Small Business, Enterprise and Employment Bill

Lord Stevenson of Balmacara Excerpts

Wednesday 7th January 2015 Grand Committee

Moved by

[Lord Stevenson of Balmacara]

12: After Clause 3, insert the following new Clause—
“Payment practices: retention of monies
(1) The Secretary of State may by regulations impose requirements on certain companies to publish information about their policies, practices and performance in holding, safeguarding and releasing sums withheld by, or in behalf of, a payer from monies which would otherwise be due under a contract, the effect of which would provide the payer with security for the current and future performance by the payee of any or all of the payee’s obligations under the contract (“retention monies”).
(2) The regulations under subsection (1) may prescribe—
(a) the companies or type of companies to which the regulations apply;(b) the information required to be published;(c) the intervals at which, and format and manner in which, publication must take place; and(d) the type of description of contractual provision to which the regulations apply.(3) The restrictions on regulations in section 3(3) shall apply to regulations made under subsection (1) of this section.
(4) The Secretary of State shall arrange a review of the operation of the type of contractual provisions mentioned in subsection (1) after a period of 18 months following the coming into force of the first regulations made under subsection (1), and shall lay a copy of the report of the review before each House of Parliament.
(5) The review provided for under subsection (4) may make recommendations for requirements and obligations to be imposed upon certain types or descriptions of companies in relation to the practice of retaining monies as described in subsection (1).
(6) After public consultation, the Secretary of State may by regulations impose such requirements and obligations on prescribed companies as were recommended by the review, in whole or in part and with such amendments as the Secretary of State believes to be required in order to—
(a) ensure that the practice of withholding retention monies does not give rise to unfair treatment of payees;(b) provide assurance that retention monies are held securely; and(c) ensure that the position of a payee company from whom retention monies are being withheld is protected when a payer company becomes insolvent.”

[Lord Stevenson of Balmacara (Lab)]

My Lords, I rise to move Amendment 12, which is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a solicitor who deals with construction contracts.

It was a surprise to me to discover that at any one time, according to recently released figures, about £3 billion is outstanding within the construction industry by way of cash retentions. This figure represents the aggregate of monies which have ultimately been provided by small businesses, ostensibly as security in the event they do not return to remedy any defects in their work. I suspect that this process is taken from domestic situations; we are all aware of the problems that can be caused when one tries to get a rogue trader or contractor back to remedy faulty work.

However, in a commercial setting, the situation is surely different. It appears that the main motive for deducting retentions is to enhance the working capital of the party deducting them. Using the FOI Act, the Specialist Engineering Contractors’ Group recently carried out research among public bodies of the use made of cash retentions. It found that 71% of those surveyed added cash retentions to their working capital or admitted that they actually reinvested them while they waited for the evolution of the work process being undertaken by the contractor. The effect is that bodies that are commissioning work are also borrowing from the small firms that are carrying out the work. That is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.

The key issue is that cash retentions are being deducted from payments already earned. They are handed over on condition that they are returned only unless they are used to remedy defects in the event that the firm does not do so. However, this is a very unsatisfactory situation, as in the mean time there is no protection for the retained money that will ensure that they will be available for release if, in the event, there are no uncompleted remedial works. We think that there is a good case for any retention funds to be kept separate from working capital and we suggest that there should be some form of trust in which these amounts are held.

These issues apply of course all the way down the supply chain. It is obviously true that for public sector works, small firms operating directly with the public sector are unlikely to see that body go bust, although it is not unknown. However, if they are dealing with private companies that are themselves contracted by the public sector, the firms further down the supply chain are at risk of losing their retentions if their top supplier, for instance, becomes insolvent. On the other hand, a tier-one supplier at the top level does not carry this risk because it will be working with bodies that are unlikely to become insolvent.

Of course, the business department has a construction supply chain payment charter, which was launched on 22 April 2014. In it is expressed the wish that these retentions should be abolished, which, I think, is good news. However, unfortunately the proposal is to wait until 2025. Governments have long aspirations and wide horizons but to wait another 10 years for such an obvious piece of legislation seems a little otiose. I hope that when the Minister comes to respond she can explain exactly why the delay is there and what it is for.

