Lord Mendelsohn
Main Page: Lord Mendelsohn (Labour - Life peer)Enterprise Bill [HL]
Lord Mendelsohn Excerpts(8 years, 7 months ago)
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Lord Cope of Berkeley (Con)
My Lords, I disagree with the last point the noble Lord made. If the Government wish to propose an amendment of this kind, the Committee stage is exactly the right place to do it. That is where it can be discussed in detail and at length. If it were not introduced until Report, I think that people would complain about that and about the more restricted nature of the debate that would take place. Therefore, I do not think that my noble friend the Minister should apologise for introducing it in Committee. On the contrary, she should be congratulated on that.
Lord Mendelsohn (Lab)
My Lords, I declare an interest in that I have a corporate finance business. We have not commercially done any work in this sector, although we informally provided some advice on this area.
I welcome the discussion and the introduction of this amendment. I will preface my comments by saying that we on this side take a very questioning view of these provisions in Grand Committee, and we are more than happy to adapt our view to explanations that are forthcoming. We may take a different view on Report, but we have far more questions now than we are comfortable with as regards this provision. I thought that the contribution of the noble Lord, Lord Stoneham, was very good, and I share a lot of the reservations that the noble Lord, Lord Teverson, just expressed.
I will give a sense of where we are coming from on this. Our overall concern at this stage is that this is all tactics and no strategy. Our query is whether there is a strategy, but this tactic does not tell us what it is. Our concern is that as a tactic in and of itself it is probably incorrect. We understand the Government’s stated objectives, which are that they want to grow the business and make it possible to take on a wider range of sectors, to have a multiplying impact on mobilising investments and to encourage private sector enterprises to get the green investment tide rolling. Of course, nothing makes that happen more effectively than beneficial public policy, and I am not sure that we have had a great deal of that or that it is encouraged in a lot of the areas that the Government had previously wished to encourage, but that is another matter that I may return to later.
There is also no doubt that the Green Investment Bank has indeed had some successes. I will also state that its structure, the recruitment of the staff and many of the aspects of the operation that exist are to be commended. It is a good team and a good group of people, and they have played a very good role in triggering great attention and focus, trying to lever investment and interest in green investment. The costs of the bank are not inconsiderable; I think the run rate is now probably something in the region of around £30 million, which is covered by a grant from the Government. That will soon fall on its operating budget, which does not currently exist, although with the establishment of its most recent fund it now has some management fees to be able to offset that.
However, we take a different view about the green investment market, and the notion that things are all hunky-dory and that things have completely changed is patently not the case. It is absolutely clear that the green funds are underperformers, and it is certainly true that a number of green investments have vanished; the participation of an institution such as the Green Investment Bank has provided reassurance and time for investment professionals to be able to work out a number of the details which other commercial organisations do not have the time or ability to do. It is also true that the investments are quite hard to sell and that in many cases the funds will end up being recurring revenue streams and will be sold on that basis. It is also true that the price of oil is still low, having tumbled, which means that exploration becomes less economic, reducing supply and increasing the problems with the viability of renewable markets. Indeed, fairly recently Jan-Willem Bode, the director of one of the largest green energy organisations in the UK, said that many shareholders,
“feel like pulling the plug right now because it is just too much negativity thrown at the sector”.
That was in relation to the Government’s approach to green subsidies. Dwindling demand and low supply in the energy market have not boded well for a floundering alternative in the energy investment market. It is therefore not entirely accurate to take the view that everything is absolutely fine.
I believe that the bank has had a tremendous success most recently with its most recent subsidiary, the Green Investment Bank financial services fund, which is focused on offshore wind. I want to make the point that offshore wind is in a different category—it has a totally commercially viable fund capacity. The new generation of offshore wind equipment is larger and much more efficient and is something the market can already take up. I do not want to undermine the success of the bank; it is good that it did it, but that success is not an exemplar, nor does it prove a variety of other things. In fact, it is the exception which, in many ways, proves the rule.
The key to the Government’s argument is that this is a technical amendment needed to satisfy the Office for National Statistics. In another place, there was recently a debate on this and there was assurance that this amendment does not change or alter the objectives of the Bill, or even close in the articles for assisting in other green projects. There was assurance that these objectives will remain and that the bank will be fully committed to them. Our analysis is that this is clearly not the case.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for this useful discussion. The noble Lord, Lord Stoneham, talked about “son of Stalin”; I think that it is more “son of Thatcher”. This is an enterprise Bill, after all, and we all seem to agree that the GIB is remarkably entrepreneurial. That is why we want to free it up. I am glad that the noble Lord, Lord Mendelsohn, is not opposed in principle to privatisation. Indeed, I agree with him about a lot of the positives that he mentioned concerning the framework in the UK, with shareholder rights and so on. I think that we have a very good base here. He brings a lot of expertise to the debate. He has rather naughtily asked a few commercial questions and I am not sure that I can answer every single one. However, we understand that this is an important issue that is of interest to a great many people, beyond the confines of this room today. There are a number of points raised to which we will give careful consideration.
I will now move on to the amendments and will answer questions as I go through. Amendments 53ZA and 53ZB would require the Government to lay a report in both Houses detailing the proposal to dispose of shares in the GIB, before the repeal of the existing legislation contained in the 2013 Act could take effect. I welcome the intention behind these amendments, which is to ensure that Parliament is kept informed of the Government’s move to introduce private capital into the GIB. That, frankly, is entirely right and fair, not least because of the level of interest. However, I would be concerned that these amendments, as drafted, might prevent the Government ensuring that the legislation is repealed at the appropriate point in a transaction process, if that were to fall at a time when the House was not sitting. As your Lordships will understand, the Government need to retain the flexibility to manage the complicated sale process.
However, it is our intention to keep Parliament fully informed. I am happy to commit today that the Government will be sure to provide Parliament with much of the kind of information suggested by noble Lords as soon as possible after any sale has taken place and at the appropriate time in the future, should the Government retain a stake that might be sold later, which obviously is an option.
