Lord Mendelsohn
Main Page: Lord Mendelsohn (Labour - Life peer)
Lord Mendelsohn (Lab)
My Lords, I draw attention to my business interests as contained in the register. I start by thanking the noble Baroness for her courtesy in sending material on the Bill; it has been very helpful indeed.
I must confess that, during the course of the Queen’s Speech, my pulse was quite sent racing. I was very keen on the initial stated intentions of the Enterprise Bill, which were to,
“cement the UK’s position as the best place in Europe to start and grow a business, by cutting red tape and making it easier for small business to resolve disputes quickly and easily; and … reward entrepreneurship, generate jobs and higher wages for all, and offer people opportunity at every stage of their lives”.
I became slightly less enthusiastic when, on 17 September, the Government’s announcement of a series of publications rendered the latter intention as to,
“cut red tape for business, encourage investment in skills, and make it easier for firms to resolve payment disputes by setting up a Small Business Commissioner”.
That seemed to downplay somewhat the initial ambition of the Bill. It will therefore be no surprise to noble Lords to learn that the Bill as published has somewhat dampened my flame of excitement. The Bill states that it will,
“Make provision relating to the promotion of enterprise and economic growth; and provision restricting exit payments in relation to public sector employment”.
There are of course some measures that we will support. In fact, a number of the measures now being brought forward by the Government are ones that they resisted during the passage of the Deregulation Bill, Consumer Rights Bill and Enterprise and Regulatory Reform Bills in the previous Parliament. The Bill contains the product of a number of reviews, together with a curious mix of measures relating to the public sector and some well-intentioned but somewhat limited initiatives.
In this context, although we will always try to be as constructive as possible and seek to find ways in Grand Committee to convince the Government to improve some measures—and we will express our support for others—I cannot fail to say that our strongest disappointment concerns the Bill’s provisions relating to the Small Business Commissioner and late payments. No one is in any doubt of our support for the measures relating to those matters, but what has been proposed is, in our view and on the basis of available evidence, not just insufficient but highly likely to be negative.
The consultation on the Small Business Commissioner was limited. It reminded me of the quote attributed to Henry Ford, who said that if he had asked consumers what they wanted at the time, he would have invented a faster horse rather than the mass-produced motor car. The Government, resisting the arguments for a small business administration, have landed on the Australian model. This we warmly and enthusiastically welcome, but we do not believe that they have used the considerable experience and evidence base available to good effect. I know that the Minister recently met the Australian Small Business Commissioner, Mark Brennan, whose 15-year work in Victoria, Australia, has provided world-leading expertise in how to apply and develop that model. He has encouraged a massive evidence base to emerge with industry groups, academics and other institutions.
The Small Business Commissioner could be a great boon for our country, but its flaws as proposed are many. The first is its proposed scale. The Government anticipate that it will deal with only 500 cases a year. In fact, its staffing and resources compared to those in Australia, where there are small business commissioners in every state as well as at the federal level for a market and population considerably smaller than ours, will make it relatively smaller than the Australian federal and state commissioners.
Secondly, the Small Business Commissioner’s role and purpose is too limited. The origin of the Victorian Small Business Commissioner—the first one—was as a measure to improve the quality of the business environment. It was established with broad powers and functions in Victoria and developed from a review of the retail tenancy laws. When the original Bill fell due to the timetable, the next set of state Ministers considered that the advantages present in the Bill were likely to be highly beneficial to small businesses in general, rather than just the retail sector. The office of the Victorian Small Business Commissioner was established,
“to enhance a competitive and fair operating environment for small business in Victoria”.
That model has caught on. The specific provisions constituting the Victorian Act are not dissimilar to those found in the legislation of other states, which are essentially based on that model.
It is clear from the operation of all these models that there is a consensus and evidence base that a properly functioning small business commissioner covers: access to information and education; advocacy to government; investigation of small business complaints and business behaviour; facilitating the resolution of disputes, including and especially through mediation; and influencing a small business-conscious government and other key stakeholders including regulators, media, academia and the business community and trade organisations.
