Monday, 12 January 2015.
Small Business, Enterprise and Employment Bill
Committee (2nd Day)
Relevant documents: 11th and 13th Reports from the Delegated Powers Committee
My Lords, should there be a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 15: Target for streamlined company registration
Amendment 33A had been withdrawn from the Marshalled List.
33B: Clause 15, page 17, line 18, at end insert—
“( ) For the purposes of this section and section 16, a system for streamlined company registration is a system which ensures that company incorporation and tax registration is approved on the same occasion.”
My Lords, the purpose of Clause 15 is to set a timetable to streamline the process for companies to incorporate and register for corporation tax, VAT and PAYE online without having to provide the same information repeatedly. The aim is for this to be done “by electronic means”, as defined in Section 1168(4) of the Companies Act 2006—that is, to be able to be,
“sent … and received … by means of electronic equipment for the processing … or storage of data, and … entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means”.
Our amendment, somewhat modestly, adds a target that is desirable and deliverable. Our amendment sets the goal of ensuring that this system should be delivered to make it possible not only to enter all the data required for all the tax and registration requirements at the same time but to ensure that approval for company incorporation and tax registration is provided at the same time. We are pleased to support this clause, as it meets the objectives of reducing burdens on business and encouraging the adoption of new technology and the delivery of more public services digitally.
As an element of policy to support small businesses, the proposed measure is useful, although I doubt that it will be transformational. However, I think that the measure is to be commended because of what, in a sense, it stands for: first, that where we can make it better to establish, grow or develop small businesses, the Government should help—the Government can do more to simplify regimes, even efficient ones, and we think that this is a sensible step; secondly, that the Government must do what they can to act in a way that serves all types of businesses. As a big organisation, government struggles both to have the right horizon and to be sufficiently adaptable to meet the needs of small businesses.
This amendment puts a large stake in the ground. I am sure that the Minister could tell us how many officials in her department, prior to the introduction and design of this Bill, dealt with small businesses versus the number who dealt with, say, the automotive industry. I do not wish to diminish support for the automotive industry, but I am sure that the disparity in numbers says something about the extent to which the department is sufficiently able to appreciate the nature of the main drivers of employment and growth in the private sector economy and how to get the right feel for, and approach towards, legislation and regulation.
We share the ambition to make Britain the best place in the world to start and grow a business. When Labour left office in 2010, Britain was ranked by the World Bank as the easiest place in Europe in which to set up a business. In fact, it was ranked the fourth easiest place to do so in the entire world. I say that not to make any partisan point but to stress that we are all committed to progress on support for small businesses. So it just has to be right that, rather than inputting the same data several times to incorporate and register for taxes, a new company should be able to provide the information just once, digitally, to incorporate with Companies House and to register with Her Majesty’s Revenue & Customs for corporation tax, VAT and PAYE.
The Government’s case is that Clause 15 uses a statutory target to demonstrate, in the strongest possible terms, the commitment to improve the current system and to ensure that it is given the highest priority across government to deliver a solution as quickly as is reasonably possible. I am bound to say that, although we support and understand that, it is rather disappointing that this is not just done but needs legislative support.
I would be grateful if the Minister could reassure us by providing some details on the planned delivery of this measure. For example, given that this is a technology project and given the Government’s record on the delivery of IT projects, it would be useful to know which department will lead the project management and delivery of the work. Will there be a joint procurement and management team? What has been the engagement and market testing with the business community? What expertise is being assembled or commissioned to help with its design?
Also, does this commitment only extend to the development of tools for computer-based formats, or is it pioneering and embracing mobile and tablet devices? Could we get some idea of what we can expect from the reporting procedures between now and 2017? What progress should we expect by, say, March 2016, and what steps will businesses see between now and then? I am sure that, as with any similar project, there are already ideas of what the milestones will be. After all, how could the 2017 date itself be established without them?
While I know that the Minister’s colleague in another place was reluctant to be drawn on details, I wonder whether the few months between his comments and our deliberations have allowed more details to be forthcoming. The Minister in another place said:
“I want us to be able to deliver a complicated IT project. Government IT projects are difficult enough to deliver on time without having to hit a description written in Hansard of what we now expect to happen”.—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 23/10/14; col. 231.]
I need hardly remind the Minister of the useful advice of Dr Martin Read, with whom she served in the Government’s Efficiency and Reform Group. Martin Read, an outstanding IT leader and businessman, had previously looked at IT procurement and delivery in government and given some excellent advice, which I hope the Government will follow in the delivery of this project. However, to indicate that they are entering into a project without any sense of desired outcomes, costings, budgets and timings—and especially contracting and project management—would suggest that they did not really heed his advice. It is pretty hard to believe that this is a blank piece of paper and I would be grateful if the Minister would provide us with the courtesy of just some morsels of information.
Finally, in relation to the duty to report, I would be grateful if the Minister would clarify how, when, and hopefully what, it will cover. Crucially, will it cover problems in delivery and will it be possible for it to restate timetables, both positive and, potentially, negative? Interestingly, this measure does not provide enabling powers to facilitate the delivery of the targets and the Government have said that, if they identify the need for such powers, this will be dealt with through another legislative vehicle. I would be grateful if the Minister would set out the Government’s thinking on this and if he would illuminate for us where they might anticipate that such powers may or may not be needed in the future. I beg to move.
My Lords, I thank the noble Lord, Lord Mendelsohn, for this very important amendment. I understand his desire to bring speed and avoid duplication of any kind, but I will just go through the reasoning on why this would quite often be difficult. The streamlined company registration is designed to save businesses time, money and effort when registering their details for company incorporation and tax registration. This means that businesses will not need to provide the same information on multiple occasions to incorporate a company with Companies House and to register for VAT, corporation tax and PAYE with HMRC.
Amendment 33B would require company incorporation and tax registration to be approved on the same occasion. There would be some difficulties in doing this, but I am pleased to assure the noble Lord that we would face a whole number of issues in incorporating his amendments. The amendment could be interpreted in two ways: that the incorporation and tax registration are approved at the point when the application is made or that the business would have to wait until the completion of both incorporation and tax registration to receive confirmation.
To deal with the first point, incorporation and tax registration cannot be delivered at the point that the noble Lord, Lord Mendelsohn, mentioned, when the application is made. First, there are processes that need to happen sequentially before all obligations have been met. Incorporation for a company at Companies House is the start of the process before a company can register for corporation tax, PAYE or VAT. Secondly, assurance checks need to be made to prevent fraud. HMRC and Companies House have strong existing processes to counter fraud, which will continue to apply under the new system. HMRC is currently unable to process these assurance checks in real time because they require analysis of intelligence and cross-checks with other HMRC systems. These processes are not automated. However, security aspects will be considered throughout the implementation of this project. HMRC will continue to use expert knowledge and organisational learning to fraud-proof its processes and systems through continuous improvements to system controls and checks.
To deal with the second point, although a single response could be given to customers to inform them of the completion of incorporation and tax registration, this would have to be done at the end, rather than at each stage of the process, which we think would result in a poor customer experience. We believe that keeping customers informed on the progress of their registration and supplying information as it becomes available will enable companies to begin doing business while the process is still in train—for example, by opening a bank account as soon as incorporation is complete. That will also help to generally enhance the customer experience.
The noble Lord, Lord Mendelsohn, mentioned the history of failing to deliver extensive IT programmes and asked how this will be different. The Government have made significant improvements to the way in which IT projects are managed and delivered. This project will be developed using a build, test and deploy approach, which avoids costly errors and the pursuit of inappropriate solutions. That approach is widely used and was successfully used in the development of GOV.UK and new transactional services which have delivered significant improvements for citizens and businesses. That is a major project that is currently taking place.
