Lord Mendelsohn
Main Page: Lord Mendelsohn (Labour - Life peer)Enterprise Bill [HL]
Lord Mendelsohn Excerpts
Lord Mendelsohn
“( ) A complaint under subsection (3) may be made anonymously.”
Lord Mendelsohn (Lab)
In moving this amendment, I will also speak to Amendment 33. I will also express support for Amendment 19, from the noble Lord, Lord Stoneham. These amendments relate to confidentiality and how the Small Business Commissioner should act in relation to such matters. Amendment 16 ensures that complaints to the commissioner are made anonymously and Amendment 33 governs the conduct of the commissioner in relation to the confidentiality of discussions, documents and other matters relating to complaints. Of course, this assumes a degree of discretion—which is difficult to see, given the tight drafting of the current legislation—and indeed judgment from whoever is the Small Business Commissioner. On this side of Room, we are still reeling from the news that even people in exalted office have considered this role for themselves, so we believe the job will be taken by someone who has a degree of judgment.
These provisions deal with two important situations. The first is where a complaint is made in circumstances where a particular company is unable to pursue it for a variety of reasons, where its particular experience could be interpreted in a variety of ways and where there may be something of a pattern. A Small Business Commissioner can be empowered because small businesses are able to provide details that the commissioner can draw broader lessons from. The second situation is much more pernicious—where there is a real and genuine fear of retribution.
We have a strong evidential base for the proposition that the fear of retribution is causing problems in bringing forward complaints to regulatory authorities and adjudicators, especially about payment terms. The example of the Groceries Code Adjudicator, of course, springs to mind. It has been established for five years and operating for two, and it has a chief executive. It has had an unfortunate mishap with confidential information in recent times.
Following the release of some details, we have been able to identify that such concerns are widespread. In a survey produced for the Groceries Code Adjudicator, the issues that suppliers had could be identified. They were not just about delays in payment, which was a significant problem, but about such things as variations of supply agreement, the terms of supply, unjustified charges for consumer complaints, the obligation to contribute towards marketing costs, and lack of compensation for forecasting errors. The issue of payments as a condition of being a supplier was also remarkably similar to that of late payments. The range of issues that were dealt with covered a multitude of sins, most of which are not covered by the Small Business Commissioner. Even taking account of all those circumstances, the Groceries Code Adjudicator’s public response made it absolutely clear that the fear of reprisal is still the single biggest inhibitor to raising a case; indeed, one-fifth of those surveyed would not raise a case at all for fear of retribution. There are even larger problems when we take into account concerns about the adjudicator’s ability to address asymmetries of power.
This is not just about the fear of retribution, but confidence that the Groceries Code Adjudicator can maintain confidentiality or even do anything, given the strength of the businesses with which she is dealing. This issue came to the public’s attention when the adjudicator admitted recently that fear of retribution was probably her single biggest challenge, the biggest reason why suppliers did not raise issues with her, and that these matters had to be dealt with. Christine Tacon said at a conference in London that building trust with suppliers to encourage them to raise these issues is a major challenge for her. The measures we are discussing would give the Small Business Commissioner much greater ability to address these issues, and the means—or part of the means—to do so. We strongly believe that it is very important that the commissioner be able to gain the confidence of suppliers, maintain confidentiality, use discretion, address these issues and find better ways to resolve them. I beg to move.
Lord Stoneham of Droxford (LD)
I do not think there is much more to say than was said by the noble Lord, Lord Mendelsohn, in introducing these amendments. Amendment 19 stands in my name and I support all three amendments in the group. They are all about confidentiality and discretion. I am sure the Minister will support them as well because the principal problem is how you get people to complain, or at least raise problems, if they fear that doing so will affect their business and associated relationships in the future. If we want the office of the Small Business Commissioner to work and to enable them to do their job properly, we need to address this important issue. Confidence and discretion must be maintained unless the complainant agrees otherwise.