If it were possible for the Government to accept our amendment, this would begin to move us down the process. In particular, if it were appropriate to ensure that money held on retention was, in fact, placed in trust, separate from the working capital of the companies that were involved in it, that would certainly have the advantage of reducing the risk to those lending their money to those commissioning it. The amendment would enable the Secretary of State, through regulation, to be better informed about the extent of the problem and then to issue regulations when the appropriate time came. In this case, we are quite happy for this to be a “may” and not a “shall” provision.

If the amendment is accepted, it will have far-reaching benefits for small businesses throughout the construction industry. It will enable them to provide more jobs and increase their training provisions, and investees in resources will help to improve policy and the timeliness of delivery. How could we be against that? I beg to move.

[Lord O’Neill of Clackmannan]

I support the amendment and my noble friend. In 2002, I was the chair of a Select Committee that looked at retentions. At the time, it achieved a degree of notoriety in so far as, once the six weeks had elapsed, we got a letter from the department—I should say from the Minister, even though he was a member of the Government of my own party—but frankly it was not worth the paper it was written on. It was the most feeble response on this issue. Therefore, perhaps uncharacteristically, I am not here today to make party points, because my lot were as bad as the other lot. However, the fact was that the civil servants were somewhat uncomfortable when we took them word by word through their communication. Eventually, with them having a second bite at the cherry, we got a rather better ministerial response.

Given the glacial speed at which this matter has been dealt with by the respective Governments, it was not a surprise but a matter of some satisfaction that in 2014 we had the question of retentions being dealt with included in the fair payment charter. Both sides have already spoken today about culture change but 23 years to secure a culture change on a matter as fundamental as payment seems to be a rather relaxed, laid-back approach to this issue. While there is always more rejoicing in heaven when one sinner repenteth—and there seem to be a number of sinners repenting on this issue at the moment—the fact is that the bus to Damascus is taking a lot longer to arrive than it should.

Therefore, I encourage the Minister to look afresh at the dates. The payment charter was important and a significant advance but I do not think that we should rest on our laurels in this respect. A number of businesses are short-changed as a matter of course because of retentions and it is indefensible that the public sector should be part of that. On the other hand, it is almost inevitable because 40% of all construction work in the United Kingdom is paid for by the state in one way or another, whether by local government, the health service or those authorised to do so by other people. There is even a fair amount of work carried out at the behest of regulatory bodies which, although independent of the state, are nevertheless instruments of the state in one way or another.

We should not underestimate the significant contribution that could be made by a Government prepared to increase the pace of change here. While the advance that has been made in the past two or three years in terms of payment generally is to be applauded, this most pernicious form of payment retention cannot be justified. It has been said that this is a means of regulating bad practice, but it is a most unsatisfactory one. There was a time when the supply chain was a somewhat feisty, disagreeable means of doing business, where there was quite considerable ill feeling between relative tiers of that chain. That is no longer the case but a significant minority of businesses is still prepared to hold on to money that legitimately should be given to people who have fulfilled their work.

We could go into anecdotal evidence of this kind of practice. For example, the people who prepare the foundations for a building project are very often still waiting to get paid because the car park turf has not yet been laid. They have long departed the site and finished their work but are still waiting because the project is not completed. That kind of sharp practice should not occur in an efficient economy or decent society. I would like to think that the Minister had a bit of scope here, could take this amendment away and, if it is not quite to her needs, do something more with it. If I were to individually ask the Members of this Committee whether they agree with this practice, think it contributes to the efficiency of the British economy or even think it is fair, they would probably answer that “No” is the only answer. It is not fair and it does not promote economic efficiency. It enhances distrust between sectors of an industry where this Government and their predecessors, through the appointment of a chief adviser on construction and the like, have been trying to bring the parties together to get them to have a concerted approach—that is, the management, unions and various sectors of the industry. As long as we have this kind of practice, we will not have the trust that lies at the heart of an industry that can do so much but sometimes falls at the first hurdle. The first hurdle of any business is payment, as we have said already today.