The other question raised by the noble Lord, Lord Mendelsohn, was what progress would be made by the time of the first report in 2016. It is premature to say exactly how much progress we will have made by the time of the first report to the House. The immediate next step is to begin detailed engagement with a wider range of businesses and stakeholders to refine the delivery options. That will include new businesses and those thinking of starting a business, as well as professional and representative bodies. As a minimum, by 2016 we expect to have developed a working prototype designed and tested with a set of core businesses with a programme of wider engagement which will give us the feedback required to develop the final product. At all times, the focus will remain on ensuring that the end solution will meet users’ needs in the most cost-effective way.
The first thing that people who want to set up their own business from home or from any commercial premises need to do is to register their company. That must be as instant as possible so that they can start trading and open a bank account. They cannot possibly at the same time register for VAT, PAYE and corporation tax. I am talking from my business experience on that—these things take time. The good news is that we are streamlining the process by including information so that future registration for VAT, PAYE and corporation tax becomes much easier. In many ways, it will be faster than it would otherwise be.
I hope that the noble Lord has found my explanation reassuring and, on that basis, I request him to withdraw his amendment.
My Lords, I thank the Minister for his reply. It may not have appeared so, but I am somewhat excited about this measure. It is not just the notion of IT programmes which interests and excites me—they do not—but as someone who has declared an interest as an owner, investor and someone who works in small businesses, I may well get to use this system. I am enthusiastic in that regard. It is not my concern about the speed or, in a sense, the relative level of difficulties. I am more than aware of the difficulties that will be faced—especially by HMRC, with its current system. However, what is important to understand about this measure is the opportunities that it provides and the ambition that it demonstrates.
It is important not to underestimate this rather simple and rudimentary task, even though there is a degree of complexity on the establishment of businesses and the registration of documents. If we can get Companies House, HMRC and—who knows?—even others working together, there are some tremendous opportunities ahead which government, as a market-maker and enabler, can deliver if we can get these sorts of things right. It is important to see it in that context: we are highly supportive of the ambition and would like to drive in more than is presently on the table. Those sorts of things are what set the right level of ambition, give us a sense of confidence and amplify the message of the Bill itself—that we are doing more for small businesses. We may well return to this, not just because of my excitement but because the opportunity here is quite strong. However, I beg leave to withdraw my amendment at this stage.
Amendment 33B withdrawn.
Clause 15 agreed.
Clause 16 agreed.
Clause 17: Review of regulators’ complaints and appeals procedures
33C: Clause 17, page 18, line 13, at end insert—
“( ) A person cannot be appointed by a Minister of the Crown under subsection (1) if the person is a current or immediately past board member of the regulator.”
My Lords, the Bill creates a duty on the relevant Minister of the Crown to appoint a person for each non-economic regulator. As the person is variously described it is a bit confusing, both in the Bill and in the notes, as to exactly what they will be called. It might be worth having a further discussion about this at some point, but for the purposes of this amendment my eye was drawn to the phrase in the notes “Small Business Appeals Champion”.
An additional point to make here is that it is quite refreshing to read of a Government who are prepared to go hammer and tongs into adding new regulations to an area. I am not one who is necessarily against regulation in principle, as good regulation drives a lot of good things, but this has quite a set of layers of regulation in it. Given that we are also considering the Deregulation Bill, and indeed have been faced with a number of attempts to try to reduce regulation, we ought to be quite clear what we are doing here. Although I make a trivial point about the name, it is also important.
The aim is to ensure that there are clear and effective procedures and processes in place, so that businesses—again, it seems to be defined as “businesses”—can challenge regulatory decisions, should they feel that they have been treated unfairly. I put on record that we support this approach. We are aware of the previous history of this: in the publication Small Business, Great Ambition it was said that businesses were not always confident that there was a clear pathway to challenge decisions by a regulator. It is good that the Government have recognised this and want to come forward with proposals. It is also interesting that, in the evidence for that, it is clear that two issues are in play here. Businesses did not know how to challenge decisions—I imagine that is more at the smaller end of the market—but they also found that it was either too expensive or too time-consuming, or both, which again rings true to anybody with experience in this area.
In the consultation issued by the Government prior to the preparation of the Bill, Small Business Appeals Champion and Non-Economic Regulators—it perhaps gave away its content in its title—the Government explained that,
“given the range of different statutory arrangements … the Government will need to give individual consideration to the application of the policy to each regulator before the policy is implemented”.
That is a large amount of work given the number of regulators that have been revealed as a result of our work on the Deregulation Bill, for which a parallel but different set of regulations is of course being imposed. Can the Minister update us on how they are doing on this? It will be quite an extensive trawl through a number of regulators that were set up over the years. It is important that we have some sense of how we are getting on and whether any lessons can be learnt from that experience.
Cutting to the chase, a small business appeals champion—or whatever name we agree on—will be appointed to every non-economic regulator. These will be quite important people, particularly for small businesses, because they will be concerned about, and seek redress, when regulators introduce new regulations that might be against the best interests of their businesses. I worry that the Bill is not very sharp about the regulatory powers and responsibilities. Will they be sufficient? Will they be adequate to achieve what they set out to do? Will it be more than just a talking shop?
Individual appointments to the regulator will be by a Minister of the Crown. The Bill states that they will either be statutory office-holders within the regulator or be appointed by the Minister of the Crown in respect of the regulator’s functions—presumably as additional personnel. I am concerned about this. The power of a small business appeals champion will lie in their ability to challenge the regulatory functions that they are appointed to review. Perhaps the Minister will explain this when she responds, but it does not seem to me that a person who is already employed by the regulator is in a very strong position to criticise the regulator’s activities. Could she talk us through this? Are they not meant to be independent? It would be very unusual to have someone in a position of reviewing or providing reports to external bodies about a particular body if they are employed by that body. It might be better if they are board members and maybe they should be appointed in a particular capacity to each board, but the range envisaged in the Bill seems to be too large for this to be appropriate.
To take further examples, what happens if a reviewer has to comment to the Minister on the way that the regulatory duties are discharged by his or her boss? Is there not a problem there? The employee will have a duty of care that might be breached if they are expected to make recommendations in public that will end up being considered in Parliament. Noble Lords begin to see where I am going. This is almost like a whistleblower. Parliament has considered this topic and will return to it later in this Bill, but real concerns have been expressed about how we treat whistleblowers. Their effectiveness is entirely related to whether they can make their comments without being subsequently sorted out by the powers that be in their organisation.
Similar points came up on whether an employee in a regulator would have sufficient knowledge and expertise to do the job envisaged by the Bill. It seems to me that someone who reviews the work of a regulator would need to be at the board level. Although there will be no doubt excellent people further down the chain, I doubt whether they would have the experience or expertise, or be senior enough, to take a view.
There is also an intention in the clause that one reviewer would be appointed to each national, non-economic regulator in some cases but to groups of regulators in others. For instance, some regulators, groups of industries or groups of functions will work in roughly the same area; the suggestion is that one regulator could cover them all. Is there a list of the regulators that would likely be grouped together? If there is not, could we get that in play? That is quite important. For instance, we could consider one regulator for energy, but we could also think that there would need to be different expertise relating to gas or to water, as opposed to some of the other utilities. There is also the asymmetry of expertise and experience that I have already mentioned. For instance, if a reviewer was employed by one regulator but was expected to review and critique a cognate regulator—or even a very different one—one would worry about whether they had the expertise, or whether they would be able to criticise a sister organisation operating in the same field.
I am afraid that I have asked a lot of questions. I should have made clear that this is merely a probing amendment. We support the general approach, but we would be grateful to have a bit more detail so that the Committee could better appraise whether this is a good move. I beg to move.
My Lords, I thank the noble Lord for his amendment relating to the appointment of small business champions—my snappier, if less accurate, title for them. I agree that sometimes we need to regulate, especially, as in this case, to make regulation better.
The Government have brought forward these clauses because we want to ensure that regulators’ appeals and complaints processes are accessible and fair, and work for business. We want to make sure that, if a business wants to challenge a poor regulatory decision, there is a clear and easy-to-understand process to make a complaint or appeal to that regulator. I agree with many of the noble Lord’s comments.