Moving to the Government’s amendment, I hope that I can reassure noble Lords on a number of specific points that they have raised today. The noble Lord, Lord Teverson, asked whether it was too early for privatisation. I believe that the answer is no. We feel that moving GIB into private ownership is the natural next step for the business. The company itself, as I have already said, fully supports the move. There is strong interest in acquiring a stake in the bank from a number of larger-scale institutional investors, as could be confirmed by some comments. In his evidence to the Environmental Audit Committee last week in the other place, the CEO, Shaun Kingsbury, expressed his support for government plans to seek private ownership for the bank.
To answer the question from the noble Lord, Lord Mendelsohn, the Government will explore all options for a sale and, as I will emphasise, our decisions will reflect the outcome that we believe is in the best public interest. Obviously the proceeds will depend on how big a stake is sold and the outcome of negotiations with investors about the value of the company. We will need to be satisfied that any transaction represents value for money for the taxpayer.
Noble Lords are interested, understandably, in the transaction details, in particular whether the Government intend to retain a stake. The Government intend to sell a majority of the bank, as we have made clear, so that could involve retaining a minority stake. Our decision will depend on the outcome of the discussions that we are having and will have with potential investors. Some investors might welcome government retaining a stake, while some might want to buy 100%. To respond to the noble Lord’s point, whatever we decide to do, we will be driven by the public interest and our goal of achieving the best outcome for the Green Investment Bank itself. However, I must point out that if the Government retain a sizeable minority stake—by which I mean one that would allow them significant control over decisions made by the company—we may not achieve our objective of ensuring that it could be classified to the private sector.
Lord Mendelsohn
I will ask the noble Baroness a quick question. She said that this would be in the interest of the Green Investment Bank. The Green Investment Bank is a commercial institution which the Government are about to sell, so the terms of its commercial operations are very different—they are not inherently in the public interest because the public interest is defined as the mission which they gave it, and the members of the Green Investment Bank and its management have an obvious alternative economic interest. When she uses the terms “public interest” and “the Green Investment Bank’s interest” they are two entirely different things which may conflict in many ways when it comes to a transaction. Could the noble Baroness please be a bit clearer about what she means when she uses those terms?
Baroness Neville-Rolfe
I will come to that as I come to my final paragraph, if I may. Perhaps I could first clear up one or two points that have been raised. The first was about the advice from the ONS, which I think the noble Lord, Lord Teverson, asked for. We are satisfied that unless all the legislation is repealed, there is a real risk that the GIB could not be classified to the private sector. We have come to that view based on our understanding of the European statistics authority’s guidance, which the noble Lord has also had a look at. I was also asked whether the Government will freeze future funding.
Baroness Neville-Rolfe
The noble Lord makes a good point. It is clear to the Government that we cannot retain control over the Green Investment Bank if it is to be declassified from the public sector following a sale. I do not think that really answers the question about the five objectives, which I will reflect on and come back. I think the Committee can understand the basic point that we are making and obviously, as I will come on to explain, we want the Green Investment Bank to continue to be a Green Investment Bank and to operate effectively.
Perhaps I could therefore move on to the question of the remit and reiterate the point that I made in my opening remarks. It is the Government’s policy to move the bank into private ownership and we cannot retain control over its operations. That has to be interpreted in law and is the challenge that we are working with. However, I would like to give a bit more detail on how the bank will, as we see it, retain its mission.
Lord Mendelsohn
Just to be absolutely clear: is the Minister saying that the principal, driving objective is to transfer the Green Investment Bank into largely private ownership? If that is so, everything else is entirely secondary. If those are the terms, that is why there will be variations as to whether the Government have a long-term commitment or wish to do any funding. Is that the principal and overriding concern, more than anything else? Because if that is the case, it means that everything else is willing to be thrown under the bus.
Baroness Neville-Rolfe
I am glad we are making progress. Green investment, which I am not an expert in, as all noble Lords know, is what the Green Investment Bank does. As I see it, that is the brand of the Green Investment Bank—after all, it is called the Green Investment Bank—so the parallel with 3i is not entirely fair. Because of that, the Government fully expect that potential investors will wish to maintain the bank’s green focus and values; they will know what they are buying into.
Lord Mendelsohn
On that point, is an absolute assurance or guarantee required? Would the Government fetter their ability to do it, or would that lead them into the same problems during the sale process?
Baroness Neville-Rolfe
I think I will have to answer as I have before: we cannot prejudice the bank’s status. I think that our heart is in the right place but we are in some difficulty here. As part of any sale discussions, potential investors will be asked to confirm their commitments to these values and set out how they propose to protect them. We envisage that this would involve the new shareholders agreeing to retain the green objectives in the Green Investment Bank’s articles of association, to which the noble Lord, Lord Stoneham, referred at the beginning, and to ensure that the bank continued to invest in a way that achieved a positive impact. I hope that that helps. We also expect that new shareholders will agree to continue the GIB’s existing standards of reporting on its green investment performance, and provide independent assurance of that. I understand that these commitments are not as strong as a statutory lock, but it is simply not an option to impose more binding conditions that would require the business to act in a particular way since that would have exactly the same effect as this legislation. The GIB would very likely have to remain in the public sector, with the problems that I described before.
Lord Mendelsohn
I am trying to hone this down to one particular point. The Minister has said that these are expectations, not commitments that we can readily accept. An expectation is not a commitment in the first place. I am trying to work out what thresholds any potential investor has to pass in order to meet her expectations.
Baroness Neville-Rolfe
My Lords, I am in some difficulty because we are still designing the sale process. I know that the noble Lord has been in meetings where we have tried to explain the situation, and he has asked lots of questions. We have to try, with the House’s help, to find a way through. I have tried to explain some of our expectations and what we are trying to achieve, which I do not think is a million miles away from what others here want to achieve.
The noble Lord, Lord Teverson, rightly asked a question about the Royal Mail and whether the controls over it helped us in terms of a precedent. Actually, his comments show how valuable it is that we have introduced this amendment in Committee rather than leaving it until Report because he has asked some very good questions, and the Bill will of course go on to the other place. The simple answer on the Royal Mail is that it is regulated because it is designated as a universal service provided by Ofcom; it is not itself controlled by legislation. The same is true for other utilities, such as water companies, that choose to operate in a specific sector.
