Enterprise Bill [HL]

Lord O'Neill of Clackmannan Excerpts

Wednesday 28th October 2015 Grand Committee

[Viscount Eccles (Con)]

My Lords, if there are very few complaints, I suppose that everything is operating well in markets. Anonymity and fear might make a very good PhD subject for someone but I do not want to concentrate on the psychology of this issue. We have the example of two and a half years’ operation of an anonymity provision in a similar Act of Parliament: the Groceries Code Adjudicator Act 2013, in which anonymity features quite significantly. I would be most grateful if the Minister brought us up to date on how this concept of anonymity is working, because during the passage of that Act there was a good deal of debate about it and we thought it might prove quite difficult to enforce. How is she getting on with the concept of anonymity?

[Lord O'Neill of Clackmannan (Lab)]

Will the Minister also take account of the fact that one of the big problem areas in relation to payment is the construction industry, which has a dreadful record of blacklisting the people who work in it? We are talking about something not dissimilar here—people simply being erased from future contract applications if they have a record of causing difficulty and asking questions.

I realise that it is not the same issue, but I am talking about an industry—the construction industry—in which there are a lot of problems relating to payment. That people could be discriminated against on the basis of having made complaints is not that different from the case of shop stewards who have energetically defended their members’ health and safety rights on building sites in the recent past.

Thankfully, we are moving away from the blacklisting of workers in the construction industry. However, the people who did the blacklisting are the same people who could well take advantage of those whose anonymity was not quite as dark and complete as we would like it to be. When these complaints come up, you do not need two eyes to work out who has been making them. It is an issue of some sensitivity, and the Government need to be sure that people will not suffer as a result of trying to get a legitimate settlement for a grievance. In some industries there is a record of discriminatory handling of people with justified complaints, which puts their businesses in jeopardy. I therefore hope that the Minister will take account of that in her response.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)]

My Lords, I thank noble Lords for their amendments and welcome my noble friend Lord Eccles to our debate. I also thank the noble Lord, Lord O’Neill, for the points he has made about the construction industry. I think we will come on to talk about the construction industry more fully, because at the moment it is not really covered.

Some small businesses which raise complaints may indeed fear that this could affect their commercial negotiations negatively. That is the underlying point. Noble Lords therefore rightly raised points about anonymity, confidentiality and fear of reprisal and shared with the Committee the experience of the Groceries Code Adjudicator. Indeed, I remember when I was regulated—by a regulator that no longer exists, so I can probably mention it—getting the confidential figures for another supermarket by mistake, and the pleasure with which I rang them back and said, “By the way, these aren’t ours—you’ve obviously got the schedules muddled up”. I am sure that these things do not happen nowadays, but that underlines the difficulties.

Small and larger businesses must have faith in the commissioner and their processes. For the commissioner to make sound recommendations, both parties also have to have meaningful input into the inquiry, which, in a sense, is the rub. We agree with Christine Tacon that it is crucial that the commissioner builds trust. I would like to develop our thinking on the Groceries Code Adjudicator a little more fully and perhaps will write to my noble friend Lord Eccles.

Amendment 16 provides for totally anonymous complaints. However, to consider a complaint properly the commissioner may need further information from the complainant. Without knowing who the complainant is and being able to contact them, the commissioner may be unable to address the complaint—that is the difficulty we are in. As regards the advice and information function, we expect, for example, to be able to afford some anonymity where an inquirer has a general query; that is relatively straightforward. We will ensure that our user-testing of the web portal, which I promised on Monday, informs the extent of anonymity that is possible within that context.

On Amendments 19 and 33, I agree with noble Lords that there must be safeguards against the commissioner identifying a complainant to third parties. That is why Clause 8, on confidentiality, restricts the commissioner’s scope to disclose information. However, for the reasons I have already explained, we believe it will generally be appropriate to identify the complainant to the respondent. It is right that a respondent should know who has complained so that they can respond fully. Amendment 33 would go further and require consent for the sharing of all information pertaining to a complaint, including to the respondent. This would be disproportionate.

I should add that in comparing notes with the Australian small business commissioner, we found that he had taken an approach to anonymity similar to the one we are proposing. I hope that I have been able to reassure the noble Lord, and that he is willing to withdraw his amendment.

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[Baroness Neville-Rolfe]

I thank noble Lords for their comments. I emphasise that the Government consider that a punitive approach involving compulsion or financial penalties in the round is not the right one to take if the commissioner is to contribute to culture change in payment practices. We want the commissioner to develop trust and have credibility with small and large businesses alike. The commissioner therefore couples an approach of building the confidence and capability of small businesses to assert themselves with proportionate powers to disincentivise unfavourable practices. Notably, this will be through the power to publish individual reports which can name respondents and draw attention to themes and issues in the annual report.