How are we progressing with identifying regulation? The consultation closed last Friday. It is on the government website. We will make final regulations with our proposals for listing regulators once the Bill is approved. Our proposed list was set out in the consultation. What regulators will be grouped together? We have not decided on that, but we will certainly look at it once the list of regulators is finalised in the light of the comment that the noble Lord made.
Turning to the amendment before us, the Government intend that the small business appeals champion policy should apply to a diverse range of national regulators, with equally diverse circumstances. For example, there are large regulators, some with statutory governance arrangements, complex stakeholder groups and thousands of staff, such as the Health and Safety Executive, the Care Quality Commission and the Environment Agency. However, there are also tiny regulators with few staff, where there is no board and the legal responsibility for regulating lies with the Secretary of State, such as the Employment Agency Standards Inspectorate, the Animals in Science Regulation Unit or the Senior Traffic Commissioner. There is something in between as well, such as the Office for Nuclear Regulation or the Charity Commission. We have designed this policy so that it has the flexibility to work across this varied array. A key part of that flexibility is around appointments.
I agree with the noble Lord that in some cases it may not be appropriate to appoint a board member as a champion. For instance, if the board is involved in the appeals process, it would create a conflict of interest. However, in other cases, it could be a positive advantage to appoint a board member as the champion. A non-executive director might be uniquely well placed to combine an understanding of the needs of regulated businesses and an intimate knowledge of the way the regulator works. There is not an unlimited supply of people of talent and objectivity who are prepared to take on public roles of this kind and familiarity can be a distinct advantage, especially in very technical areas.
The Government do not agree that the appointment should be limited to exclude regulators’ board members. We have deliberately placed responsibility for appointing champions with the relevant Minister, supported by his or her departmental officials, and not with the regulator, to ensure that someone of appropriate independence and stature is chosen. We should trust Ministers to be responsible for ensuring that an appropriate appointment is made, and not constrain them as the amendment proposes. In carrying out the recruitment process, the Minister and the Government will, of course, ensure adherence to any relevant guidelines such as the Code of Practice for Ministerial Appointments to Public Bodies. I hope that the noble Lord will be reassured by what I have said and agree to withdraw his amendment.
My Lords, I thank the Minister for her very clear exposition. I agree that we should focus on small business champions—I will try to do that, although it gets a bit complicated later on. Who is involved and what sort of bodies are likely to be grouped together are obviously a work in progress and I hope to get information on that as we go forward as it shapes the way in which we respond to this issue. We may wish to return to that at a later stage.
I understand the point the Minister makes about the need to have expertise and a sufficient number of high-calibre people doing this important work. It will help small businesses and, as I said, we support it. However, I think that the conflict-of-interest point has resonance. Her examples do not necessarily reassure me that, simply because the appointment comes from outside and is made by somebody who is not themselves the regulator, that will provide the degree of independence, authority, expertise and single-mindedness of purpose that will be required if this is to be effective. However, for the purposes of this debate in Committee, I beg leave to withdraw the amendment.
Amendment 33C withdrawn.
33D: Clause 17, page 18, line 20, leave out “and”
In some sense this group of amendments is the continuation of the earlier debate, but it now focuses on the reports that may come from whatever system is set up for these small business appeals champions—although here they are sometimes called the “Independent Complaints Commissioner”. I am not sure where that fits into it; perhaps there is another whole area of bureaucracy that I have not yet managed to uncover.
The Bill is very helpful in setting out the duties and functions of the review process. The overall objective is to encourage the regulator to improve and to simplify the appeals and complaints processes that businesses should follow if they wish to challenge or appeal a regulatory decision. The requirements are quite onerous: annually, each reviewer—obviously we still do not know how many there will be—has to review the effectiveness of the relevant regulator’s procedures and prepare a report about his or her findings, which may include an assessment about whether those are accessible and fair, as well as recommendations for improvement. Those recommendations can go either to the Minister of the Crown—which might be relevant and appropriate, given that that most of the time that person will be making the appointment, and that would certainly have to be the case, presumably, if legislation was to follow—or they can go to the regulator themselves if it is just a simple matter of a change of procedures. It would be helpful if the Minister could give us a bit more detail on that.
On the narrower question of whether a report has to go to the Minister of the Crown simply because it involves changes in the law, this does not give quite enough depth or sketch in some of the things that will come. The reviewer may not be in a position to give a formal recommendation that there has to be a change in the law—they may say, simply, “This is something which I’ve picked up, which I think is important for small businesses, and I refer it to the Minister for appropriate action”. The appropriate action may well not necessarily be legal; it may be some form of instruction to the regulator, or that some regulatory bodies need to work closer together, or some other things. I am not trying to be difficult—the way it is expressed is just a bit narrow. If the Minister can perhaps find the words to explain that in a more rounded context, that might be helpful as we go forward.
I am moving Amendment 33D, but in this group we also have Amendments 33E, 33F and 33L. The point raised in Amendment 33E, which is minor but important, is the suggestion that the review should also reflect on any discriminatory practices that exist. We are aware—more anecdotally than evidence based, although it is still important—that there are concerns about some issues to do with diversity in other areas, which are in the law and legally applied to individuals, but we are talking about small businesses, for which there may therefore be concerns. This might be a good point to try to think harder about making sure that the way this is framed also includes the question about discrimination and wider issues to do with that area of work.
Amendment 33F suggests that there may be issues where an individual company may feel that the regulations that have been imposed are not only against them but mean that they are being discriminated against. Therefore, again, it would be helpful if consideration was given, perhaps in the regulations, to making a broader pass through this, including recommendations for mitigating steps that might be taken, if an assessment by a reviewer concludes that discrimination has taken place.
On Amendment 33L, Clause 20 places a duty on the independent complaints commissioner or small business champion to produce an annual report on his investigations under the scheme as regards the FSA regulators, which are specifically carved out in one part of the Bill—although, obviously, that is because they already carry out many of the functions that the reviewer in the Bill would carry out. However, for completeness, and to make sure that there is no gap between them, might it not be sensible just to include within the Bill a very clear inclusion paragraph that would make sure that they also have to look at unfair and discriminatory practices under the scheme? I beg to move.
My Lords, I rise to warn the Committee—and I hope that the Minister will accept this warning—of the danger of the enactment of good-heartedness for the sake of it. There is a phrase in the amendment that symbolises that. The amendment that we are discussing with the first one contains the expression,
“protecting individuals from unfair treatment and promoting a fair and more equal society”.
I am all in favour of a fair and more equal society, but I cannot think of anything that is more likely to make people feel that all this stuff is yet again a whole collection of persiflage rather than the serious matter we are talking about. This is not about small businesses; it is not what small businesses are about. It is a perfectly reasonable statement but not something that we should be putting into the Bill. I am surprised that it is in the amendment.
That enables me to say what I really wanted to say, which is that I think this is a good and necessary Bill. However, we have to remember that we also have a commitment to reducing red tape and reducing the appearance of red tape. I want to make a point about the appearance of red tape. Very often people think that something is restrictive or difficult because there is an awful lot of it. I have always believed that we ought to have a law saying that we cannot introduce any new laws unless we take away at least the same number of lines from the present laws, so as not to make people feel that they are overwhelmed by what is before them.
This seemed to me to be a reasonable moment, before the Minister rises, to say to the noble Lord opposite that there is a responsibility in setting down amendments so as not to give the impression that we are prepared to load people with a whole lot of things that may be politically correct, nice things to say, or something that might be added to a speech, but which, frankly, make people feel that the Government are constantly after them with all sorts of nebulous thoughts and ideas to which we can all sign up, but which ought to be left to people to decide for themselves as to their purpose. They should not be written down in this way.
I thank noble Lords for the amendments and for the opportunity to debate the role of the champion and how it helps business.
We know that small businesses suffer disproportionately from regulatory burdens and find appeals systems, in particular, hard to understand. I thank my noble friend Lord Deben for his intervention, which I could not have put better myself. The point about reducing red tape and the appearance of red tape particularly applies to appeals, when people need to understand where they can go and to have proper processes at a regulator if and when things go wrong. I feel that very strongly.