I understand that noble Lords will want to reflect on our discussion. The Government too will of course reflect on the discussions raised and on the amendments proposed. I note that noble Lords wish to debate this on the Floor of the House.
I said that I would respond on the question asked by the noble Lord, Lord Mendelsohn, about public interest in the GIB. The public interest lies in the GIB having a strong and secure future in the private sector as a green institution, and securing the best value for money for UK taxpayers.
I agree with my noble friend Lord Cope of Berkeley that it was right to raise this in Committee. In view of today’s discussion and the points made by noble Lords, I will withdraw my amendment for now and the Government will retable it on Report.
Lord Teverson
I agree with the noble Lord, Lord Cope; he was absolutely right that this debate should have come to this Grand Committee. What concerned me was that the Government might try to make us agree the amendment, and I am grateful to the Minister for not doing that. It is an excellent step that I fully welcome.
Lord Mendelsohn
From this side, we thank the Minister for her approach to this. We want to be clear that we believe that it is possible to structure this so that the mission can be protected and there can still be a transfer into the private sector. If the Government come forward with such a proposal, it will have our wholehearted support.
Baroness Neville-Rolfe
I am grateful to noble Lords for their courtesy. It is a bit like going to the gym, this afternoon, but I am glad that we have had the discussion. Of course I will consider before Report what we can do to meet the concerns expressed. As I said, I am as keen as noble Lords to find a way forward that allows this privatisation to go ahead and does not lead us into this rather surprising cul-de-sac. We will have a think about process, given that there is agreement—not on everything but on some aspects of issues that we have discussed this afternoon.
Lord Hodgson of Astley Abbotts
I am afraid that I have to disagree with the noble Lord. I am explaining why the background to these amendments is the rate of pub closures. That is what we are seeking to consider. That is the whole background to the amendments. I am sorry if the noble Lord feels that I am making a Second Reading speech but I am just trying to set out the status of the pub sector at present. In about a minute and a half, I will come to the treatment of the three amendments that the noble Lord, Lord Whitty, has tabled, and I shall certainly tackle them straight on. However, I need to do that against the background of the reasons for the problems in the sector. Those are not merely to do with the operation of the Mulholland amendments but are part of a bigger societal change.
Going back to CAMRA for a moment, I think that this is misplaced optimism. There is not the demand for a wide range of specialist beers changing week by week—Old Boot Polish one week and Sheep Dip the next. Some pubs will be interested in selling those but, for the most part, demand is for the well-known lagers such as Stella Artois, Peroni and so on. That will be the profitable and sensible way for landlords to trade.
I would not want the Committee to think that I was arguing that everything in the sector was rosy. In a sector with 20,000-plus tenants, there are bound to be pubcos—and, dare I say, tenants—who do not behave quite as well as they might. I freely admit that in the tied sector that conflict of interest is most acute.
Lord Mendelsohn
Given this rather large view of returns on the market, I have a quick question. If there were not the unsustainable leverage and the change in the business models of the companies concerned, would the noble Lord be making the same speech?
Lord Stoneham of Droxford
My Lords, the arguments have been very well put by the noble Lord, Lord Whitty. I support them and there is no point repeating them. These provisions are largely probing because the events of the last week mean that we are going to have to give greater attention to this. I had the inevitable job of dealing with the Member for Leeds North West on the basis of the assurances I had from the Minister. I hope she will be helpful in her reply so that when I go back to him he will not tell me, “I told you so”.
Lord Mendelsohn
My Lords, we first intended to introduce these amendments as an expression of our happiness at the collaboration and assurances that we had had. Our intention was to give the Minister a full toss, applaud her from the rafters, and say how wonderful it was that the Government were progressing with the work, because it was not contained in the Bill. This was a free hit for applause and I thought that it would compensate for many of the things we had said on other provisions, where we had taken a more questioning view. There are, of course, issues with some of the actions of companies, which I will come to in a second. To be in this position is a massive source of regret. The noble Lord, Lord Whitty, gave an outstanding oration on the issues in speaking to the amendment; the noble Lord, Lord Snape, too, gave an outstanding recitation of what is important about it. I also share the view of the noble Lord, Lord Stoneham.
I have agreed with the noble Lord, Lord Hodgson, on quite a bit of the Bill, but on this issue I feel an extraordinary sense of profound disagreement. I simply cannot believe that, in this day and age, someone is suggesting that there should be some sort of state meddling to maintain a market and that we should set ourselves completely against the operations of the free market, changing consumer tastes and increased competition. That is the wrong approach.
There is a problem with the pub sector. As the noble Lord rightly says, the causes of that are, more than anything else, changing consumer tastes and supermarket prices. Closures have come as a direct result of the choice of business model to go for unsustainable levels of leverage. I hope that, in my professional practice, we advise companies on what are sustainable levels of leverage. It was always clear that these would be very aggressive business models. It is important that we should not accept the beating-up of small businesses to maintain the capacity of large businesses. That is utterly wrong, but it is what we have to deal with.
The source of most regret relates to the fact that, over the last period, as companies were announcing their results, I was seeing some encouraging signs, unlike the noble Lord, Lord Hodgson. One company identified like-for-like growth over the year. It reported higher levels of underlying EBITDA. One company was able, on revenues of around £450 million, to look at levels of underlying EBITDA approaching £200 million. That is a fantastic achievement and it has allowed it to pay down debt. It is encouraging to see, in interim statements, companies saying that actions have already been taken to provide a more flexible business model “in light of the anticipated reduction of the market rent only option in 2016”. Companies have taken proper account of what was said and they have adapted their models. This is a case of the Government putting a cost on business by totally going against what they said before.
It is not enough to say that this is just a consultation. There is a sense of bad faith, which I will express in these terms. In commercial arrangements, when you have two positions, you come to a deal called a “heads of terms”, which is the overarching structure under which you define the agreement. I suspected that the Act, as the overarching heads of terms, accepted by all sides of the House, would be followed, but this consultation follows nothing like it in how it deals with conditions on the market rent only option and the parallel rent assessment—all that has changed. Even where there are provisions on market rent only options, they are not consistent with the terms that were there before. This is wrong. It is not unfair to say that we expected better.