Lord Mendelsohn
I thank the Minister for those comments and will just make a few points in reply. It is a limited pool, but we illustrated some of the lessons that can be drawn from the Groceries Code Adjudicator for various reasons. The situation is slightly different but, when it comes to what the consequences and fears are, the numbers are so stark that it gives us some sort of base. The important point to note is that if the Small Business Commissioner had the same uphill struggle to get anywhere near the velocity we need to make this work, the situation would be extremely difficult. The difference between the Groceries Code Adjudicator and what we are trying to do here is that, as the adjudicator said at the London conference to try to convince suppliers, she has a legal duty to protect them. That is a very important principle, which we think should be considered. If someone with a legal duty to protect suppliers is not able to engender that sort of confidence after this long, the Government should consider that point in due course.
The Minister finished a little too quickly—I was about to whip out Mark Brennan’s article on mediation. In mediation it is absolutely essential that you do not have conditions of anonymity, largely because the process of mediation is about coming to a commercially realistic solution, in keeping with our suggestion that a degree of compromise is required. However, the small business commissioner in Australia does take anonymous complaints, in order to be able to identify potential patterns, and does have greater powers to look at such issues and learn broader lessons. That helps to inform the rest of their activities.
However, I see that we have a chink of light. I was not particularly happy, given that we have been trying all along to get the Small Business Commissioner a little more discretion and the ability to consider matters in the round, that one of the measures was described as “disproportionate”. That is not our intention—we are encouraging discretion. I hope that in due course the Government may be able to consider these matters in a fresh light. Given the Minister’s comments, I beg leave to withdraw the amendment.
Lord Mendelsohn
“( ) Where the respondent fails to provide information voluntarily, the Commissioner has the authority to investigate and enforce compliance with information requests on contract terms.”
Lord Mendelsohn
My Lords, in moving Amendment 20, I will speak to Amendments 21 and 22 and address some of the issues relating to Amendments 23 and 31, in the name of the ever-present and astute noble Lord, Lord Stoneham. This cuts to the very heart of what we are trying to get the commissioner to do: how the commissioner can operate most effectively and what some of the powers are that make the whole system work. This is very important to consider in the light of the narrow focus of the objectives in the short term and the hope that the office will establish objectives that will make a big difference to small business over time.
Amendment 20 would provide greater power for the commissioner to investigate and call for information. Amendment 21 would reinforce this by specifying the breadth of areas where they can call information from: government departments, local authorities, public sector bodies and companies. This is largely because there are very few powers available in the Bill, and the ability for another organisation to frustrate the commissioner is clear. So in our view, Amendment 22 is extremely important because it provides what is in a sense a lever which encourages people to go through a process of mediation.
The objective of the office of small business commissioner—in a sense, the classic design—is to enhance competition and a fair operating environment for small businesses. The investigation of small business complaints, business behaviour and facilitating the resolution of disputes form the core, whether or not that involves greater accessing of information and education, influencing government and their agencies to be much more focused on small business, or even acting as an advocate for government. But at its very core, the function of helping disputes gain some traction and thus resolve matters for small businesses is extremely important. These underpinning powers give it the force to make sure it can get to the heart of any matter, and that it has sufficient leverage to encourage some form of mediation. The Small Business Commissioner needs a power to encourage as well as to discourage.
The cost of a dispute for a small business is not just the financial costs but lost business and the cost of pursuing any resolution, such as legal costs. There is also a considerable opportunity cost, and a great deal of stress. The opportunity costs include what would otherwise have been achieved for the business in terms of time and effort. So, if a small business which is resolving a dispute takes someone out of the business, added to those costs is the disruption caused for the operators themselves.
Small business disputes face a particular difficulty, which is that they do not generally arise in the ordinary course of operating such businesses. They are periodic and emerge in unusual circumstances, and accordingly small business operators may not identify an emerging dispute until quite late on in the process, and might not have developed the skills to resolve the dispute. Through the early identification of emerging disputes, financial costs can be dealt with easily, incurring much less of a burden for both parties; and it also means that relationships that are critical to running small businesses can be maintained.