Looking at the amendments in turn, Amendments 33D and 33E relate to the champion’s assessment of the regulators’ appeal processes and procedures. We certainly do not want the champions to ignore the core role and function of a regulator when making an assessment of the regulator’s complaints and appeals. However, we will make it clear in guidance that the champions should consider this in their assessment of appeals processes. Clearly, those processes need to be shaped by the sort of cases at stake. Cases considered by the Pensions Regulator will be very different from those before the Environment Agency or the Security Industry Authority. There are a number of factors that champions will need to consider in reviewing appeals processes. As well as the protections that the regulator has been established to secure, these will include the types of cases being considered, the profiles of the businesses which are applying and the typical timescale. We aim to identify the relevant considerations in guidance. Putting only one of them in the Bill would give it undue weight. I hope that the noble Lord will accept that, and feel able to withdraw the amendment.
Amendments 33F and 33L relate to reporting—both by the champion and the independent complaints commissioner—on discrimination against a business that has challenged a regulator. Of course, the independent complaints commissioner is the equivalent of the champion for financial services regulation. It has a different name and different framework to fit in with the regulations that establish these bodies and the statutes relating to them, as I think the noble Lord acknowledged.
The Government fully agree that such discrimination is unacceptable. We do not want to deter complaints. However, Amendment 33F requires that the champions should provide an assessment of individual cases and provide redress on those cases if they find that discrimination has occurred. While understanding the objective, we do not want to create a separate route of appeal, which is what the amendment seems to do. It also conflicts with Clause 17(5), which explicitly prevents champions making any recommendation in relation to individual cases. By giving the champion vires over individual cases, Amendment 33F would negate that.
None the less, this whole issue is certainly one to which the champions should be alive. I am happy to commit that our guidance to champions under Clause 19 will require them to consider any examples of discrimination against those who challenge regulators’ decisions, and to make recommendations where they find it. That is an important horizontal issue for them to look at. The Government therefore oppose this amendment, although we support the sentiment behind it.
Amendment 33L makes similar, though less extensive, requirements in respect of the financial regulators’ independent complaints commissioner. The amendment requires an assessment of any unfair and discriminatory practices in the commissioner’s annual report. The clause already requires the report to include information concerning general trends emerging from investigations, which can and should include the issues of unfair and discriminatory behaviour where there has been a complaint. We believe that does enough and do not want to create a new industry of challenge and confusion.
I hope that the noble Lord has been reassured by my response and by what we plan in terms of guidance and will agree to withdraw the amendment.
I thank the Minister for her comments. I am sorry that the noble Lord, Lord Deben, took exception to the content of my remarks. It was clearly a probing amendment in an attempt to dig out some of the issues. I am sure that he is as guilty of that as I am in his previous lives, and I have no worry at all about standing here, and will continue to do it. However, the noble Lord might want to bear in mind the fact that the Minister said that the guidance coming forward will indeed cover all the points that I raised in the amendments—probably better than I would have done. I am certainly confident that the points I made will be picked up and taken forward. In that sense, I am delighted to withdraw the amendment.
Amendment 33D withdrawn.
Amendments 33E and 33F not moved.
33G: Clause 17, page 18, line 32, at end insert—
“( ) An assessment under subsection (4)(a) need only consider small businesses as defined in section 33(2) and micro businesses as defined in subsection (3) of that section.”
In moving Amendment 33G, I will also speak to Amendments 33K, 33N, 33S and 33T.
While we are very supportive of this measure, we have an underlying concern about how it is drafted and how it relates to the central driving and important common objective of supporting small businesses. Our contention about the drafting of some of the Bill is that it does not appear to be sufficiently designed to deal with the particular and unique contours of the very many different businesses that comprise the category of small business. Our amendment seeks to try to probe the Government to be more forthcoming about what they are trying to achieve in the clauses. In the current drafting, “business” has a wide definition.
The Bill proposes that a Minister of the Crown can appoint a reviewer in respect of certain regulatory functions. This reviewer must release a report, including an assessment of the extent to which the relevant regulator’s procedures, particularly handling and resolving complaints and appeals made by businesses to the regulator, are accessible and fair to businesses. Does this mean all businesses? As this is the small business Bill, is that not rather inappropriate?
Our Amendment 33G limits the application of this to small and micro-businesses as a means of probing the Government about the wording they have used. The Secretary of State has a duty to publish a business impact target and must, in particular, have regard to the need to minimise any disproportionate impact of regulation on activities carried out by “smaller scale businesses”. Again, in 33N we are probing the use of what we see as vague terminology.
With regard to Amendments 33S and 33T, Clause 25 proposes the creation of an independent body to verify assessments and reports on a range of matters, from listing and capturing regulatory provisions to providing assessments and economic impacts on the business activities of each of the qualifying regulatory provisions—these include, in the terms, those carried out by “smaller scale businesses”. I would be grateful if the Minister would outline in more detail how this body will operate and how they see its size, scale, governance, recruitment, both lay and professional, budget and the like. Most importantly, it does not seem clear whether it is to protect small businesses from harm, if you like, caused wittingly or unwittingly by Government and their agencies or whether it is to promote the interests of small businesses. If it is the latter, then I am sure the Minister will carefully consider our amendments. If it is not the latter, we would be grateful for more details about how it works and fulfils both tasks concurrently and in relation to all businesses. I beg to move.
My Lords, I thank the noble Lord, Lord Mendelsohn, for his explanation of these amendments, which I hope I have understood, as I know that they are largely probing in nature. First, I turn to Amendment 33G, which would have the effect of limiting the champion to consider only appeals and complaints by small and micro-businesses. I suspect this is not his intention. It is true that larger businesses generally find it easier to navigate regulators’ appeals systems. That is why we call this policy the small business appeals champions or the small business champion—because the main benefits will fall on small and micro-businesses.
However, large businesses have problems with appeals, too, and fixing those problems can be beneficial in a broader way: smaller businesses having similar issues or facing similar burdens can benefit. It would be a mistake to exclude the experience of larger business entirely from the work of the champions. One can imagine a champion telling a business, “I’m sorry, but because you’ve got 51 staff, I can’t take any notice of the evidence of your problems within the regulators’ appeals system”. Clearly, that is not what we want. What we want is somebody of good quality who will come in and take a critical look at this important area.
Amendment 33K proposes that the guidance for the small business appeals champion should be laid before Parliament. I can tell the noble Lord that it is actually the Government’s intention to show the guidance to Parliament and I am content to consider his amendment further.
Amendments 33N and 33T seek to replace the term “smaller scale businesses” in the business impact target provisions with a cross-reference to the definitions of small and micro-businesses in Clauses 33 and 34. I understand the logic behind these amendments and recognise that use of a specific cross-reference might at first sight provide for a certain legislative coherence. However, I do not believe that the amendment is necessary for the provisions in this part of the Bill to achieve their intended effect. The Government’s view is that, in the specific context of the content of the annual reports required under the business impact target provisions in Clauses 23 and 24, and the expertise of the independent verification body that will assess estimates of economic impact under the target provisions under Clause 25, the term “smaller scale business” is sufficiently clear.
The context for the use of the term “smaller scale business” here is very different from the purposes of the definitions which have been provided in Clauses 33 and 34. Those later definitions are being created to facilitate exemptions from regulations. To achieve that, the definitions need to be precise and workable at a detailed technical level. In contrast in this clause, we believe that the term “smaller scale businesses” is sufficiently clear for its own purposes.
The Government’s view is that in practice the term “smaller scale business” will be interpreted in accordance with the EU definition, which we discussed last week, and is therefore consistent also with the definitions provided for in Clauses 33 and 34. The EU SME definition is, of course, widely used on an administrative basis in the UK for a variety of purposes, including statistics, grants, and other policy contexts.