I do not want to detain the Committee, but I have a few pages of this. The Minister previously expressed strongly the points on which we came to agreement on all sides of the House. There is even a complimentary reference to the noble Lord, Lord Hodgson, which I draw to his attention—I do not say that it is all bad. The noble Baroness said on Report, on 9 March 2015:
“I come to the parallel rent assessment itself. Following the introduction of market rent only in the other place, the Government sought to restrict the scope of this assessment so that it applied only to prospective tenants, as they will not have the right to market rent only. This was an attempt on our part to reduce bureaucracy and increase simplicity. However, it is clear from discussions since Committee that tenant stakeholders actually like the parallel rent assessment and feel strongly that it should be retained for existing tenants. There are tenants who have no wish to exercise market rent only but who want to ensure that they have a fair tied deal. They would far prefer to gain this reassurance by requesting a parallel rent assessment, rather than by starting the market rent only process. There are also arguments that the transparency of the PRA may help a tied tenant to decide whether market rent only is for them.”
The noble Baroness continued:
“Therefore, Amendment 33J”—
a government amendment—
“seeks to reinstate the parallel rent assessment. We will consult on how best to streamline this with the market rent only provisions so that, as far as possible, the processes are integrated to help both pub companies and their tenants and to minimise bureaucracy. I know this is something that my noble friend Lord Hodgson is very keen to ensure.”—[Official Report, 9 March 2015; col. 451.]
I have four or five pages of this. It was really a summary of where everyone was, and it was said not just in this House. Jo Swinson made comments in another place that were very similar. Something has clearly gone wrong.
Lord Hodgson of Astley Abbotts
Before the noble Lord concludes, can he explain why we are going back over the managed pub issue? We have covered that already. We agreed that there was an issue with tied pubs, but Amendment 53ZD takes us back to stuff that we cleared away before. I accept the arguments and discussions about the parallel rent assessment, but it was perfectly clear that we were not going to include managed pubs, because they do not operate in the same way as tied pubs. Nor indeed did we talk about further reports on people wishing to sell tied pubs. People are free to sell tied pubs. Why should that be something that applies particularly to the adjudicator?
Lord Mendelsohn
I thank the noble Lord, Lord Hodgson, for that intervention. I shall make it very clear. We introduced these as probing amendments to test a variety of things. The context is that that was prior to the publication of the consultation, and the debate that we have had is very different from the one that we would have had. I and, I suspect, some others in this Room would have tickled the noble Lord, Lord Hodgson, on some of those issues in other circumstances, but these are the circumstances that we are presented with: we are focusing on the consequences of the consultation.
It will come as no surprise to anyone to hear that I was always sceptical of the legal advice—we are going back to the constants of “may” and “must”—but I also presented in meetings counsel’s views, which have turned out to be rather prescient. I would be very grateful if the noble Baroness, who will always resist publishing the advice, would at least give us a much greater recitation of what legal advice has been given and whether the Government have taken effective external advice, as well as advice on whether the consultation was consistent with the Act. Will the Minister give a timetable for the Government to come forward with a proper impact assessment of the consultation proposals, as opposed to the proposals that we all agree to? We would also be grateful if she would set out whether existing legislation will allow the Pubs Code Adjudicator to deal with the pubcos gaming the system. If this measure goes through in the form it is in now, it will mean that the pubcos can game it to their hearts’ delight.
We would also be grateful if the Minister could give us an indication as to whether the Minister in the department directly responsible for signing off this consultation gave direction to the officials to draft the consultation on the basis of the proposals not contained in the Act and whether there has effectively been a change of policy to ignore the Act and introduce a different form. This more consistently follows what was proposed previously as opposed to the Act, and we would be very grateful for some assurance that such directions were not given by the Minister responsible.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for triggering this debate with their amendments and for taking us back—unexpectedly on my part—to pubs. I am very glad that the noble Lords, Lord Whitty, Lord Snape and Lord Berkeley, are all here to explain very clearly their concerns. I also welcome back my noble friend Lord Hodgson. I very much take the point that he made about the complications of this area and the risk of pubs closing—which I think we all want to try to avoid—and the fact that we must not get this wrong. Although the noble Lord, Lord Mendelsohn, agreed with the concerns of others on his side, he also pointed out the importance of the consumer in all this, which we must never forget.
I can understand why some noble Lords are disappointed by the Government’s decision not to implement the parallel rent assessments. I assure noble Lords that I made my previous commitments in good faith, as I am sure they know. However, noble Lords will recall that the pubs measures in the Small Business, Enterprise and Employment Act were agreed at great speed towards the end of the last Parliament, and of course since then, as has been said, the Government have changed, and we have reviewed the best way to achieve the objectives. I will come on to that in more detail later if the Committee will allow, but the key point is that the Government are trying to strike the right balance, delivering fairness for tenants and stability for the industry. I cannot accept what has been said about my right honourable friend Anna Soubry, who is a great advocate for small business and is genuinely trying to find the right answer, as I will try to explain when we go through this in more detail.
Our proposals are out for consultation at the moment, and my officials are meeting tenants’ representatives and pub companies next week to discuss this matter in great detail. There was a blank space on page 66 of the consultation document for people to add comments. I have just looked at that document and it makes it quite clear on page 12 that there has been a change on the PRA point. We are not trying to hide that there has been a change of policy here. However, I will explain the current approach later on.
I add that we are fully focused on meeting the important May 2016 deadline for implementation. There was agreement that we should get on and implement this and not leave it for years and years. Obviously, the consultation process is very conscious of that deadline. I also wish to reassure the noble Lord, Lord Whitty, that there was stakeholder engagement over the summer, which was carried out by officials. It was balanced and they listened to views from across the sector. My right honourable friend Anna Soubry visited Burton-on-Trent on Monday and met with pub companies, and she will be meeting tenants’ representatives later this month.
I will take the amendments in turn. I know that there is most concern about the third set of amendments but, for the record, I will answer the points raised on the others.
Lord Mendelsohn
Does the noble Baroness mean that her right honourable friend met people prior to the publication of the consultation or afterwards?