Fourthly, the decision not to provide the commissioner with a mediation role will inhibit it in establishing its place in the business community and takes little account of the evolution required to make the role truly effective. Universally, every small business commissioner in Australia will tell you that it is this role that led to the widespread support across the business community in large as well as small businesses for its work and established its credibility. The fact that it is underpinned by an important legislative power, namely that any company’s refusal to accept mediation must be taken into consideration over the question of who is responsible for costs of court action whatever the result, is fundamental to its effective operation.
I noted during the consultation that the Federation of Small Businesses did not support this role. On this, it is just plain wrong and I urge it to speak to its counterparts in Australia, who can brief it on the importance of this. The Government’s argument that there is no market failure is quite bizarre. Having listened to Ministers and read their documents in relation to the then Small Business, Enterprise and Employment Bill, their own conclusions on the asymmetries of power, information and resources are pretty clear that there is an entrenched market failure. The absence of mediation as a central function of the Small Business Commissioner is an error that requires correction.
Fifthly, the commissioner lacks the independence and long-term support to make it effective. Other similar agencies have been established, and beyond Australia, with greater independence so that they become the champions of small business rather than the potentially politicised tool of Ministers. Additionally, they have wide roles defined to make sure that they can evolve and design effective ways of working. It can hardly be credible that the Government have a serious, long-term commitment to these issues if they provide for the Secretary of State to be able to abolish it at the stroke of an administrative pen if they find it inconvenient.
Finally, and most extraordinarily, the Australian Small Business Commissioner model has very little to do with late payments at all. It has no specific powers or role there. It has little success and not one of the commissioners considers that an essential function. It has more to do with unacceptable payment terms, but there, too, it is limited. In fact, Australia’s record on late payments is probably worse than ours. On payment days, it has a significantly worse record than the UK. It is fiction to believe that it is either useful or effective in dealing with late payments. Given the 15 years or so of experience, it is sobering to observe that in Australia they are introducing a variety of legislative measures that we would do well to examine for how we deal with late payments. In fact, Australia’s recent introduction to deal with late payments in the public sector is to force the public sector to not just report any late payments but automatically pay interest on the costs to those it has not paid. We believe that that measure helps to materially and significantly address the problem of people not paying up by making them face consequences for late payments. We tried to introduce similar measures in the small business Bill, and we hope to re-examine this in Grand Committee.
I genuinely believe that the Government want to do something on this, and that they, too, are unconvinced that culture or a body that handles 500 cases a year can realistically address the ever increasing volume of late payments. We will lay amendments that we hope the Government will be inclined to work with. In the mean time, have the Government any plans to introduce, by amendment to this Bill or through administrative means, given the disproportionate disadvantage that small businesses have in funding cash flow, a requirement on all government departments and public agencies to pay additional compensation on small business invoices that are not paid within 30 days? Can we have an update on the Government’s experience on requiring contractors used by the public sector to pay their subcontractors within the same period as the main contractor is paid? Would they consider imposing a requirement for the main contractor to report on payment to the public sector body, including the payment of the interest on the late payment? Will they provide that all suppliers and bidders to the public sector and for public contracts must sign up to the Prompt Payment Code, and for suppliers to be able to make complaints about late-paying suppliers anonymously through their representative business organisations, as required under current EU legislation?
It feels a little early to be amending the small business Bill, but we are delighted to be doing so, as we made the point that the Government’s logic on regulation is that they should have introduced it then with regard to business impact targets. In addition, in Part 2, who could oppose anything to reduce the burden of regulation? That is, the burden, not the fact of regulation. I tried to find a single post-war Government that did not make this pledge. I believe the first to do so was when Harold Wilson, as the President of the Board of Trade, announced the “bonfire of controls” in 1948. The previous Government even suggested that they saved £2.2 billion through their “one in, two out” rule. I am pretty sceptical about that figure—a feeling that has grown stronger ever since I was given extremely unhelpful replies to my Written Questions on this matter. As an investor in and operator of small businesses, I have also been looking out for the couple of thousands of pounds by which I should feel better off as a result of this policy. However, a report issued by the independent Regulatory Policy Committee in March perhaps gives the reason why I am still waiting. It identifies that, during the last Parliament, the Government introduced regulatory costs of almost £2.7 billion. Overall, the cost of regulation increased by at least £460 million. To be fair, the last Government tried to be more thorough than most of their predecessors in trying to reduce the burden of regulation, but they have not done so. Regulation from the EU—or that which it defines as EU—is excluded, and the remarkably unscientific so-called “equivalent annual net cost to business” conveniently ignored the Government’s own accounting rules.