As we have seen with previous legislation, a small business commissioner and effective alternative dispute resolution operate speedily and at low cost. We would hope that the Government would consider mediation to be an additional tool that could be used over time. It is an informal and collaborative process and is generally of far greater benefit to small businesses, principally because it facilitates parties continuing their commercial relationships. Also, the potential costs of legal proceedings outweigh what small businesses would gain from the dispute. Long, drawn-out legal proceedings with the possibility of appeal may also hinder the parties so that they do not deal with each other commercially while the action proceeds, and the breaking of the business relationship is likely to persist. Accordingly, in alternative dispute resolution a strong emphasis is put on things which can be signposted by the Small Business Commissioner, such as those which they can supervise or take some sort of role in. This encourages the parties to be commercially realistic rather than intransigent, and to seek an outcome that is not 100% in favour of one side.
In order to create such a role, it is clear that some kind of lever is required. Amendment 22—my particular favourite—states that if one party is uncooperative or is unwilling to go through sensible mediation, the Small Business Commissioner can provide a commentary that will be taken into consideration when the question of costs is considered if that matter goes to litigation. Australia is a good and successful example of the use of this power, which helps to ensure that the parties come to a resolution. A small business can rack up massive costs when the Small Business Commissioner has reached a firm conclusion, and we have seen how resolutions can be reached over time much more collaboratively, in keeping with the intention of maintaining good business relations. That is not axiomatic; there are of course provisions for the court to take different views and provide protections, so that people do not game the system. But the notion that a small business commissioner, using their discretion, can ensure that someone comes to the table in a co-operative and collaborative spirit, and that all parties take a sensible view, underpinned by the idea that someone else will be accountable for costs, is a considerable and beneficial power.
All in all, we are hoping to the narrow focus of the Small Business Commissioner. The Bill already narrows who it covers, who it deals with and what it can do in general. The Small Business Commissioner, by the very definition of a small business—by the exclusion of large entities being able to contact it; by its roles and functions, its capacities and flexibilities; in providing no scope to deal with local authorities; by its staffing, its capabilities and the unusual power that the Secretary of State has to abolish it; and by its levers for enforcement and information—relates only to a small proportion of the type of disputes that can be dealt with. On late payments, it is already narrowed by the legal definition of the contract terms it can cover. It deals only with disputes with large businesses, even if large businesses are a consequent part of the step. It excludes the public sector and most contract term variations, along with anything that can go through an alternative complaint procedure.
As we near the end of these clauses, I am hoping that, while we have not been able to address such issues, the Minister might be sympathetic to giving the provision greater teeth and flexibility, so that progress can be made. I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have some sympathy with this amendment. It offers the possibility of speeding up the process of resolving complaints. For the respondent—that is, the person about whom the complaint has been made—time is his friend. He has the money so the longer that he can spin it out, delay and obfuscate, the better. The complainant may lose heart and give up, but in any case in the mean time he hangs on for money. There may be occasions when the Small Business Commissioner says, “Actually, if we could get that particular piece of information, we could resolve this. We could cut to the chase and reach a resolution”. Up to that point, the respondent could have been trying to flatter to deceive, appearing quite helpful and giving lots of answers, but not actually giving the answers to the questions that were relevant to the point at issue.
I think that the noble Lord, Lord Mendelsohn, has made a good point. I would like to see us find ways in the Bill to facilitate the speeding up of this process by the Small Business Commissioner being able to cut through the Gordian knot—if he believes that such a situation exists—by requiring that information which has not been offered voluntarily can be compelled to be disclosed with a view to making his job and the whole process work more efficiently.