Baroness Neville-Rolfe
My understanding is that she met with the pubs after the consultation, as, in turn, she will be meeting the tenants once the consultation was published. I have to reject the underlying implication that somehow we are not balanced on this. Consultation is a serious matter for business. You have to put things out in draft and you have to listen to what is said, which is what we always do.
I turn now to Amendment 53ZC. I understand the concerns about potential manipulation of the ownership of tied-pub estates but I am not convinced that this amendment is the way to address the issue. It would place an additional burden on the adjudicator by requiring him or her to monitor all pub sales, to make a judgment as to whether they reveal a pattern of divestments, and to assess whether their effect is to exempt the pub companies concerned from the jurisdiction of the Pubs Code, thereby causing detriment to the tenants concerned. While one large pub company sold around 150 tied pubs earlier this year to a company that will not be covered by the code, another has recently purchased more than twice as many tied pubs that were previously outside the scope of the code. Purchases and sales of this order have been a feature of the sector for at least 15 years. However, the Secretary of State has a duty under Section 46 to review the operation of the Pubs Code every three years, and that will present an opportunity to look again at issues around sales and acquisitions.
Amendment 53ZD was debated in Committee on the 2015 Act. Parliament’s decision to define the threshold for the Pubs Code in terms of tied pubs reflected more than a decade’s worth of evidence that the problem in the pub sector related to abuses in the tied sector. We talked about this at the time. It is those abuses that the Pubs Code Adjudicator has been introduced to address, and I remain of the view that Parliament was correct to define the threshold solely in terms of tied pubs. At present, the amendment would bring within scope just one company with tied pubs—Mitchells & Butlers, which has in total around 1,800 pubs in England and Wales but fewer than 60 tied pubs. Bringing these few extra tied pubs into scope would create the anomaly of leaving a number of companies owning several hundred tied pubs outside it. Such an anomaly would have risked legal challenge—noble Lords will remember that we discussed this before—possibly imperilling all the pubs measures, which was something that we were keen to avoid.
Section 69 gives the Secretary of State the power to amend the number of tied pubs required to meet the threshold. That is the right safeguard for ensuring that the code delivers its overarching principles.
I turn now to Amendment 53ZF. I know that it is a disappointment to some noble Lords that the Government have decided not to proceed with implementing the PRA, if I may call it that. As noble Lords will recall, it was the previous Government’s intention during the passage of the Bill to introduce PRA and to streamline it with the market-only option. We have had a change of government and the incoming Government have looked again at the commitments that their predecessors made in order to get the legislation on to the statute book. We have looked at the best way of achieving the objectives of this policy. Our focus has been on providing a robust Pubs Code and adjudicator that deliver fairness for tenants and stability for the industry within the timeframe set out in the Act. It became clear, when working through the details over the summer, that the complexity of introducing PRA alongside MRO would put unnecessary burdens on the industry. Having two processes which can be triggered separately but on the same bases, which are not administratively connected and which follow different timetables and rules is not a practical or sensible proposition. We want to minimise the burdens on business. Not taking forward PRA at this time would reduce the regulatory burden of the pubs measures by £600,000 a year. These are burdens that we would have to compensate for by a reduction in another regulatory area, so it is a big figure at a time when pubs are closing.
Lord Mendelsohn
I am probably unnecessarily confused here. Is the Minister saying that the burden on business was £600,000?
Baroness Neville-Rolfe
It is £600,000 for having the PRA in addition. I am sorry if I gave the figure incorrectly. I felt that it was helpful to share that figure of £600,000 with the Committee.
Lord Mendelsohn
What assessment has that figure taken into account? As I read a statement from a company’s report of what it has currently spent, does it mean that that £600,000 includes the fact that it has now wasted a large amount of management time and money to that effect? Is that included or is it outside it? Has the company calculated that number?
Baroness Neville-Rolfe
This is a figure for the burden on business, so to that extent there is a parallel. Perhaps we can move on but there is a cost, and a complexity, in having a double system. We want to try to do this the right way. The market rent only option is the central plank of the Pubs Code. It is a fundamental change for the industry and, I believe, a powerful new tool for tenants. I do not think that there is any disagreement there.
The noble Lord, Lord Whitty, was concerned that the significant increase in price thresholds had restricted the access of tenants to the MRO trigger. We have taken the advice of stakeholders from across the industry on the definition of a significant increase in price. Our draft code reflects the advice we received: that the primary focus should be on the price of beer and that the threshold should be in the order of 5%. We are consulting on this and the percentage increases for other tied products and services. As I said, we welcome the views of stakeholders.
It is vital that we get this right for all concerned. The market rent only option will ensure that tied tenants are no worse off than free-of-tie tenants. That is the actual principle in the Act. Tied tenants will be able to request a market rent only offer when certain trigger events take place. The Government have published draft provisions that allow for the request by the tenant of an MRO in all the circumstances required by Section 43, mentioned by the noble Lord, Lord Whitty. There are four circumstances, which I will not go into again because noble Lords in this Committee are extremely familiar with this.
When we discussed these provisions before, there was a view that giving tenants access to a variety of comparators was of itself a good thing. That was what was being said in the Chamber, but the conclusion we have come to is that that is not really necessary. What really matters is that the tenants are given meaningful comparisons so that they can make the right business decision. We believe that MRO provides that. They will not be committed to accept the MRO offer but can compare it with the tied terms they are being offered. They can use the MRO offer to negotiate a better tied deal, if that is their preference, or choose to take up the MRO offer. They will not need a PRA to do either of those things. I reassure the noble Lord, Lord Whitty, that there is scope for comparison when a tenant requests an MRO, as he or she can request a tied rent assessment. That allows the comparison process to happen.
However, if experience of the Pubs Code in action produces evidence that the introduction of the PRA provisions would be a useful addition to the options available to tenants, this is something that the Government can of course reconsider. The point has been made. It is in the legislation. The power to introduce PRA remains in the Act but it is the Government’s view that we should focus first and foremost on introducing the MRO-only option and the other key provisions of the code on transparency, with the new adjudicator to enforce them.