On the business impact targets, we believe that the Government are right to place a duty on regulators to see how they operate and to ensure that their impacts are properly measured, and we will support those sorts of notions. However, as I say, we are sceptical about the numbers, and we hope that the Government will be interested in supporting a more independent examination of the regulatory savings and how that can be strengthened. I must say that the last Government stated that they had saved £2.5 billion a year—£10 billion over four years, the Business Minister said at the time—and that this Government are looking to save £10 billion in five years. Perhaps they could be slightly more ambitious.
We have previously raised concerns about the growth duty and how it may affect particular regulators. While the intent is clear, the legislation and the impact assessment provide no comfort as to whether the operation of this duty is consistent with the effective operation of other regulatory functions. We are keen to support that, but we would be grateful for more clarity on it. We will of course also support the concerns of the Equality and Human Rights Commission that it should be exempt as a result of its particular circumstances. Perhaps the Minister could tell us whether these measures would apply to the EHRC.
We are strongly supportive of extending apprenticeships and of ensuring that they provide the right quality of opportunities and outcomes that we desire. I have also previously praised some of the initiatives the Government have undertaken on this. The wider concerns are how Ministers who are adding responsibilities and duties whilst cutting budgets to local authorities and requiring them to create new ways of working can realistically add centrally set targets and reduce the local capacity to design and develop training and reskilling of existing staff during restructurings. Does the Minister recognise that this might be a problem, and what measures or flexibilities have the Government examined to take this into account? In addition, will the Minister tell us whether the Government will now consider that if it is good enough for the public sector to have such targets, it might be under the Minister’s consideration for the private sector to have similar targets imposed in due course?
In relation to protecting the name “apprentice”, we are inclined to be positive. There are of course some major concerns about the operation of apprentices and a number of cases of abuse and of poor quality, which I am sure will be addressed by part of the debate on Thursday. However, I am also starting to worry about some of the noble Members of this House. Under this measure, would it be lawful to describe a 12-week training scheme, where an individual wins an investment in a business, as an apprenticeship? I suspect that we will see a start this Wednesday. However, I also suspect that those who might be threatened by this will appreciate that their salvation may be that the Government, which have presided over a 40% reduction in the budgets and size of trading standards, expect trading standards to be able to police this effectively; we are unconvinced that they have the resources to do so. I would be interested to see whether the Minister is providing some more resources, and if she will speak to that. Also, why has a consumer-facing body been charged with this duty, and what else did the Government consider before arriving at that conclusion?
This Bill has good intentions, carrying the conclusions of some impressive reviews but with some serious policy flaws and some measures whose vagueness raises questions over their efficacy. There are some things that we were expecting. In July, the Treasury briefed the media that the Bill would include provisions for the Government’s suggested changes to Sunday trading. Can the Minister confirm that that will be introduced in Grand Committee? There has been some speculation that the department has lost responsibility for this aspect of business policy and it has moved to the Department for Communities and Local Government. Which department holds primary responsibility for this measure, and is there an agreement that this should be introduced in a BIS-sponsored legislative measure?
I do not fault the Minister, who I recognise does a great job in dealing with some tricky government legislation, and we are always very keen to work with her. We on this side look forward to a long and detailed examination of these measures in Grand Committee, and have great expectations that the Government will be more forthcoming with details, data and evidence to support their positions. We will bring forward amendments that are consistent with the Government’s stated intentions and with the objectives of the Bill, covering areas that merit urgent consideration. But we will be resolute in trying to ensure that, for key measures in the Bill, this House provides a better piece of legislation to the Commons than that which came to this House, and we will be prepared to support others in this House, from whichever Bench, who share the same view.