Moreover, the use of a broader descriptive term, rather than something more technical, clearly has advantages in terms of enabling a wide range of relevant issues to be included in the report without raising questions as to whether such issues are within the powers provided for in this clause. This ensures that the reporting can operate flexibly. Similar arguments apply in relation to the expertise of the independent verification body, which we will no doubt come on to discuss.
In addition, there are some legal issues with the operation of this amendment. The definitions in Clauses 33 and 34 are not complete and will require secondary regulations to make them function. While the headcount is defined on the face of the Bill, there are important financial definition criteria which have to be established under delegated powers. Such regulations will not be in place by the time that the target clauses are commenced and in operation—a technical point but I thought one worth making.
Amendment 33S would require the independent verification body to have expertise in the assessment of the impacts of regulation on small and medium-sized businesses, but not larger businesses. That is a narrowing of the current requirement set out in subsection (6) of Clause 25, which requires the independent verification body to have relevant expertise in assessing the economic impact of new regulation on all businesses, including smaller ones. The Government consider it vital that the verification body should have the expertise required appropriately to assess the economic impact of regulation across the full range of business. That is clearly particularly important for regulations that concern activities typically undertaken by large businesses—for example, large-scale manufacturing, or businesses with certain types of pension scheme. The findings of our current version of the independent verification body—the RPC—bring a great deal of light to regulatory proposals and often cause us to pause and ask whether something is good or bad regulation. We are trying to bring that good system on to the statute book in a way that attracts top-quality people to this body. We think that the wording in the Bill is right.
I thank the noble Lord for his probing amendments. There are good practical reasons why we have drafted the clauses in the way that we have. I hope that he has found my responses helpful, including my clarification on the amendment relating to Parliament, and will be willing to withdraw his amendment.
I thank the Minister and am very grateful for her response. While small businesses will be the disproportionate beneficiaries, and although some of these issues affect companies of different sizes, there is the potential for small businesses to be squeezed out in certain circumstances. I accept that the drafting is elegant, and certainly has a lot more legal validity than our amendments probably have. However, it is important to consider how the measure will operate in practice. I cannot help feeling that we may return to these issues time and time again as the relevant balance is difficult to achieve.
We are very encouraged by the Minister’s response on Amendment 33N. We will certainly take careful note of what she said and consider how the measure will operate. We are very grateful to her for her constructive response but will want to consider whether we are sufficiently reassured that the measure will disproportionately benefit small businesses—the Bill is about disproportionate benefit to small businesses—or whether we have lingering concerns that small businesses will again lose out—not completely, they will be beneficiaries—to other companies. In those circumstances, and given the Minister’s very helpful comments, I beg leave to withdraw the amendment.
Amendment 33G withdrawn.
33H: Clause 17, page 19, line 14, at end insert—
“( ) The following regulators are excluded from the provisions outlined in this section—
(a) the Equality and Human Rights Commission;(b) relevant regulators in—(i) the Department of Health;(ii) the Department for Transport;(iii) the Department for Work and Pensions;(iv) the Department for Business, Innovation and Skills;(v) the Department for Culture, Media and Sport;(vi) the Department for Communities and Local Government.”
My Lords, it is a great pleasure to be in the Grand Committee today to support my noble friends and to speak to the three amendments in this group.
Amendment 33H would exclude the EHRC and relevant regulators in departments. In the discussions on the Deregulation Bill, we expressed concern about the regulatory provisions in this Bill. Clause 18 sets out the process for specifying regulatory functions and bringing them within the reviewer’s remit. It provides that the Secretary of State may, by making regulations, specify regulatory functions to which the duty set out in Clause 17, “Review of regulators’ complaints and appeals procedures”, applies. Amendment 33J would limit it to regulators that the Deregulation Act requires to have regard to growth. In Clause 21, the Secretary of State has a duty to publish the business impact target. Amendment 33M would ensure that, at the same time, the Secretary of State must publish a list of regulatory bodies that the Deregulation Act requires to have regard to growth.
We are asking the Government to assure us that there has been a legislative read-across. The Minister will be aware that the status of the Equality and Human Rights Commission was discussed in the course of the Deregulation Bill, and we expect to return to that on Report. As noble Lords will know, the EHRC enjoys an “A” status as a national human rights institution. I am dealing with these amendments because I am the shadow equalities spokesperson—I dealt with this issue all the way through the consideration of the Deregulation Bill and hope to continue to do so. We need to be clear that it is not appropriate to apply these regulations to the EHRC. We need to be assured that the Government recognise this and have taken steps to ensure that it does not happen. We sought to put it in the Deregulation Bill. I am sure that the Minister will be completely up to speed with this and that she and her colleagues will have discussed how best to deal with it as regards this Bill.
This is important because “A” status is awarded by the United Nations International Coordinating Committee of National Human Rights Institutions, which reviews the EHRC’s compliance with the United Nations’ Paris principles, which require the EHRC to be an independent body. We think that the Government have decided to exclude the commission from the list of non-economic regulators subject to the growth duty provisions in the Deregulation Bill, but, as I say, I seek further clarity on that. That is important because we have to avoid the reality, or the perception, of interfering with the commission’s ability to perform its regulatory functions independently. If that was jeopardised, it would, in turn, jeopardise its “A” status. As it is our human rights body, having an “A” status is of great importance to the UK’s international standing and reputation. It enables the UK to influence the protection of fundamental rights globally and it gives us a voice at the Human Rights Council. Any downgrading of the commission’s status would have a significant negative impact on the UK’s global influence.
Have the Government decided to exclude the EHRC from the list of regulators covered by Clauses 17 to 19? That question is at the heart of these amendments and that is the clarification we seek. I beg to move.
My Lords, there is one amendment to Clause 21 in this group. If the Committee will allow me, I will raise a rather general point about Clause 21. This impact report is a very big exercise, which is made quite complicated because it is selective; that is to say, it is supposed to concentrate only on regulations that have been introduced and withdrawn during the period. I am not looking for an answer on the general approach today, but perhaps my noble friend will be kind enough to write to the Committee about this clause.
This business impact target will be very expensive to carry out. I would particularly like to know how many people, over what period of time, will be engaged upon writing this annual report. Quite apart from that, its conclusions will be disputed, which will give rise to a lot more toing and froing. I wonder what will be achieved and what will be done as a result of this report that would not be done on a case-by-case basis anyway. That is to say, circumstances would arise as regards a particular regulation or the withdrawal of it, which would cause people to think that something must be done. Indeed, we have been discussing quite a complicated and comprehensive system for being able to raise such problems and deal with them. Therefore, before the next stage I would be most grateful to understand in more detail than I do what the real benefit is of Clause 21.
My Lords, having been critical of what I am afraid I referred to as persiflage in an earlier amendment, I draw my noble friend’s attention to the importance of this set of amendments. They are not here, as I understand it, to lay extra burdens on anybody or to make generalised statements about good will and family life. In fact, they are designed very purposely to ask the Government to be very clear about this issue.
I say to my noble friend that it is important for the Government to be very clear about this position, because there are a number of other areas in which the Government have not been clear and where we are now in some difficulty. Of course I would not be out of order were I to speak to the question of caste at any length, but there is no doubt that there are a series of issues where lack of clarity has led people to be concerned as to where the Government stand. I am not concerned about that, because I am quite sure that the Government stand in the right place—you could not expect me to sit on this side of the Room if I did not think that. However, there are those who are not entirely sure, and this would be a good opportunity to give them the assurance that they need, not only for the high-minded view that the noble Baroness, Lady Thornton, put forward and which she is perfectly right to raise, on the standing within the international community, but also for a rather boring local reason. That is that one of the problems of red tape, as I said, is the perception of it, and one of the other problems is the misunderstanding, and not knowing where it is.
I do not like the term “deregulation” much, as it presupposes that the answer in all questions is not to have regulation, while in my view we have to try to look for good regulation. That is what Governments of all parties mean, when they are sensible, whatever they say outside. One of the ways we can have good regulation is, first of all, to have clear regulation—people know where they are. That is why I am so keen on not having too much of it, not because I do not want regulation, but simply because the more you have of it, the less people are clear and the less they know what they should be doing. In this particular case, clarity seems crucially important.