Baroness Neville-Rolfe
My Lords, I am sure we will come back to this. I will take that point away and go through it again myself. There is scope for a comparison in the way that I have described, so the tied tenants should be able to look at the options easily and clearly. We are trying to bring in a system that is simple, clear and well understood. We have looked at the provisions in the Act and come forward with a consultation that we feel is fair, right, simpler, easier and better.
Lord Mendelsohn
My Lords, the idea that this is a good thing for small business and that a burden of £600,000 stands in its way utterly beggars belief. This provision was set up specifically in order to deal with the power and information asymmetries affecting smaller businesses with regard to larger ones. Again, it was the Minister who said on Report that,
“we have decided to reinstate PRA for existing tenants for a specific reason: because some tenants who do not wish to be free of tie would prefer the PRA, as they consider it a less confrontational way to secure a fair tied deal”.—[Official Report, 9/3/15; col. 464.]
Has any calculation been made about the cost to small businesses of not being able to have that provision, and indeed of the unfairness? Can the Minister say to me today that that cost would be significantly less than £600,000 if this was allowed to happen? I do not think she can.
Baroness Neville-Rolfe
My Lords, I am not sure that there has been a complete understanding of what we are proposing. They will have a free-of-tie rent and a tied rent assessment, and they consider this in the context of their own business planning, which is in their own best interests. Stakeholders and officials have sat down through the summer and done flowcharts and so on to try to work out how this will best work. Obviously I am listening to what noble Lords are saying today. We have come forward with proposals that we would like to be considered in the context of the consultation that we launched last week. Obviously, I understand—
Lord Mendelsohn
“Protecting small businesses online
(1) The Secretary of State, after consulting the relevant bodies, shall publish advice and guidance to businesses in relation to keeping their business safe and protecting it against online threats.
(2) The guidance published by the Secretary of State under subsection (1) shall include but not be limited to advice on protecting computer-based equipment and information from unintended or unauthorised access, change, theft or destruction.
(3) The City of London Police is a relevant body for the purposes of subsection (1).”
Lord Mendelsohn
My Lords, I am pretty sure this will be significantly briefer. This is largely a measure to highlight a particular issue and should certainly engender less confrontation. We are very supportive of the Government and other institutions on matters of cybercrime. This is a nudge. It is our attempt to add some measures to an important part of enterprise: sustaining effective and secure business, and the ability to secure cyberspace.
The ONS crime survey established that during the period surveyed there were 5.1 million frauds, of which 2.5 million were cybercrimes. These are crimes committed under the Computer Misuse Act. Their detection is based on footprints—that is, looking at devices affected by viruses, hacking, denial of services and virus proliferation, all those sorts of elements. Surveys, as I am sure the Government are aware, have indicated that 74% of small business and 90% of larger business have identified some form of cyber breach. In recent times there have been prominent cases where people who have been breached have suggested that they have the problem under control. We wish to raise this point because we do not believe this to be the case.
I personally participated in what I think outside America is the western hemisphere’s largest conference on cybersecurity, which took place in Tel Aviv with participation by chief information security officers— a term I had not heard of 18 months ago but these individuals are now very significant in their companies—law enforcement, intelligence services and government representatives, who were able to identify that the vast majority of offences actually are detected. It is easier to introduce a virus that is undetectable afterwards. In fact, cyber thieves produce around 250,000 novel variants of viruses every day, which is a huge amount, and I will come on to other aspects that impinge on this. We are seeing massive problems that we have to address.
It was instructive to learn during the course of the conference that the Sony cybersecurity breach that gained great prominence was identified only because they purposely left an imprint to make sure that people understood. Despite the fact that it had the participation of the most powerful cyber nation on this planet, you could not identify what the source was or its full extent. You could not even identify that it was North Korea by any form of examination of where it had been penetrated. It was only via the means of the traditional intelligence services that they were able to identify that it was North Korea. What hope, then, do businesses have in these circumstances?
Furthermore, there is a huge imbalance in the spend between larger and smaller businesses. Government figures that were published some time ago suggest that small and medium-sized businesses with 100 or more employees spend £10,000 a year on cybersecurity, but the smallest firms with fewer than 20 employees spend around £200 a year. This is highly problematic to the aim of having markets that are fully protected.
Over the past few years cybercrime has evolved, and it is now an enormous industry. The City of London Police estimate that it is a £39 billion industry, most of which is recycled into other forms of criminality. It is a hugely circular flow. Actually, it is an incredible market with suppliers, merchants and service providers. There are all sorts of things going on. It used to be said that armed robbery rates went down because if you wanted to be a criminal it was easier to sell drugs. Now, why carry a gun when you can make more with a laptop? The massive infrastructure of cybercrime is hugely problematic.
What I found most interesting at a different session of the cybersecurity conference was where it was identified that there is a massive penetration of companies’ customer details. Those details are blended and traded so that no company can ever detect that their particular security was breached. The details are sold in batches and strips. Even if your security is breached, no one actually knows the extent of the customer payment details that have been penetrated. In any blended list, you are not likely to have more than 2% of any particular company’s list in any list that is used for a cyber hack. I found this to be of extreme concern.
Mobile has been less prone to these sorts of attacks largely because Apple, Google and BlackBerry are the ones that integrate their encryption systems—this is relevant to a debate in other areas. The internet of things is now extremely vulnerable. The disaggregation of security is a huge problem and some fundamental strength is needed.
Criminals are able to recruit from security, intelligence and private sector organisations because they can pay more than the others, so I think that we have a massive issue here. As I say, the Government have not done enough. They have done quite a bit and many good initiatives are in place, but we are suggesting these amendments to try to give greater prominence to and amplify what they are doing, as well as to prod them to move in a couple of directions. I wish that we could have tabled an amendment that we were not allowed to, which would have been to try to encourage more small businesses in this country that are actually creating cybersecurity products. We wanted to table an amendment that would have mandated government departments to spend 8% of their entire IT spend on cybersecurity, because that would generate an ecosystem of cybersecurity firms. We have some good ones, although in this country really only in Cambridge, but imagine what a boost it would be to our cybersecurity capacity if we were able to do that.