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[Lord Stevenson of Balmacara]

I thank the Minister for her response, although I am a bit disappointed by her willingness to take on board some of the issues. I thought that my noble friend Lord O’Neill made an excellent contribution that endorsed and fleshed out some of the issues. Likewise, my noble friend Lady Donaghy raised them from a different perspective, but with very much a similar line. This is clearly a pernicious activity with medieval origins, possibly even back as far as Damascus, which needs to be looked at very hard. To set a timetable of 2025 will cause flames to emerge from those who are trying to deal with it—but that metaphor is running out fast.

Two things struck me. I do not often hear the words “government” and “innovative practices” coupled together, but I am delighted to hear them. I think that my noble friend Lord O’Neill was right to suggest that we need a bit more evidence of that, and I look forward to the letter being more widely copied than just to him.

The other aspiration mentioned was the wish to see defect-free work. Well, pigs do fly and I have occasionally seen one or two, but I do not think that we are talking about that. Is not the answer, more seriously, that we are trying to get out of this a more robust and resilient construction practice activity within which good clients contract with good suppliers on a basis of mutual trust and organisation? The idea of having a separate escrow account or retentions thing really plays to a lack of confidence and the ability to take action through the courts, which the Government often pray in aid as the answer to all difficulties. Is that really the way forward? If you have good clients and a good contractor and there is a problem, there are arbitration and other systems that well exercise those on their way through. I do not see the case for retaining the retentions system as a way of trying to bolster this up. The Government may want to reflect on that, but I shall read carefully through the Minister’s response and think again about the issue. There is something here that perhaps needs a little more attention but, in the mean time, I beg leave to withdraw the amendment.

Amendment 12 withdrawn.

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[Lord Newby]

My Lords, these amendments make a number of technical changes to Clauses 4, 6 and 7 to ensure that the credit data and finance platforms measures work as the Government intended. The amendments also specify the commencement date for the Government’s cheque-imaging provisions.

Beginning with the amendments to credit data and finance platforms, Amendment 16 is a clarificatory amendment to Clause 4 to ensure that banks do not deliberately circumvent their obligations to share credit data with credit reference agencies. Amendment 20 would ensure that the regulations under Clause 4 may require credit reference agencies to provide all the data obtained by them under the credit data measure to the Bank of England, not only data provided by designated banks.

Amendments 22, 23 and 29 would allow the Government to accept the recommendations of the Delegated Powers and Regulatory Reform Committee that any future change to the regulations made under Clauses 4, 5 or 7 be subject to the affirmative rather than negative procedure.

Amendments 27 and 28 would ensure that providers of invoice discounting and factoring services are covered by the definition of “finance provider”. This allows them to benefit from government measures to improve access to credit data and to implement platforms for rejected small business finance applications. Providers of invoice discounting and factoring are a key part of the financing landscape for smaller businesses and it is essential that they are able to benefit from these measures.

Finally, Amendment 103 specifies the date for the commencement of the provisions enabling cheque imaging in the UK as 31 July 2016. This amendment will therefore help ensure the banking industry delivers this payments innovation to customers as quickly and ambitiously as possible. The Government are tabling this amendment to help ensure that the benefits of cheque imaging are delivered to a clear, fixed and timely schedule. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, the Opposition are happy to accept the great majority of what has been produced in this group. We see the logic of the amendments and understand their rationale. It is sometimes amusing to find the Treasury in a situation in which it appears not to have been quite as convincing as it ought to have been in its submissions to the DPRRC. The noble Lord made a good fist of it but it must have been a bit galling to realise that in some ways the mighty writ of the Treasury, which normally runs everywhere, got washed away by the firm rebuttal of the idea that somehow a Henry VIII clause, when introduced by the Treasury, was okay but not when it was introduced by others. I am glad to see that the changes made here bring back a more coherent and consistent approach. Other than that, this is a welcome step forward.

Amendment 16 agreed.

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[Lord Leigh of Hurley (Con)]

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

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

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

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

[Lord Stevenson of Balmacara]

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

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

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

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

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

[Lord Flight]

My Lords, as I have already pointed out, Amendment 25 really goes with Amendment 5. Very simply, and hence why it comes up in this section of the Bill, it endeavours to slightly widen the size of SME which can benefit from the provisions on credit information availability by substituting the R&D tax credit definition of an SME for the definition currently pertaining in the Bill.