Turning to Amendment 20, the commissioner has the power in our clauses as drafted to ask the commissioner or respondent to provide voluntary information or documents relevant to a complaint. The amendment seeks to force a respondent to comply with such a request where it concerns contract terms and gives the commissioner a power of investigation. Diligent businesses will want to engage constructively with the commissioner and will not need to be forced. They will be keen to make sure that their small suppliers are being treated in a fair and reasonable way. That makes good business sense. They are being investigated by the Small Businesses Commissioner. Secondly, they will want to protect their reputation and avoid being named and shamed. Anything more heavy-handed would introduce an adversarial and legalistic element to the process. I was interested to hear from my noble friend Viscount Eccles that he felt that that was the right way to go.

Turning to Amendment 21, the handling of a complaint is primarily a matter for the complainant, the respondent and the commissioner. However, if third parties including Government have material relevant to a complaint, there is nothing in the legislation that prevents them approaching the commissioner with such information.

Turning to Amendment 22, which the noble Lord, Lord Mendelsohn, referred to as his favourite, the commissioner has broad scope to recommend steps which he or she considers could remedy, resolve or mitigate issues in complaints. We intend that the commissioner will support small businesses’ use of alternative dispute resolution. The commissioner could, for example, recommend mediation, which, as the noble Lord said, is generally much more expensive, and hopefully quicker, than a long drawn-out legal case. But it is not considered appropriate for the commissioner to require parties to engage in mediation, directly or indirectly. This includes giving the commissioner power to influence costs in litigation where mediation has been refused. Rather, the Government consider that it is the role of the court to determine costs in legal cases. Legal cases are already expected to be conducted at a proportionate cost, and there are of course mechanisms to keep costs reasonable in the courts.

My Lords, we do not believe it right to make the commissioner’s recommendations legally binding—an issue addressed in Amendments 23 and 31. Requiring a party to provide an outline of costs for litigation would require the party to engage with the process and strategy of litigating—for example, looking into instructing lawyers—whereas our aim, as I have said, is to encourage alternative approaches to litigation. Of course, courts may consider a party’s refusal to mediate to be unreasonable, and can address this when considering court costs.

We also agree that it is important to encourage the two sides to come together. We believe, however, as I said at the start, that a punitive approach to costs is not the right way. Stakeholders told us in our consultation that the gaps in knowledge about alternative dispute resolution was the key issue, and we have obviously respected that feedback. The primary intention is that the commissioner will make recommendations that enable the parties to resolve the dispute, rather than being an arbitrator. In certain cases, the commissioner may be considering lawful, if unfair, acts. To accept these amendments would effectively allow the commissioner to create rules on what is and is not good payment practice—quasi-legislating—and this is not the role of the office as we see it. Rather, the Government believe that it is vital that the commissioner build up a position of trust and influence with all parts of the business community.

As is obvious, I do not really agree with the move to broaden the role of the Small Business Commissioner. As I said on Monday, I believe that focus is what we should go for, but I will of course read carefully our various discussions. However, I am not persuaded that, despite the eloquence of the noble Lords who have spoken—including the noble Lord, Lord Hodgson, who made some points about incentives—we would be right to change these provisions.

[Lord O'Neill of Clackmannan]

Before the Minister sits down, could she perhaps explain something to me? I understand that the commissioner’s approach is broadly similar to that of an ombudsman, but it goes a little further in trying to resolve the disagreement. However, we have already suggested that, if this process is successful, a lot more people than the anticipated figure of 500 may well come forward with complaints. Within that, there may well be recalcitrants who will not honour their obligations.

Does the Minister envisage a situation in which, if this softly-softly approach does not work as well as she would like, it would be appropriate for the annual report—which we might not see but she certainly will—to require legislation? Regulation and legislation are the last resort, we all accept that. But we would not want to have the door closed and locked, so that it takes a considerable number of years for us to return to this issue.

It has taken a long time for us to get this far on questions of payment. I suspect that the legislative programme of successive Governments may well be such that it will take them an equally long time to return to it. Therefore, we need to have from the Minister at least some kind of veiled threat of legislation if the conciliatory approach does not work. There are some very nasty people who are not paying their bills or meeting their requirements. I am not sure if ear-stroking in itself will be the ultimate answer to this problem.

[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.