Baroness Neville-Rolfe
I am grateful to the noble Lord for his intervention and the opportunity to say that the commissioner can raise issues about his powers in the annual report, which, as I said on another occasion, will be available to Parliament, and which we have to table in Parliament unamended. He also has the power to name and shame, so he can publish the report and comment. The Australian commissioner is getting a lot of airtime, but he has found that that power has been useful in the conversations he has had in Australia on difficult cases. That will therefore help a lot and will help to change the culture, as I was saying on the Floor of the House this afternoon. There is also a review of the success of the commissioner, which I think some noble Lords questioned on Monday, two years after the coming into force of the Bill—assuming that noble Lords agree it—and then every three years. Therefore, that also gives us another opportunity.
This is a novel area, and we are moving forward in uncharted territory. We are bringing in a number of changes. I remember that when I dealt with planning in the 1980s as a civil servant, we made what seemed like quite small changes to the regime of planning, which obviously was in guidance, and that had a huge effect. My own view and hope is that these changes that we are making on transparency, payment terms—following the EU directive that I was talking about this afternoon—and of course on this vital Small Business Commissioner, will make a big change to the landscape.
Lord Mendelsohn
I was disappointed by some of the Minister’s comments at the very end, because arguments were set up which we clearly have not made or would make, and nothing we have said during the entire course of these proceedings would suggest that we would make such points. We think a weakness is that we have not learned the lessons—from Victoria to Queensland to New South Wales, to the Australian commissioner. Mediating one case does not establish a rule; it will not do in Victoria, Queensland—no one has ever suggested such a thing and it was wrong to suggest that we would. Similarly, the court determines costs and the Small Business Commissioner can make a particular point. The Minister presented a whole series of arguments which are wrong.
I will focus on reputation and naming and shaming. I accept that the Government think there is some huge benefit to this, saying that we can deal with naming and shaming and reputations, and that it is some kind of Aladdin’s lamp. However, frankly, people need a little more, and the noble Lord, Lord Hodgson, made exactly that point. You can string out an awful lot of the process by not being able to do it. Someone needs a lever so that they can say, “If you choose to frustrate a process and to refuse to do these things, there are other ways you can deal with this. Or, if you feel that you are being strung out, it will not work totally and wholly to your detriment”. That is quite important.
The noble Viscount, Lord Eccles, made the point that we should not make a detailed examination of particular businesses. Certainly, it would be extremely concerning if, when every business qualified, a series of checks about its health were made. However, these matters are relevant to how a conclusion is reached. There may well be restrictions when there is a payment dispute, the contract term is a problem and the larger business is willing to change it, but a broader change is required. You sometimes have to get into those issues where you are resolving a case. When a company is going to be named and shamed, its willingness to address that in the circumstances is the sort of issue that will certainly weigh on the Small Business Commissioner. If it found that there was a problem, it would reflect on whether the magic lever of naming and shaming should be applied if the company showed some sort of good faith and good will.
Baroness Neville-Rolfe
I will certainly look at the point that the noble Lord makes about avoidance contracts, as it were. I was trying to explain the amendments that have been put down, partly in an exploratory way, and what effect they seem to have. Obviously, what we are doing is debating these issues and trying to find the right way forward. I am informed that a small business can raise a complaint if the larger company seeks to exclude the commissioner from answering. That is a sort of interim answer to the point that he has made about magic circle law firms seeking to get around what we see as a new conversation between big and small companies, initiated by the Small Business Commissioner so that we can improve the culture and, as he said, deal with the more egregious cases, so that that will change how people behave and we will not have large numbers of cases ending up with the Small Business Commissioner.
Lord Mendelsohn
The point that you can include things is the point that comes before, and the point that where you exclude it is the point where I picked up. For the purposes of brevity, I thought I would leave out the first part but I am happy for the first part to be mentioned in reverse order to where it appears, even in the Government’s own documents. Before we come to some very clever amendments that I hope the Minister will be very sympathetic to, all I am trying to say is, at least give the Small Business Commissioner some latitude. Allow it to apply its discretion and encourage people of good standing and with good experience to come forward and use that discretion to good effect, to be able to help small businesses. I beg leave to withdraw the amendment.