There is quite an important point here, which is that the crucial measure of the ability of a company to command lending services is really its EBITA. Most companies with an EBITA below £5 million have problems in sourcing capital investment finance. Basically, the argument runs that the definition used for an SME is really too small and that small and medium-sized businesses are in just as much need of assistance in sourcing credit and investment as are smaller companies.

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[Lord Stevenson of Balmacara]

My Lords, I understand the logic of what the noble Lord is saying and the rationale for what the Government are doing, and that there will be consultations around this. However, the point that he has just made surely exposes the gap. If a medium-sized company, not a microbusiness, has a CRA purporting to report on it in a way that is factually incorrect or gives the wrong impression, is the only redress to take it up directly with the CRA?

[Lord Newby]

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

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

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

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

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Moved by

[Lord Stevenson of Balmacara]

30: Clause 10, page 12, line 4, leave out “negative” and insert “affirmative”

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Moved by

[Lord Stevenson of Balmacara]

31: Clause 11, page 12, line 17, at end insert—
“( ) Prior to the commencement of this section, the Secretary of State shall—
(a) commission an independent assessment of the functions and powers of UK Export Finance (“UKEF”) and UK Trade and Investment (“UKTI”);(b) make a report to Parliament of steps to be taken in response to the findings of the assessment referred to in paragraph (a);(c) commission an assessment to determine actions to improve the awareness of UKEF and UKTI to small and medium sized enterprises.”

[Lord Stevenson of Balmacara]

My Lords, in moving Amendment 31, I will also speak to Amendment 32. Together, they relate to UKTI and UKEF.

The UK is subject to international human rights obligations under customary international law and as a result of the international legal instruments we have signed and ratified. Human rights obligations generally apply only within a state’s territory and jurisdiction. Accordingly, there is no general requirement for states to regulate the extraterritorial activities of business enterprises domiciled in their jurisdiction, although there are limited exceptions to this, for instance under treaty regimes. The UK may also choose as a matter of policy in certain instances to regulate the overseas conduct of British businesses.

The UK has specific laws protecting human rights and governing business activities. As with all UK law, these are set out in legislation and are sometimes protected by common law rules as well which, taken together, ensure certain rights and liberties. Some of these provisions have been in place for many years, will be familiar to business and are well respected by it.

Like all states, we need to continually reassess whether the current mix is right, what gaps there might be and what improvements we can make. The UK has ratified a series of international treaties and agreements—the ILO eight core conventions, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and the European Convention on Human Rights, which enshrine human rights and fundamental freedoms and have been given effect through the law of this country.

The Human Rights Act 1998 ensures that individuals in the UK have a remedy for the breach of rights which are protected by the European Convention on Human Rights. It applies to all public authorities and other bodies performing public functions, as private companies sometimes do. The relevant legal framework in the UK includes employment regulations—requiring companies not to discriminate against employees on grounds of sex, race, sexual orientation and religious belief—and environmental regulations. Examples of wide-ranging legislation protecting human rights in the business context include the Health and Safety at Work etc. Act, and the Data Protection Act, which applies to companies and ensures respect for the privacy of individuals. Legislation has also been passed to plug specific gaps in the protection of workers under the law such as the Gangmasters (Licensing) Act 2004, which created an agency to prevent the exploitation of workers in agricultural work et cetera.

The UK has created or endorsed a number of instruments that motivate different aspects of good corporate behaviour and respect for human rights. These include: the UK Bribery Act where, in line with our OECD commitments, UK companies are now liable in the UK for acts of bribery committed anywhere in the world; the Declaration on Fundamental Principles and Rights at Work adopted in 1998 and the eight core ILO conventions ratified by the UK on labour standards; the OECD Guidelines for Multinational Enterprises, where the UK has established a national contact point; and Section 172 of the Companies Act 2006, which makes clear that, in fulfilling their duty to act in a way which they consider would be most likely to promote the success of the company, directors must have regard, among other matters, to the impact of the company’s operations on the community and the environment, and the desirability of the company maintaining a reputation for high standards of business conduct.

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[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord for setting out his thinking on these amendments. I shall comment in turn on the two amendments, taking Amendment 31 first.

The powers in Clause 11 are deliberately drawn as widely as possible to enable UK Export Finance to provide wide-ranging and flexible support, and to respond quickly and imaginatively to changes in market conditions. Our intention is for UK Export Finance to have the widest possible ability to support UK-based firms in their involvement with exporting, whether these firms are existing exporters, those in exporting supply chains or aspiring exporters.

