only four or five in mind. If the potential borrower finds himself on the wrong financial platform, he will either be too restricted in the number of lenders he can talk to or possibly overwhelmed by the number of financial providers who contact him to offer their loans.

We are talking here about businesses that range from wanting a loan to finance a small residential development to one that wants to borrow the money needed to buy a forklift truck. Of course, the nature and type of lender will vary enormously according to the circumstances and, indeed, to the geography. My amendment would allow the potential borrower to have access to an appropriate adviser, which is, of course, an adviser that would be approved by the Treasury—which means, in fact, the British Business Bank—to facilitate greater choice for businesses. Let us not forget that these businesses have just suffered a rejection of their loan application and, sadly, they are probably not blessed with a munificent and successful father along the lines of the example we discussed earlier. They therefore need an appropriate level of advice. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, we have a few amendments in this group and I will speak to just a couple of them. Two of them deal with matters to do with the Regulatory Reform Committee, which I think will be dealt with by the Minister when he comes to respond. The amendments would simply implement the proposals that have not already been dealt with by the previous discussions.

Amendment 19 is a probing amendment. In this set of amendments we deal with the third leg of a three-legged stool that tries to address a set of arrangements around the failure to commit to a financing model for small businesses at the individual level. This is a different attack on the same problem we have talked about throughout the whole of this afternoon: why finance does not flow as well as we would all like to this sector of our economy. The amendment is designed to suggest to the Government that there would be merit if one could extract some lessons from the process, whether or not it also includes the proposals just spoken to. That would add another dimension. We will see how the Government respond to that.

In the context of there being a small business in need of financing, a set of traditional lenders to whom it may or may not have applied, alternative suppliers and others who have expertise and knowledge about that, it would make sense for there to be some lessons learnt from these processes. The suggestion is made in the amendment that the Government might wish to think about providing an annual report to Parliament so that we have a sense of how these things operate. This is to some extent uncharted territory. It may feel like another administrative burden. In some senses, being a probing amendment, the wording is not to be taken at face value. However, this is interesting and new ground. We need to learn the lessons from it and to get the information that we gather out to as wide a group as possible. I hope the sensibility of that would commend it to the Government in some way. I look forward to a response on that.

The converse side of this argument is to be found in Amendment 21. This was slightly touched upon by the noble Baroness, Lady Wheatcroft, who I am afraid is not now in her place. I recognised what she said in her intervention on the last group. We would all be worse off if the credit referencing agencies and those others involved in this stool of three legs that I have talked about were fed information that was wrong. There has to be some means or mechanism for those who feel that the information held on them in these agencies is correctable. The noble Baroness was right to say that this has a sense of the googlisation issue, where you might have the right to correct your own information if you do not like it, but that is not where we are here. We are saying that if it is factually incorrect or in some senses paints a distorted picture, there ought to be some redress mechanism.

There are probably already reasonable direct relationships that could be invoked for that. Of course, there is the Financial Ombudsman Service, which plays a great part in dealing with many issues. I suspect that the people we are talking about in the SMEs, particularly the smaller ones, would find it helpful to have a body like the FOS to which they could pray in aid for help to correct information, question whether information held is correct and iron out any problems. The amendment is there as a suggestion, to the extent that there may even be other systems that would be better able to take this on. If there are not, why should the FOS not be invited to do so? The reason for tabling the amendment was that, in researching this, it turned out that there is a rather low limit for the size of institution that can approach the FOS. It would perhaps be helpful if, as a result of this discussion, the Treasury took this back and looked at it again. It seems wrong to cut off an area that is clearly effective in trying to get things resolved and to get the economy moving and things going. I hope that that is a helpful contribution.

--- Later in debate ---

[Lord Newby]

Going to the CRA is the logical first port of call, is it not? We are talking about cases here where a company believes or knows that the CRA has incorrect information about it on its books, and it will be in the interests of the CRA to correct any mistakes. As I say, the complaints procedure is part of the designation. We are making sure that the CRAs are open to complaints and have a proper way of dealing with them. The other limb to the argument relates to the role of the Financial Ombudsman Service. The noble Lord is suggesting an extension to the remit of the FOS in terms of businesses, which is a considerable change that you would contemplate only as part of a larger possible review of the role of the FOS in terms of businesses more generally. This is a very narrow area, and to extend the remit of the FOS in respect of firms just for this, and to nothing else, would look slightly odd.

Amendment 25 relates to the definition of small and medium-sized businesses. I apologise to the noble Lord, Lord Flight, that I was unable to be here for the earlier discussion broadly around this issue. The definition that he is suggesting is the one used by Her Majesty’s Revenue and Customs for the purposes of the research and development tax credit. Although I hear his arguments, I would point out that the £100 million figure is very much the outlier in terms of accepted definitions of SMEs. The definition used by HMRC for R&D tax credits is tailored to that one specific policy and flows from the fact that most research and development is done by larger companies. I do not believe that it would be appropriate here.

The turnover figure used in the current definition in Clause 7 is widely accepted as the threshold for an SME. It is used in the Companies Act, by the Bank of England for reporting purposes, and for the Funding for Lending scheme. It is used by various government schemes such as the lending appeals process and is used by the British Business Bank. There is no rationale for dramatically expanding it to businesses with a turnover of up to £100 million. As noble Lords will be aware, these measures are designed to address market failures that disproportionately affect the smallest businesses: namely, a lack of credit information and a lack of awareness of alternatives. These problems do not affect larger companies in the same way. The Government have proposed and consulted on a measure aimed at small and medium-sized businesses. This amendment would go considerably beyond that.

The existing simpler definition in the Bill, based on turnover, mirrors that used by the Bank of England. We believe that it is the most appropriate definition for legislation that applies to banks as they have visibility of the turnover through the company’s primary account and are already used to applying the similar definition used for the Funding for Lending scheme. I would note, however, that even larger companies outside the definition of SME businesses will benefit from the measures in the Bill. For example, a larger company will still be able to apply directly to a designated platform to seek a finance provider. The Government therefore consider that the existing turnover threshold of £25 million is the appropriate place to draw the line for the legislation. I hope, therefore, that the noble Lord will be willing to withdraw his amendment.

[Lord Leigh of Hurley]

I thank my noble friend the Minister. I hear what he says but I would make the point that, as the noble Lord, Lord Stevenson, said, we are entering uncharted waters here. We really do not know how this will work. My amendment would therefore allow for the possibility that the system was not working well, with unhappy companies that want to borrow money the second time around finding the system to be too complex and too much of a muddle and being hassled, shall we say, by too many finance providers. It would simply allow the Treasury the option to suggest that advisers are included in their options. I would encourage the Minister to reflect upon that, but for now I beg leave to withdraw the amendment.

Amendment 18A withdrawn.