Lord O’Neill of Clackmannan
This group of amendments is significant, in so far as it is another indication of the change of mindset in the Liberal Democrat ranks. We have seen them voting with enthusiasm against the Government in the past few days, and here we have what must be regarded as a classic example of Opposition Committee stage amendments. Where you see a “must” you make it a “may” and where you see a “shall” you make it a “will”. I remember some 35 or more years ago as a young Back Bencher being told that that is what I had to do when I was debating the Committee stage of a Bill in order to scrutinise it properly, but in effect the idea was really to hold up proceedings for as long as possible. That was because in those days, time was the only weapon in the Commons that Oppositions had. I am sure that the noble Lord, Lord Cope, bears the scars of many such confrontations.
This is a basic type of amendment but it is none the less worthy because of that. It offers to put teeth into the legislation, and I think it is useful for us to get a greater degree of accountability—a bit of an edge. As I said earlier, the softly-softly approach is okay, but it should be, “Walk quietly, but carry a big stick”. The stick does not have to be used, but the threat is there. The Minister recognises that here is an opportunity to have a bit of cross-Committee co-operation, and may accept what is a modest but none the less worthwhile group of amendments.
I hope that I do not sound patronising, but this has brought back to me memories of the delights of the Augean stables of Scottish secondary legislation, on which I spent many years. I will not sustain the metaphor, but noble Lords will get my point. As I say, the amendments deserve the support of the Committee, because they are well-intentioned and should enhance and give more force to the Bill.
Lord Mendelsohn
My Lords, I add our support for the first of the measures. I thank the noble Lord, Lord Stoneham, for introducing it into our discussions and the noble Lord, Lord O’Neill, for his excellent comments.
Amendment 30, in my name and that of my noble friend Lord Stevenson, would give the Small Business Commissioner a role in commenting on access to finance and to make a simple and straightforward case. A number of measures try to increase access to finance, whether they be the provision of overdrafts for very small businesses, forms of growth capital, older forms of asset finance, newer forms of peer-to-peer lending or other forms of finance. Many people look at these schemes and programmes; indeed, committees in this House, the Government and other bodies have looked at the performance of a number of the initiatives that are available and whether they give the right benefits and whether too much is taken out of them.
The purpose of the Small Business Commissioner is to take the perspective of a small business to try to find ways in which such schemes work to best effect on behalf of small business. In many ways, this is our thinly veiled attempt to enable the Small Business Commissioner to be the advocate of small businesses and to take a particular perspective that encourages the voice of those who require access to finance to come to the fore. Where the Small Business Commissioner is able to draw on the lessons learnt from resolving disputes—where there are broader lessons, challenges and problems—those comments can be made. Invariably, the problem is not just about cash flow. If you have a problem with cash flow, access to finance will be the crucial test of whether you are able to survive.
Lord Hodgson of Astley Abbotts
My Lords, I just want to say a word about Amendment 30, to which the noble Lord, Lord Mendelsohn, has just spoken. On Monday, at our first meeting in Committee, I said that I thought that the SBC role had been drawn in a way that is a bit too focused, but I say to the noble Lord that Amendment 30 would take that role well beyond the bounds of what the Small Business Commissioner should be doing. The comments that I made on Monday about payday loans apply equally here. This is not part of his competence. Hundreds of bodies and people make recommendations about how to improve finances for small and medium-sized companies. That is a serious issue, but it is not part of what he should be doing. He is focused on a different part of the field. I am sure that my noble friend will not accept the amendment, as plenty of bodies are looking into the provision of finance to small business and this would be a distraction from the commissioner’s central task, albeit that I still think that the central task is a little too narrowly drawn.