Although this is clearly a probing amendment that is meant to try to make sure that the Government say what they think and, if it is necessary to put that in the Bill or change one of the clauses in such a way as to make that explanation certain, I am sure that the Government will find a way to do that. I wanted to emphasise that this seems to be a totally different kind of discussion from the one that I rather light-heartedly drew attention to earlier on—I apologise to the noble Lord, Lord Stevenson, if he felt that I had been unfair about what he said. However, on this occasion it is important that there should be absolute clarity.
My Lords, I am grateful to the noble Baroness for her amendments relating to the scope of the champion policy and the links to the growth duty and indeed, for making an appearance in the Committee to talk about the EHRC in particular.
If the noble Baroness will bear with me, I shall take the amendments in turn. Perhaps I should start by commenting on the question from my noble friend Lord Eccles about the purpose of the business impact target. Clause 21, to which he refers, establishes a framework for transparent regulatory reporting. This framework builds on, it is fair to say, the world-leading success of the Government’s one-in, one-out and one-in, two-out approaches to regulatory management, which have saved business a lot of money—£2.2 billion a year.
The Government have significantly improved the regulatory environment for business, but the job is not done. Many businesses in this country, as we have heard in the Committee, believe that complying with regulations is still the single greatest challenge to running their business. There remains an ongoing need for future Governments to ensure that the regulatory system is as streamlined and efficient as possible and, as my noble friend Lord Deben said, really clear.
Clause 21 is designed to achieve that objective. It places a duty on the Secretary of State to publish and lay before Parliament a business impact target within 12 months of the commencement of a new Parliament. The setting of deregulatory targets is already well established. The previous Administration set a reduction target for administrative burdens; this Government have pioneered other systems. Examples demonstrate the value of such an approach and the Bill’s proposals are in a sense a natural progression of the established practice, which is important.
Amendments 33H and 33J would, in different ways, restrict the list of regulators to which the small business appeals champion provisions can apply. The Bill already provides that the list of regulators covered by appeals champions should be set out in regulations. As I have already said, these will be subject to an affirmative resolution. We have already issued a consultation document—I repeat that for the benefit of the noble Baroness, Lady Thornton—and that consultation paper is on the government website. The consultation ended last Friday, but we are happy, of course, to take account of representations received in debates in the House alongside the consultation. We will publish a summary of the consultation and the Government’s response in due course. Our response will become the basis of the regulations that we lay before Parliament and which will bring regulators into scope.
The one area where the clauses mention specific regulators is in respect of the financial services regulators. That is because these regulators already have an extensive statutory framework for engaging with business stakeholders and we feel that creating a champion would risk creating confusion and duplication.
On Amendment 33H, if one accepts the general thrust of this policy on the need for someone to make sure that regulators’ appeals processes are business friendly, why would one not want it to apply, for example, to care homes that felt unfairly treated and wanted to challenge rulings by the Care Quality Commission? What about businesses challenging the Insolvency Service?
Moreover, the amendment also proposes to exclude the Equality and Human Rights Commission. I can reassure the noble Baroness that it is already the Government’s position that the EHRC should not be in scope. Consequently, it was not included in the consultation to which I referred or in the list of regulators to be covered. The Government recognise the possibility that applying the growth duty to the EHRC might have inadvertently triggered a review of the “A” status of the EHRC. They have therefore decided not to do so. The Business Secretary has written to the EHRC to confirm this decision. We have no desire to threaten the status of the EHRC, and will take all necessary action to ensure that we do not. I hope that that clarity also reassures my noble friend Lord Deben.
Nevertheless, we do not think it would be appropriate to start excluding certain regulators within the Bill. The Bill, as drafted, rightly leaves this for secondary legislation. This is because regulators may change over time and it is important that there is flexibility to amend the list accordingly.
My noble friend said earlier on that this would not apply to the financial regulators. Some of us think that this Government have the most amazing ability to think in two different ways: they deregulate on everything else but overregulate in the financial areas. I declare an interest, which is in my entry in the register of interests. I do not quite understand why, if these things are so good for all the other areas, they are no good in the financial service area. My noble friend said that she thought it might be duplicative, but I cannot think of any rights that people have under the present regulations which parallel this. There are small businesses involved—again, I declare my interest—so I do not quite understand her answer to that, although I must thank her very much for her clear answer on the equalities organisation.
I thank my noble friend for his intervention because it gives me the opportunity to explain that Clause 20 introduces equivalent provisions for financial services. It is because of the plethora of existing legislation on financial services that we have to do it in a slightly different way in that area. I am sure that we will come on to scrutinise that clause in due course. Even for the financial regulators, I understand that the exclusion is not in the Bill. We are simply trying to achieve exactly the same effect but have had to do it in a different way.
Rereading this, I wonder whether I could ask the Minister a question about Clause 21(4), which says that:
“The Secretary of State must lay each thing published”.
I was responsible for taking a Bill through the House which used “thing” in it. We spent a great deal of time defining what “thing” meant. That was in the medical world and we came to the conclusion that, in that context, “thing” was the word that had to be used. However, I am not sure whether “thing” needs to be used here when we are talking about publications. The Minister may not need to answer what I ask now, but perhaps she would like to think about it.
My Lords, I thank the noble Baroness for bringing her experience of other areas, with a certain levity, while raising a good point. I will certainly take it away and look into why the drafting was done as it was by parliamentary counsel.
Amendment 33J relates to the duty on regulators to have regard to growth. That duty will of course be created by the Deregulation Bill, which we have also been considering in this House, and which includes similar provisions to this Bill giving the Secretary of State power to make regulations establishing which regulators should be covered by it. Like the small business champions, the growth duty is part of the Government’s better enforcement programme to improve regulatory enforcement. The champion will seek to improve scrutiny and governance on the appeals and complaints processes of a regulator and has no vires over individual regulatory decisions. The growth duty seeks to ensure that regulators have regard to growth when they take regulatory action.
The two policies will apply to many of the same regulators, but there will be a few differences at the margins. I agree that there may be regulators for which the growth duty is not appropriate, but I do not believe that this would automatically mean that a champion would not be of benefit, for all the reasons we have been discussing. For instance, the Pensions Regulator will not be subject to the growth duty because it already has an equivalent duty under its own statute. But we see no reason why it should not have an appeals champion, and have proposed as much in our recent consultation paper.
The issues here need to be considered on a case-by-case basis, not under a blanket rule, or the primary legislation will become cumbersome and unwieldy. Parliament will be able to consider which regulators should be in or out of scope when it sees the list which the Secretary of State will propose under Clause 18. That is the time to make those decisions.
Amendment 33M relates to reporting on the list of regulatory bodies subject to the growth duty.
We are serious about the terms of our consultation. I have explained why I think that we are right to do it the way that we are. The list is available, and I will ensure that the noble Baroness has a copy of it, but I think that the material point for her is the undertaking I have already made standing here in Parliament about the EHRC, where I think that we are in agreement.
On Amendment 33M, the business impact target and the growth target are two very different policies. The growth duty applies to regulators and the target to the Government. The target relates to regulatory legislation, whereas the growth duty is about influencing the behaviour of regulators on the ground. Having a report on the coverage of one policy included in a publication about the details of another risks confusion rather than adding to transparency. The growth duty is covered in the Deregulation Bill, and we should not confuse matters by adding it to this Bill as well. We already have full transparency about the list of regulatory bodies to which the growth duty will apply. The Deregulation Bill provides for that list to be prescribed in regulations, which are subject to affirmative resolution. Anyone wanting to understand the coverage can and will look at that list. Duplicating it as part of an unrelated publication does not seem to be the right thing to do.
I have received important advice on the subject of the meaning of “thing” in the Bill. It refers to several different things—thus the use of the phrase—including the business impact target, the interim target, the methodology and the scope of the target. I suppose that that was the best wording that they could come up with for that purpose.