The current requirement for a connection between the department’s support and an actual or contemplated export has made it difficult for the department to respond to the needs of exporters in certain cases, especially in relation to support for the general business of an exporter or a supply chain company. We share the aim that has been expressed today of maximising government support for exports and of maximising the awareness of that support among UK businesses. However, by delaying commencement, this amendment could serve to delay the introduction of new facilities for UK businesses to seek new opportunities and win export contracts that would help us increase UK trade, the aim set out in the Britain Open for Business update announced by the Prime Minister last year.

In view of the points that were made earlier by the noble Lord, Lord Mitchell, I should say that when it comes to promoting British exports, this Government have done an enormous amount. I pay tribute to my noble friend Lord Popat, who is playing an important part in the passage of this Bill. It was on his recommendation that your Lordships’ House established a Select Committee under the chairmanship of my noble friend Lord Cope, who spoke earlier, examining the ways that the Government could support and encourage SMEs to export. That was a very valuable initiative, which reported in March 2013. The Government accepted all 23 of its recommendations, including measures on credit risks for SME exporters and better publicity for services provided by the Government.

We are absolutely committed to increasing British exports to rebalance our economy. As recently as the Autumn Statement, the Chancellor outlined a £45 million package to increase exports, including £20 million for first-time investors. That is in addition to work to increase UKTI’s presence in emerging markets and our work since 2010 to put a much greater emphasis on trade and economic growth in our diplomatic relations. The additional funding that this Government have provided for UKTI has allowed it to double the number of businesses helped since 2010, and we are on track to support more than 50,000 businesses this year. I echo the points made by my noble friend Lord Leigh of Hurley about the export effort for SMEs that he observed on his trip to China with the Prime Minister. Less glamorously, I saw the results for myself on a week’s visit to China in September. I was impressed both by the programme and performance of UKTI and by the scale of business involvement. Again, it was a mixture of SMEs, larger businesses and legal experts.

UK Export Finance is referred to several times in these amendments. In 2011, the Government reintroduced, after 20 years, UK Export Finance support for goods usually sold on shorter terms of credit—mainly those supplied by smaller companies. So far in this financial year, around 120 companies have benefited from direct UK Export Finance support, and almost 80% of them are smaller firms. Companies in the supply chains of exporters benefit indirectly from UK Export Finance support. We want them to benefit directly, hence the provisions in the Bill. UKEF is keenly aware of the need to improve awareness of it among smaller exporters. Last year, the British Exporters Association scored the product range of UK Export Finance at nine out of 10, while the Global Trade Review voted UK Export Finance the world’s best export credit agency. So we are making progress. Awareness of UKTI has also increased significantly over four years, from an average of 51% in 2010 to 65% now.

The noble Lord spoke at greater length to Amendment 32, touching on a very important area. It is of course government policy, informed by an extensive public consultation conducted in 2009-10, that UK Export Finance will comply with international agreements which apply to export credit agencies. UK Export Finance complies with the OECD common approaches, which set out how export credit agencies should undertake due diligence on the environmental and human rights impacts of projects falling within their scope. The OECD common approaches make reference to the UN guiding principles. In undertaking environmental and human rights due diligence in line with the common approaches, it is the practice of UK Export Finance to apply the 2012 performance standards of the International Finance Corporation. These are recognised as comprehensive standards. UK Export Finance is taking an active and leading role in further OECD consideration of human rights issues, which will inform possible changes to the OECD common approaches, should they be agreed.

I pause to comment on the example of fossil fuels given by the noble Lord, Lord Stevenson. UK Export Finance has not supported any transactions in violation of the coalition agreement’s pledge to support green technologies rather than invest in dirty fossil fuel energy production. The Secretary of State made it clear in a Written Ministerial Statement in July that “dirty fossil fuel” should be taken as referring to projects that produce pollution in excess of international environmental standards. The practice of UK Export Finance is not to support such projects.