Baroness Neville-Rolfe
I thank noble Lords for this amendment and, indeed, for the whole series of amendments on the Small Business Commissioner, which have enabled us to have a very good debate. I am glad that my noble friend Lord Deben joined the debate and note his comments on construction, which we can consider in the context of the review that we have just agreed to. However, as he says, more generally, in other sectors some companies are much better payers. What we want to do is to change the culture so that this is the norm rather than the exception, if it is the exception. I do not know the exact facts but the overall numbers are a cause of concern, as we have said on a number of occasions.
The amendment before us, which is not really concerned with construction, would require companies to report outstanding liabilities relating to overdue payment, including interest payments on the unpaid invoices. It would require any failure to disclose this information to be reported to the commissioner.
During Report of the small business Bill in the Lords, I brought forward amendments, as noble Lords may recall, to specify in the Bill how the reporting power could be used in relation to payment performance and interest owed and paid in respect of late payment. Over the summer, my officials have been working with stakeholders on the regulations. We have established a working group to draft non-statutory guidance to ensure that companies are clear on their reporting obligations, and that the information reported is robust and comparable.
From next year we will require companies to report online every six months against a comprehensive set of metrics. That includes the proportion of invoices paid beyond agreed terms and the proportion of invoices paid within 30 days, between 31 and 60 days, and beyond 60 days. That is a lot of information for the top 14,000 companies. It will not be in the annual accounts as we want the information to be provided quickly. The information will, however, be rigorously monitored and will be timely and accessible—more so than putting something into the annual accounts.
The new prompt payment reporting requirement will enable us to bring increased transparency on payment practices and performance. We can legislate by regulation for the Small Business Commissioner to monitor that information, which I think is one of the things that the noble Lord emphasised in his presentation of the amendment. The commissioner may also highlight good and poor performers as part of his or her efforts to drive a fundamental change in behaviour. This will help exert the necessary pressure—a point we keep returning to—on companies to make sure that their suppliers are paid on time and fairly compensated when that is not done.
I am confident that the measures imposed on the Small Business Commissioner will lead to significant change in the UK’s payment culture. I note that the noble Lord said he would want to return to issues to stiffen powers on Report. I would only say in conclusion that I would very much regret seeing an adversarial element developing in this proposal. We do not want more costs, more lawyers and more delay. I think that we have a shared objective of trying to make the Small Business Commissioner a success, but in the mean time I ask the noble Lord to withdraw the amendment.
Lord Mendelsohn
Before the Minister sits down, can I clarify that the amendment addresses none of the points that she made? It is really about identifying the liabilities you have for the interest payments where you did not make a payment. As such, that addresses the ability of large businesses to be able to say that if you do not believe that someone will chase you—a small business will chase you for a payment you are due—you can write it off as a liability very quickly on the basis that you do not believe that it will be chased. It addresses that sort of liability.
Baroness Neville-Rolfe
I thank the noble Lord. Indeed, you are looking at the overall millions owing rather than the individual invoices, as I understand it—therefore, the debtor’s figures.
Lord Mendelsohn
Yes, certainly. For late payments, fines can be attendant to it. They tend not to be incurred, largely because companies do not pursue them. This simply establishes that a company has to establish it as a long-term liability in its account that could be claimed. In pursuing the Minister’s argument about culture, it helps to establish whether the company is fulfilling all its duties, including under the Prompt Payment Code.
Baroness Neville-Rolfe
My Lords, there might be merit in further discussion on the finer points of this. The point I wanted to make is that it is important to also look at what we are planning in terms of payment transparency; perhaps we could discuss that outside the Room before Report.
Lord Mendelsohn
“Report on money laundering regulations
(1) The Small Business Commissioner shall prepare and publish a report assessing a regulator’s performance and effectiveness at ensuring regulations are proportionate, user friendly, widely promoted and easily adapted by small businesses in relation to money laundering regulations.