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[Lord Stoneham of Droxford]

I shall also speak to Amendment 26. Amendment 25 is another amendment on the same theme that we have already been discussing: whether the commissioner needs some extra power. The two amendments would principally ensure that a report is published if an inquiry is entered into and that the respondents should be identified.

The reason for putting this proposal forward is that we are again seeking more effective powers and oomph for the Small Business Commissioner. We are assuming that if the complaints scheme is entered into, there will be a period before the initial approach is made for some sort of opportunity for conciliation. Indeed, I would have thought that most issues should be encouraged towards resolution before going into any kind of formal complaints scheme or procedure. As I say, there should be an opportunity for conciliation. To encourage that process and to provide an incentive to settle matters quickly and informally, some pressure should be applied. Once we have entered into the formal complaints scheme or procedure, a report would then be published and the respondent would be named.

The respondent may fear that they would attract unwanted publicity if matters were published in this way, but if the respondent has no concerns that they have done anything wrong and there is nothing they need to put right, they should have no anxiety about this, and that could be another way of applying pressure to get something resolved.

There is one further element to these amendments. There may be examples where the commissioner finds that a particular respondent is using undue pressure arising from its position in the marketplace and, indeed, is benefiting from undue dominance. We think the Bill should state that the commissioner should have the power to notify the Competition and Markets Authority where he or she considers that there is an abuse of market power, so that is an additional power which we are seeking through these amendments. I beg to move.

[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.

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[Lord Aberdare]

Another issue, beyond what the noble Viscount has said, is that very often there needs to be some limit on when practical completion has been achieved. There are situations where a small firm has been involved at the very beginning of a large project and the larger contractor is arguing that the project has not been completed and is refusing to release the money until a reasonable period down the track of that large project.

[Lord O'Neill of Clackmannan]

I support the noble Lord, Lord Aberdare. As I mentioned at Second Reading, I have an interest in this area, which is on record. The question raised here is a good one and is evidence of the need for proper consideration of the broad range of problems that retentions imply. Certainly, it is well noted that when you have major construction projects, very often the people who are in at the very beginning—for example, those doing the foundations and the steelwork—do not get their payments until the car park is completed. I am not sure whether that would be covered by a completion certificate. Let us face it, the construction industry is not really the most litigious of industries; indeed, people in it often cannot afford to have recourse to the law. Equally, they do not always have very detailed and specific contracts and, as we go down the supply side, the degree of vagueness becomes even more apparent.

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[Baroness Neville-Rolfe]

My Lords, I am extremely grateful to the noble Lord, Lord Aberdare, for his Amendment 39 and for Amendment 46. The common ground is that they both call for a review of this practice. I am grateful to the noble Lord, Lord O’Neill, for his comments both in the Chamber and in the private conversation we had one evening on our way home together.

[Lord O'Neill of Clackmannan]

Separately!

[Baroness Neville-Rolfe]

I was delighted that the noble Earl, Lord Kinnoull, could bring his own practical experience of the market to the debate, including his experience during the financial crisis. That was picked up well by the noble Lord, Lord Stoneham, who rightly emphasised the cyclical nature of this vital UK industry.

Retentions themselves are not always a bad thing. One knows that from having domestic household repairs where frankly it is essential practice to keep back a small sum in case remedial work needs to be done. However, I have been persuaded by discussion at Second Reading and this afternoon that a review of the practice of retentions would be a good idea. The existing timeframes for change are extraordinary. I did not dare say that last time we discussed this before the election, but I am glad to be able to say it today and to hear the same comment from the noble Lord, Lord Stevenson.

I would be keen to make sure that the review was likely to develop recommendations capable of providing an enduring solution to what is a pretty deep-seated and rather complex issue—we are all agreed that it is not the simplest thing in the world. There is some work to do to ensure that the review is well grounded. Of course, it needs to cover a number of issues such as cash flow, and look at the period of time before retention must be released. It also needs to look at the small business angle, which is obviously relevant to today’s debate, including bricklaying.

I propose that the Government consider the best way to take the review forward. I will write to noble Lords in due course setting out precisely how we will do that; the terms of reference and a detailed timetable outside the Bill. If it helps, I am happy to commit to the review being completed within nine months of the Bill being passed, as suggested in Amendment 39 by the noble Lord, Lord Aberdare. This will give a little incentive to speed, because we have been here before and it would be nice to feel that progress could be made. I hope that the noble Lord, Lord O’Neill of Clackmannan, will not be disappointed by my helpfulness in that respect.

There is not a lot more to say. I hope that noble Lords will welcome the review and will feel able to close down the issue today. On the basis that I have described, I hope that they will happily withdraw their amendments.