Instead we believe that there is a role for government to set standards. In particular, we should promote our best: the City of London Police are outstanding. They are utterly world-leading on this and I pay a massive tribute to Adrian Leppard, who has been an outstanding commissioner. He is a world-leading and well renowned figure and the City of London Police are undoubtedly seen as one of the most significant, important and expert agencies in this. We would be very encouraged if the Government were to consider providing more prominent advice to businesses, which do not really know how to deal with this or know the right sort of things, and promoting the best in practice that we have—that of the City of London Police. I beg to move.
Baroness Neville-Rolfe
My Lords, this amendment is designed to protect small businesses from cyberattacks. I was really pleased to hear about the knowledge of the noble Lord, Lord Mendelsohn, on this issue. I wish I had been at the conference which he described and I agree with his objective of amplifying the issue, especially in relation to small business. I also agree with him about the role of the City of London Police.
When I worked in business, an attack on personal data held by the company was one of my top risks and concerns. Recent events demonstrate that businesses need to take action on cybersecurity and can benefit from external advice and guidance. I think it is fair to say that the Government are doing a great deal in partnership with industry on cybersecurity. We have a strong strategic programme in place, which is right. There is a five-year plan for an £860-million national cybersecurity programme to provide a range of advice and guidance to businesses of all sizes, including a specific guide, Small Businesses: What you need to know about Cyber Security. I have copies of that guide.
We have stepped up this activity recently by relaunching the “Cyber Streetwise” campaign, which offers small businesses clear and simple advice on how to protect themselves. There is information in the press and the Committee may have seen advertising at train stations or on the tube. In addition, the Government’s “Cyber Essentials” scheme shows small businesses how to protect themselves against common cyberthreats. Since October 2014 the Government have required their suppliers to hold a Cyber Essentials certificate if they are handling personal data or sensitive information. That is all increasing awareness by amplification. There are more than 1,000 Cyber Essentials certificates, which have been issued to big organisations such as Vodafone, JCB, Barclays, the Royal Mail and BAE, as well as to colleges, universities and so on. We are working to get thousands of companies and their supply chains to adopt the scheme.
Our approach is to work with a range of law enforcement and other bodies to build partnerships with businesses, representatives and trade bodies, and to use these to increase awareness. We do not believe that the suggested amendment, which I think is mainly probing, goes beyond the existing approach in ambition or effectiveness. Putting guidance into legislation could result in a tick-box approach where guidance is merely published without the associated awareness-raising, partnership-building and behaviour change that is completely essential in this area.
We want to avoid unnecessary regulation. The amendment would create uncertainty as to what businesses were legally required to do and what was best practice, possibly even giving rise to litigation. It could also reduce our flexibility in dealing with what is, frankly, a very fast-moving issue. I think we were all astonished by the Sony leak and by recent events in the UK. We are not convinced that legislating in this Bill is the right thing to do. Following the information leak at TalkTalk, though, a committee of the National Security Council is now looking at this. Cyber Ministers are looking as a group at what further changes are needed. In addition the Digital Economy Minister, Ed Vaizey, promised last week that we would meet the Information Commissioner.
Baroness Neville-Rolfe
I am grateful to my noble friend, and I shall certainly make sure that people are aware of the point that he has made. There is something of a carve-out in the EU institutions. I was at OHIM in Alicante a couple of weeks ago. The cybersecurity office, in the days when it was rather less central, was put in Heraklion. However, the key thing is that member states, as well as cyber Ministers in the UK, should get together because the cybersecurity industry is no respecter of boundaries, and a lot of visits, meetings and decision-making are made outside Heraklion.
I will not delay the Committee any longer. I wanted to give a feel of the fact that things are being done. I agree with the sentiment of the amendments: we need to make sure that small businesses, as well as big businesses, which of course suffer bigger reputational damage from leaks, are doing the right thing. That is why we have a strong strategic approach, along with targeted action to help small businesses. I hope that noble Lords have found that somewhat reassuring. I am sorry that we cannot really spend any longer on this important area this evening.
Lord Mendelsohn
I want to make the following staccato points. First, we spend £856 million. Unfortunately, that is spent principally on national security and too little is given to the other side. It would be nice if the Government could give that more consideration. We welcome the appointment of the former British ambassador to Israel, Matthew Gould, who will have a key role in cybersecurity inside the Cabinet Office—a very useful and important position.
The noble Lord, Lord Hodgson, made a very important point. We are being targeted by criminals, not from various parts of, or cities in, this country but from every part of the world. That is very easy to do and it is a significant factor. I want to make a very simple point. The scale on which this activity can multiply is absolutely extraordinary, and it goes up by factors. We cannot afford to believe that simple awareness campaigns will work; much more effective measures are needed. There is a great deal of concern about this, and discussions have taken place between a number of countries, including our own—which was represented at the conference—on how you deal with the fact that there is an information lag and that you become the weakest part of the chain if you do not deal with it. It was entirely inappropriate for the proposal to be put forward in an amendment. Of course this is a much broader issue, but we just wanted to highlight it.
My final point is that the real problem about TalkTalk is not so much that the hacking happened. All the comments about how absurd it was that a company of that nature could run a system like that are fairly irrelevant. The extraordinary thing is that most of these serious crimes go undetected. That is the bigger problem, rather than the problem of the crimes that are detected. I beg leave to withdraw the amendment.
Lord Mendelsohn
“Broadband: rollout
(1) The Secretary of State may by regulations set targets for electronic communications bodies to roll out, to businesses and commercial organisations, more than 95% coverage of—
(a) basic broadband,(b) superfast broadband, and (c) mobile phone coverageby the end of 2016.(2) The Secretary of State must prepare and publish an annual report assessing the progress that has been made on the targets provided for by subsection (1), and the impact of basic broadband, superfast broadband and mobile coverage technology on enterprise and growth in the rural economy.
(3) The report provided for in subsection (2) should be laid before both Houses of Parliament.”
Lord Mendelsohn
I am going to go for the record for the briefest-ever introduction of an amendment. This amendment seeks to set stronger targets for the rollout to businesses of basic broadband. There is a range of issues concerning broadband, not least in the UK. One area that we are most concerned about is allowing companies to market speeds that they can never attain or sustain—they are unable to do the work to achieve that. However, we have a whole range of concerns about how the market works, and I would set them out if I had more time. Some very effective comments were made in the Chamber by someone who occupies an exulted position here today. That person has been a doughty champion of broadband.