(2) The report provided for by subsection (1) must include an assessment of the role of the Financial Conduct Authority and its activities to encourage awareness of the impact of money laundering regulations on small businesses.
(3) In this section a regulator is a person with regulatory functions to which section 108 of the Deregulation Act 2015 applies.”
Lord Mendelsohn
My Lords, I should declare at the start of these amendments that I am regulated by the FCA, so this is actually terribly in my interest. This relates to being able to give small business some guidance. Very briefly, money-lending regulations apply to a whole range of small practices ranging from financial and credit services, accountants, lawyers, estate agents and a number of others.
As ever, the regulations are quite complex within this context; there are duties to assess the risk of the business, your own business activity being used by criminals, who you are conducting business with, checking the identity of beneficial owners, monitoring their business actions and reporting on management control systems, or keeping documents and making sure that you are training your employees. I am bound to say that as ever, these obligations on companies that try to comply are very hard on them indeed; small businesses in particular find that very tough. For those who have no intention of bothering to comply with them it is exceptionally easy; I cannot say this comprehensively, but in cases that I checked the fines are significantly smaller than the costs of having to comply by having a compliance adviser or other sorts of people.
We therefore hope that the Small Business Commissioner will be able to play a role here to help define what is good activity rather than the constant uncertainties that happen, especially over something such as this. Is it sensible for a small business with two or three people in one of these areas to have to phone up the company secretary at a FTSE 100 company to say, “Can I have the passports and identity checks of your company directors?” and to have to carry on referring them in those sorts of circumstances? Perhaps this may not be a formal role, but this now famous annual report may well have some provisions which will be helpful to at least simplify this for small businesses.
Secondly, on awareness of share sale fraud—I apologise that we may not have drafted this to the most exacting standards that we would otherwise have liked to have done—I will try to give noble Lords the thrust of the measure. Again, small businesses are particularly vulnerable to a number of frauds that take place where people try to sell bogus financial services and products and other sorts of things. This affects areas where online fraud is established or verified through the use of things such as addresses or other sorts of things as well as when online and offline meet. We are trying to give the regulators some ability, obligation or duty to communicate; hopefully the back end of how that might work best for government would be between the enforcement agencies and the regulators. I will give a great example, which was, of course, when City of London Trading Standards sought a conviction against Regus Management, which housed just the address of a particularly fraudulent scheme. When contacted by—on this occasion—consumers, the company said that its offices were based there, when, of course, it was just a postal address. Just by saying that it was based there gave it a credibility which led to a couple of people being defrauded.
It is also very useful to know that the police are now enforcing a crackdown on boiler room fraudsters in the City of London and Canary Wharf. This is good practice; we would like to encourage regulators to get the message out so that there is reasonable coverage across the rest of the country. This is just about trying to place a duty on them to try to make sure that something can be done to help support small businesses across the country. I beg to move.
Lord Hodgson of Astley Abbotts
I cannot resist, although I know that the Committee is like a horse heading for the stable, therefore I shall be very brief indeed. On the comments made by the noble Lord, Lord Mendelsohn, on money laundering, this area has a life of its own, and the impact on smaller businesses is stupendous and without any real evidence of any efficacy whatever. This area is still growing, and the tentacles of bureaucracy are widening all the time, therefore the burden will be greater. I therefore very much support the idea that we take any steps to make sure that it is effective—not that we should not do it, but that it is effective. That is the thrust of the noble Lord’s Amendment 49B and trying to make sure that we try to prevent the further spread of this. I have today received a request about money laundering from my clearing bank. When I left university in 1964 I went to work in America. The bank has written to me saying, “We see you worked in America in the 1960s; tell us what you were paid as part of our money laundering investigation”. What that can possibly add to its knowledge of me 50 years ago I cannot possibly imagine. If you use the term “money laundering” everyone says it must be a good idea. It will require a big effort to make sure that we are effective. The question is: are we stopping people doing these terrible things, not just spraying information around and ticking boxes? Therefore, all power to the Minister.