I hope that I have answered the noble Lord’s questions and the wider questions raised by my noble friend Lord Eccles. If I have not, I am sure that we could discuss those points further. We do not believe that the amendments are necessary. I hope that some reassurance will have been taken from my response and that, in the circumstances, the noble Baroness will agree to withdraw the amendment.
I thank the Minister for that comprehensive answer. I thank the noble Lord, Lord Deben, for referring to me as high minded and for his support. I do not take that as any reflection on my noble friends and their efforts in this regard. I am very grateful to the Minister for that reassurance. I know that the noble Baroness, Lady O’Neill, has received her letter and is very grateful for it. It is not that we will stop keeping a weather eye on these issues, but this one looks like it will be okay.
My noble friends will probably be returning to Amendment 33M, because there are issues about having the Deregulation Bill and this Bill, with business impact targets and the growth targets. I think that further clarification will be sought, but that is not my job right now, so I beg leave to withdraw the amendment.
Amendment 33H withdrawn.
Clause 17 agreed.
Clause 18: Power to specify regulatory functions
Amendment 33J not moved.
Clause 18 agreed.
Clause 19: Guidance by the Secretary of State
Amendment 33K not moved.
Clause 19 agreed.
Clause 20: Independent Complaints Commissioner: reporting duty
Amendment 33L not moved.
Clause 20 agreed.
Clause 21: Duty on Secretary of State to publish business impact target etc
Amendments 33M and 33N not moved.
Clause 21 agreed.
Clause 22: Sections 21 and 23 to 25: “qualifying regulatory provisions” etc
33P: Clause 22, page 21, line 42, leave out subsection (2)
My Lords, to be clear, this is a probing amendment, which could be called the “lowest minded” of my amendments today, because I simply cannot make sense of Clause 22. I will be grateful for any guidance that the Minister can give.
First, Clause 22 defines statutory, regulatory and qualifying regulatory provisions. I am surprised that these need to be defined again in this Bill; in no sense do I accuse the Government of being otiose as regards wanting to repeat legislation, but perhaps the Minister can explain why that is necessary. These seem to be bog-standard—I am sorry; I am sure that that is not a parliamentary term—or very obviously standard phrases that are used commonly within legislative processes and they should not need redefining. If there is a story behind that, I would like to know it. The only point that comes out is that the issues that seem to be defined are that the Secretary of State has discretion to make whatever regulation he or she may wish to at an appropriate time. That seems very close to a Henry VIII power and I would like clarification that that is not the case. I beg to move.
My Lords, what the noble Lord, Lord Stevenson, said reinforces my view that the question of impact has not been carefully thought through. Perhaps the most difficult thing in the previous clause is the question of the methodology. You could have any number of economics professors lined up across the equator and they would all completely disagree about the methodology for an economic impact assessment on this subject. If in addition you have a way of cherry-picking by regulation the regulators that you wish to be included in the impact statement, the thing becomes quite byzantine.
My Lords, I am grateful to the noble Lord for tabling this probing amendment. To answer his question I will explain the purpose of the clause. The Government have significantly improved the regulatory environment for business, as I have already explained. There has also been some encouraging progress at an EU level. This December’s EU Competitiveness Council conclusions on better regulation were extremely positive, calling for the first time for EU burden reduction targets. Therefore, the issue now goes wider than the UK. Building on those achievements, the Government are legislating to lay the framework for transparent regulatory reporting.
On Amendment 33P, I acknowledge that the framing of the business impact target sets a wide scope for future Administrations to determine for themselves what will count for the purposes of the target; that is, what is a “qualifying regulatory provision”. We consider it prudent to allow sufficient flexibility for future Administrations to determine the precise scope of the target, depending on their priorities and circumstances. We believe that this approach should attract support on all sides, not least at this stage of the Parliament.
Potentially a wide range of regulations could be in scope, meaning that some adjustment may be necessary to avoid perverse outcomes or other adverse impacts. For example, it may not be sensible to include certain measures—such as those related to national security or civil emergencies—within the target, because they could not be anticipated at the start of, say, the five-year parliamentary term. In addition, a future Government may wish to exclude measures that have negligible impacts on business, such as simple consolidations of existing regulations. Including all such measures in the target could be disproportionate and would represent a poor use of taxpayers’ resources without delivering obvious benefits to business.
The fundamental point is that the choices that a future Administration make regarding the scope of a business impact target will be transparent and will be for the Government of the day to defend. It is not appropriate for this Government or for Parliament unduly to restrict that choice. I hope that that is not byzantine but sensible and that on reflection noble Lords will feel that it is a reasonable rationale.
My noble friend raised the important issue of methodology and I agree with him that you can have as many methods as you have economics professors. However, it is an important principle that we need transparency around methodology and, of course, methodology is an important component of the good work that a body such as the RPC does. It is entirely appropriate that the Government of the day are able to look at the methodology options in a transparent way, to make appropriate decisions and to put them before Parliament. I hope that the noble Lord will be willing to withdraw his amendment.
My Lords, I prefaced what I said by saying that it was a very low-minded question. I hoped that I would get an answer to my concern, which was that I did not understand why we had to regulate in the Bill for stuff that I thought was taken as read more generally. Perhaps that was too detailed or too low a question to be answered on the Floor of the House. Perhaps the Minister might write to me about it. I do not think that it is a major issue.
The major issue is the one raised by the noble Viscount, Lord Eccles, which is increasing my sense of concern—“panic” might be too strong a word—arising from some of the ways in which Clause 21, in particular, is described. It is not just the slightly odd use of the word “things”. This is a complicated set of calculations with a new quango being set up to look at it, with all the other things that go with that. I think that we will come back to it, as I have an amendment later that deals with the way in which this might be amended. At this stage, I will certainly withdraw the amendment, although I think that we will need to come back to some of the points raised.
Amendment 33P withdrawn.
Clause 22 agreed.
Clause 23: Duty on Secretary of State to publish reports
33Q: Clause 23, page 23, line 30, leave out from “businesses” to “which”, in line 31
My Lords, in speaking to Amendment 33Q and the others in the group, I think that this is probably again at the low end of the scale. I am again grasping for some sort of assurance from the Minister about where most of this bites. This set of amendments is about the relationship between the work that is going to be undertaken in relation to business impact activity and voluntary or community bodies. The question also arises: what are business activities? In the good old days, voluntary or community bodies and charities did not do business. That was fairly straightforward. They were there for social and other provisions.
However, as we get to a more complex and richer—and I admit in some ways better—set of arrangements under which the work of the state is delivered, whether through public bodies directly or through those commissioned to do it, then obviously we have a much more complicated set of bodies and organisations involved. As is listed in the Bill, they range from charities through to community interest companies, trade unions, voluntary bodies and various other groups. They are all involved in delivering public value of some kind, but not all of them are going to be classified as business activities. The choice of the definition, which takes a rather theoretical point of view that a body is not undertaking business activity if it is in some way controlled by a public body, seems to me very tight.
The purpose of this group of amendments is to try to flesh this out and to get the Minister in her response to explain why she has approached the matter in this way, to understand the limitations on that and to give us a better understanding of how small businesses can operate within this environment. I am sure that all Members of the Committee and the wider community are aware of charities and others who have taken corporate forms that would make them very similar to small businesses. They may, indeed, be small businesses in terms of the definition. They may not be profit seeking, but that in itself is not now a consideration. They may not be profit distributing, but they may still have activities. While it might be comfortable to think of trade unions as being truly business activities—because they probably are a contribution to the national business activity—it does not necessarily imply that they are easy to understand in the same scope as, say, a small business trying to undertake work regulated in the energy area that is suffering from decisions that are going to cause it difficulty in trying to formulate a business plan to operate its activities and make a profit, which is what it will be there to do. So I am confused. I would be grateful, when the Minister responds to these amendments, if she could set out in a bit more detail where this bites.