I want to focus on one element here. Most of this is really about trying to find additional funds to supplement the rural broadband rollout. In that regard, our main question is: is what has already been developed a failure? Are the providers that have been entrusted to do this, and which have previously assured us that the funds were available, wrong? Has there been a mistake? What would be the benefit of being able to do this? Has money been apportioned to this purpose, or will we be waiting for the spending review to find out what it is?
Lastly, I think that we will return to this on Report but I feel rather foolish as I spent too little time reading about the Industrial Development Act and these amendments are consequential to it. In this year’s annual report on that Act, under this wonderful gem, “Other Current Section 8 Schemes and Miscellaneous Section 8 Awards”, I notice that the Industrial Development Act, which we are essentially amending, was used to support the Prompt Payment Code. That was a rich treasure that I failed to fathom, and I hope to return to it on Report. I beg to move.
Lord Stoneham of Droxford
I do not want to delay the Committee. I think the Minister knows of my ongoing interest in the subject, and indeed she herself has shown great interest over the years. I must declare my interest as someone who has inadequate broadband; only one mobile company operates in my area, and the parliamentary system operates only upstairs in my house. As I do not live too far from two quite important industrial city centres, I regard this as completely inadequate.
I simply do not believe some of the figures that we have supposedly achieved with super broadband. Obviously, though, the big issue coming is what happens after 2016. The Government have to address that because it is very important, particularly to remote rural areas where quite important businesses can operate and must have access to these facilities. I look forward to the Minister’s reply.
Baroness Neville-Rolfe
I very much agree with noble Lords that it is important for consumers and businesses to have transparent information on how mobile and broadband coverage is improving. I am glad that my noble friend Lord Deben has joined the discussion. He is right: the truth is that perception in this area is lacking reality. It was a slow start, there is more to do and there are lots of individual problems with broadband, but the Government’s plans are now beginning to yield impressive dividends.
We are of course committed to ensuring that the benefits of improved broadband and mobile services are felt right across the nation. That is why we made a universal service commitment to provide minimum service levels of at least 2 megabytes per second by the end of 2015. Basic broadband is already available to virtually 100% of UK premises, and by the end of this year only about 1% of premises will receive less than 2 megabytes per second.
To deal with the remaining 1%, which in a sense is where we are, all premises will have access to at least 2 megabytes per second through the option of satellite broadband connections. They will have the capability of delivering superfast broadband for those who want it. Noble Lords may not know that the satellite scheme is currently being trialled in West Yorkshire and Suffolk, close to my noble friend’s home, and a national scheme is due to go live in December. We are very pleased with the results so far.
We remain on track to provide 90% superfast broadband coverage by early 2016, and we are aiming for 95% of UK premises—the number in the amendment —to have access to superfast speeds by December 2017.
As I think I told the noble Lord, Lord Stoneham, superfast is already available to over 83% of homes and businesses in the UK. Importantly, that is up from 45% in 2010. So that was a good effort by the coalition Government. That is the highest coverage among the top five European economies.
Recognising problems in rural and remote areas, the Government have made available up to £8 million to support pilot projects to extend superfast broadband beyond 95% of UK premises, using satellite and wireless, as I said, and will publish further lessons from those pilots later this year.
Improving mobile connectivity is also a priority. Around 94% of the UK’s land mass has coverage from at least one mobile network operator and 69% has coverage from all four. But we want to go further. To this end, a landmark agreement was reached with all four operators in December to ensure that 90% of the UK’s landmass will have voice and text coverage from each MNO by 2017. What this also means is that 97.7% of the UK will have a signal from at least one mobile operator.
These are relentless and concrete measures that the Government have taken to improve coverage. We are striving every day to make improvements so that everyone can benefit from the digital economy. I share the frustrations of everybody at the time that this has taken, but we are committed to ensuring that we have the infrastructure we need for this fourth utility.
The noble Lord proposed a requirement to report on progress being made in improving broadband and mobile coverage. This is already widely available from lots of different sources. I can make the list available to noble Lords so that they know what is being done. I am not convinced that the information gap is there; what I think is there is the need to continue getting this fourth utility fully across the UK. I hope that the noble Lord will feel able to withdraw this amendment.
Lord Mendelsohn
I thank the Minister for her comments. The one thing that comes across very strongly in this Committee is that in many ways one of the real crises we have in business is that far too often too much is said and marketed. It has become very apparent that trust in business is continuing to fall, and on very reasonable grounds on the part of the consumer. I have a lot of kids so I have two broadband connections into the house, neither of which provides consistency of service or provides anywhere near the advertised level of service. I would be interested to know whether at some point the Government will consider making it a condition that you can market only the minimum guaranteed and consistent service; that could be attractive rather than these pie-in-the-sky numbers. It is not acceptable to put in a fibre-optic cable to one point and then market it to a whole area with no consideration being given to whether you will put in a superfast connection.
We have to be able to say, “We do not want to be followers. We want to be leaders”. This rollout has become very difficult. I hope that the Minister takes note of the following. I know this is an area in which she has a personal and keen interest and that many members of the Government are also very interested in it. It would be a good and positive move to encourage the commercial operators in this sector to do more and to do it faster and harder. That inevitably makes sense. The Minister talks about using satellite or wireless. Given the money we have invested and the provisions we have made, we might just as well have given the cash to Google and Facebook—I declare an interest in that my wife works for Facebook—to use their drones or balloons because we probably would have been able to do the whole thing a lot faster and quicker with those mechanisms. We should not be in the position whereby the provision of this service is so slow. I am more than happy to withdraw the amendment but hope that the Minister will be consistent in her efforts to make sure these operators deliver.
Baroness Neville-Rolfe
I am delighted to say that our efforts continue. We are trying to make sure that, as it were, reality goes faster. It has been a huge investment programme. I agree with a great many things that the noble Lord has said. I think there is a feeling right across the House that investment in this area is really important, which is one of the reasons I am so pleased that everybody supports the amendment we have put forward to the IDA, which obviously would allow extra spending in areas beyond things like the code that the noble Lord referred to.