Baroness Neville-Rolfe
My Lords, I share the sentiment behind Amendment 49B to ensure that regulators have regard to the needs of business when dealing with money laundering requirements. As I used to say when I was on the Back Benches, the regime was excessively burdensome and some businesses feel confused by overlapping or restrictive guidance. However, these concerns cannot be addressed by simply looking at how regulators deal with small business. There may be examples of requirements that are particularly difficult for certain entities, but it is the interactions between different types of business and with the banks that is at the heart of the problem. So small companies with innovative business models or ways of complying with requirements, to know their customers, may find it difficult to maintain business relationships with large banks which do not understand how a particular model works. The bank may simply decide not to do business, rather than expose itself to the risk that the small company is being used for money laundering.
Difficulties can be caused by the guidance that is produced by the various regulators and supervisors. That is why we are looking at the regime in the round. We are now running a Cutting Red Tape review of money laundering controls. It is important that companies that are genuinely confused about what they need to do have this confusion addressed. Our call for evidence is open until 6 November—my husband is planning to send sacks of stuff—and we are keen to speak to all NGOs, businesses and trade associations with an interest, particularly SMEs.
We want to examine more seriously the potential to improve compliance and efficiency, by identifying aspects of the good supervisory regime that appears to businesses in the regulated sector to be unclear, cumbersome, conflicting or confusing. We are already speaking to a broad range of sectors and we would be very pleased to have examples from your Lordships. The Government understand that the regime can be improved. We published the first national risk assessment for money laundering and terrorist finance risks on 15 October and one of the findings was that the supervisory regime was inconsistent. We accept that this needs to be addressed.
The evidence being gathered by the BRE will help to inform work under the Government’s action plan to reform the regime and to ensure that it is consistent; treats large and small businesses sensibly and proportionately; and follows a truly risk-based approach allowing resources to be targeted at the areas that are at greatest risk of money laundering and terrorist financing. These are also important policy objectives which must not be forgotten in today’s discussions.
I hope that gives some reassurance. I have a good deal of excellent detail on Amendment 49D in relation to investment fraud, but given the lateness of the hour, I wonder if the Committee would like me to write about that. I think it means that we do not need to amend the Bill, but a lot of good work is being done by the FCA which I would like to share with noble Lords and give more publicity to in order to get after the scammers. I hope that the noble Lord will feel able to withdraw his amendment.
Lord Mendelsohn
I did not quote the noble Baroness on this one; I am saving that for later, and some significant quotes that she made on other amendments. The argument was not about what small business’s compliance is able to do in transactions with the bank. I understand the Minister’s point, but the issue is really about small businesses being able to establish that they have fulfilled their regulatory duties, which would not have that consequential action.
Baroness Neville-Rolfe
The review is obviously very open. I was trying to explain that if you do a review that engages only small business, you will not necessarily be able to get the same savings as you would otherwise. I have come across this for example with estate agents: if you buy a property, and are a perfectly respectable person, you have to go through all the detail that the noble Lord was describing. If you are a company director, you are constantly having to produce ID again and again. If you take the 5.4 million businesses and find a saving, that is a lot of burden reduction. Obviously, equally, if you impose new burdens, and multiply that by 5.4 million, there is a problem. That sort of technique needs to be applied, which is what the BRE is doing with this study. We will certainly make sure that the noble Lord’s point is properly considered.
Lord Mendelsohn
I do not want to labour the point, but especially in relation to estate agents, the difference is that it is disproportionate to expect an estate agent to establish the proper beneficial owners and other things. Banks, which have more resources to be able to do it, are much better placed. This was just about getting the balance right. However, I accept the point about the review. It felt like one of those sessions where so much was shared that I almost felt like unloading about being a politically exposed person and how often that becomes a bit of a problem, but I will leave that for another occasion. I beg leave to withdraw the amendment.