As I have already said, UK Export Finance complies with the OECD common approaches and has a dedicated environment advisory team that reviews the environmental, social and human rights issues of projects covered by the common approaches prior to the department agreeing to provide support. I hope that gives some comfort. Against this background, the Government consider it neither necessary nor appropriate to impose a statutory duty on the Secretary of State to have regard to only one set of principles—which are, in any case, already taken into account through UKEF’s adherence to the common approaches.

On the second part of the amendment, the common approaches set out how export credit agencies such as UK Export Finance must take account of environmental, social and human rights issues. In line with this, UKEF requires that projects with significant ethical risks are subject to a full impact assessment and that international standards regarding environmental, social and human rights issues are complied with before it provides export credit finance support. UKEF will also monitor these issues throughout the life of projects where relevant, sometimes over periods as long as 10 years.

I was glad to hear the noble Lord, Lord Stevenson, make reference to various changes and improvements made in recent years, including the Bribery Act. That has been pivotal in clamping down on corruption. UK Export Finance also conducts due diligence on the contracts it supports to ensure that they are not tainted by corruption and that the risks associated with dealing with the parties are acceptable. This includes but is not limited to warranties from exporters and checks against prohibition lists maintained by multilateral development organisations such as the World Bank.

The Secretary of State also benefits from the advice of the independent Export Guarantees Advisory Council, whose remit is to advise on UKEF’s application of its ethical policies. The annual report of the chair of the Export Guarantees Advisory Council is published alongside UKEF’s own annual report, which lists the transactions supported by UKEF each year.

I hope that noble Lords are reassured that UKEF takes appropriate consideration of ethical issues in its decision-making and therefore will agree that it is not necessary to place a new statutory requirement upon the Secretary of State. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Stevenson of Balmacara]

I thank the Minister for her very expansive response. I appreciate the effort that went into it. I know it is not her direct area of responsibility and I am sure that she received assistance from others. They put together a good response and I appreciated listening to it. I was also remiss in not paying tribute to the work of the noble Lord, Lord Popat, which has been referred to in the Committee before and is worthy of further comment. His is a terrific initiative and is doing well. The noble Lord, Lord Livingston, and his predecessor have also done a terrific job, which we support. The export champions, many of whom sit in this House, do a great job right across the world.

We are all on the same side here. Obviously, we recognise that we need more exports. We cannot become the nation that we want to be or enjoy the economic success that we all think we should have if we do not radically increase the amount and volume of our exports. We can take that as common ground. But—there is always a “but”—while I agree that we need to maximise support for exports and we accept that there is a long way to go, it does not have to be a zero-sum game. It is possible—many countries do this—to have regard to the terrible impacts of extractive industries, the difficulty of ensuring responsible trading and the respect for human rights in all aspects of activity, and not to be guided always by, in some senses, the lure of more arms sales. Of course, we have special regimes for them, but it is still very difficult to get a proper sense of what is happening there because they tend so much to dominate the work of both UKTI and UKEF.

Issues were brought up by my brief example, and there are many others. I accept the fact that since 2012, although that is not a long time ago, UKEF has not been involved in supporting the export of dirty fossil fuels—although I note that the quotation we were both referring to states that the situation is that it has not publicly financed new coal-fired plant overseas,

“except in rare circumstances in which the poorest countries have no feasible alternative”.

That seems to me to be a large door through which many rather undesirable practices may have taken place, but I have no evidence of that. However, it makes the point again that it may be that how we are interpreting things is good at the moment, but without statutory underpinning, how can we give sufficient support to people in order to ensure that good practice continues in the long run?

The proposals set out in Amendment 32 are not onerous. The Minister said that she felt that the amendment simply sets out what is common practice now in relation to promoting UK government adherence to the UN guiding principles. That is fine, so why not let us have that in legislation and all agree on it? Further, preparing a report for both Houses of Parliament might well be a way of bringing up some of the issues that do bear on this debate: for example, what exactly is the interaction between the moral and ethical standards we are looking at on the one side and the success or otherwise of exporting around the world?

However, I hear what has been said and I know that this is a complex and difficult area. The work that is going on in government is in some sense at the right level and indeed is of a standard that the rest of the world could easily emulate. However, we must not lose sight of this because it is important and it will have long-term consequences, both good and bad, if we do not get it right. With that, I beg leave to withdraw the amendment.

Amendment 31 withdrawn.