The purpose of the amendments relates to the fact that we are thinking about an independent verification body, which will be set up as a separate quango to operate and relate to this whole area of work. It will be a duty of the Secretary of State. It is obviously important to have a body that will verify the estimates of economic impact on all measures in scope and the classification of the regulatory provisions as qualifying regulatory provisions, which are all specified in the Bill. In some senses this is the codification and placing on statute of the existing Regulatory Policy Committee. I understand that, but we are short of detail, unless it is in regulations that I have not yet seen. Will these appointments be gazetted in the normal way, through the Civil Service Commission, or through some other body? Are they public appointments in that sense? Will they be paid? If so, what salary are we talking about? How will the chair be chosen? Will that be from within the body or by the Secretary of State? I would again be grateful to have more focus on this.
We are still talking about small businesses, but across a very broad canvas. We are not necessarily talking about those defined as small businesses, because we are talking about smaller businesses, which, in some cases, seem to be quite big businesses. Indeed, they may even be international businesses. What expertise will be required in appointing and staffing the group? Might they be people who have served on the RPC or who are likely to be part of it? I obviously do not want names, but it would be helpful to have some sense of people’s backgrounds.
Three things seem still to be elusive. Where do we find the best definition of what constitutes “business activities” for the bodies concerned? Where does the Bill relate to the activities that they are doing? To limit people simply based on ownership structure seems to be a rather uncertain leg on which one would build a set of regulations. How will the necessary expertise and knowledge of the quango be properly found and how will it be assessed and organised through the systems that will be set up? I beg to move.
My Lords, I thank the noble Lord, Lord Stevenson, for his questions and for allowing us to debate these important provisions. I will start by answering the question about coverage and refer him to Clause 27(2)(b), where he will see that businesses activities are defined as including activities,
“by a voluntary or community body”.
The definition is broad and includes the voluntary sector. I can understand why that is.
That is, of course, true and I have read that. Clause 27(2) specifies that, but Clause 27(3) says that they do not count as business activities if they are controlled by a public body, or are,
“acting on behalf of a public authority in carrying out the activities”.
We are back on a rather circuitous argument.
The noble Lord has anticipated me. Voluntary shops presumably would be covered, but I will come on to talk about why there is a carve-out for public services, which is a slightly different point; I think that it is in the noble Lord’s last amendment.
Perhaps I should also, before I answer on individual amendments, talk a little about the verification body. It could of course be the RPC, which already exists, but the Bill allows flexibility for the Government of the day to decide on the precise body that they want, the people who are on that committee and the mechanics of how they are remunerated. At the moment, they get paid a daily rate, which seems fine to me. The Secretary of State will be under a duty to appoint a person, people or a body to perform the verification function. The body or persons must, in the view of the Secretary of State, be independent of UK Ministers and have expertise in economic and cost-benefit appraisal and the impact of regulation on business—including, significantly and importantly, smaller businesses. They will obviously also be subject to the usual public appointments rules.
Returning to the amendments, I think that there is a strong consensus on the importance of minimising regulatory burdens on voluntary and community bodies. Those bodies range from Cancer Research UK at the upper end to local community football clubs or parent-teacher associations. They are affected by many of the regulatory burdens affecting businesses, including reporting requirements. That is why the economic impact of regulations affecting the activity of those bodies is explicitly included in the scope of our target and it is why they are included in other regulatory reform proposals in the Bill. Moreover, as noble Lords will be aware, the Government have made a number of changes that have made it easier to set up and run charities and social enterprises. For example, we have provided greater legal clarity about volunteer liability and supported proposals to make criminal record checks simpler and less onerous.
However, the Government are not convinced of the need for the two amendments tabled today. The vast majority of voluntary and community bodies are small and will therefore already be covered by the existing reporting requirement set out in Clause 23(4). As well as being fewer in number, larger charities can call on greater resources and are able to mitigate the impact of regulatory burdens more easily than smaller charities. The amendment would therefore have the unintended consequence of weakening the focus of the reporting requirement on mitigating disproportionate burdens and undermine its intended impact. It also means that the benefits of the amendment in extending the reporting requirement to community and voluntary bodies in general would be limited.
Amendments 33U and 33N relate to the expertise of the independent verification body. I understand that there is a desire to deliver a clear specification of expertise—that is, regarding small business, community and voluntary bodies, as well as businesses in general. However, the Government’s view is that the clause already provides sufficiently for that outcome. Clause 25(6) requires that the independent verification body must have expertise in assessing the likely impact of regulation on business activities, including activities carried on by smaller-scale businesses or voluntary or community bodies. The Government consider it most important that the verification body has substantive expertise in assessing the economic impact of regulation on voluntary and community bodies, not just on commercial business. That is reflected in the membership of the existing Regulatory Policy Committee. However, securing that outcome does not require a change to the Bill.
Finally, I turn to Amendment 33X and the question asked by the noble Lord, Lord Stevenson, about the carve-out for public sector bodies. The Government’s primary focus in the Bill is reducing regulatory burdens on business and the third sector. Subsection (3) therefore excludes from the definition of qualifying activities those carried out by public sector bodies or that are related specifically to the delivering of a public service. Public sector regulatory burdens are of course important, but they are clearly beyond the scope of a business impact target. Including them within the target system would lose the clarity of focus on business—small business in particular—so essential to the growth agenda.
This carve-out also avoids unintentionally capturing regulations concerning requirements of public sector delivery—for example, schools, prisons and NHS services. We feel that it would be perverse to capture within the target the impacts associated with regulations relating purely to the provision of public services in that way. Doing so would lead to significant changes in reported impacts arising purely from changes in public sector delivery arrangements. For example, where service delivery was transferred from the public to the private sector, or the other way round, the effect would be an increase/decrease in the reported burden on business.
I hope that that explains the rationale for the provisions and why it is important that they are retained. I hope that the noble Lord will have found that reassuring and will be willing to withdraw the amendment.
Not quite. I do not think that it is reassuring. I am getting more and more like the noble Viscount, Lord Eccles, as we go through the day. Is the Minister really saying that every PTA in the country will have to be in scope to this quango? I may be thought bonkers, but this is getting beyond a joke. We are talking about a Government so dedicated to deregulation that they will require my Little Missenden parish council school to get together in a way to ensure that it has proper regulatory functions in place and understands the process of regulatory procedures to the point at which it can appeal and go to see a small business champion, who will, of course, be far too busy dealing with big business problems. I understand, I think, that the regulatory structures need to be reformed a little, but one only has to read pages 26 and 27 to become completely hysterical about what we are saying. We have talked about things already, but the wording here does not strike one as being a wonderfully clear and concise expression of the new regulatory burden.
We are building on existing good practice, which I have explained. If small bodies such as the ones that the noble Lord described are affected by a new regulation, it seems right that the impact should be considered in the assessment by the independent body—the sort of compliance assessments that we rely on to look at the impact of regulation. It could, of course, be de minimis. That would be perfectly possible in the circumstances described by the noble Lord, but to exclude them does not seem to be right. This is in relation to the impact target; we are particularly focused on that at the moment.
I appreciate what the Minister is saying, but I do not see a de minimis provision here. Perhaps the noble Baroness can take that away to look at. It is similar to what the noble Viscount, Lord Eccles, was saying. It looks like a many-headed Hydra and I do not think that that is what was meant. I think that it is meant to be a much simpler cut-through to try to find a balance between ensuring that those who are adversely affected by regulatory practice have a mechanism recognising that they are so affected and having a way of resolving it without suddenly putting the aegis of the country on a war-time footing alert that they are going to be attacked by the bureaucrats who will be coming to get them. I extend to make my point.
My Lords, given the concern that has been raised and given that, as the noble Lord, Lord Stevenson, says, our intentions are certainly to cut red tape rather than the reverse, I shall be happy to discuss this before Report if that would be helpful.
My Lords, I have found myself in support of the noble Lord, Lord Stevenson, on other occasions. It is quite a new and strange experience to find him in some support of me. My conclusion is that if Clauses 21 to 27 were quietly to disappear, the world would be a better place.
My Lords, I think that my interests in this are understood by most in the Room, in that I chair the Better Regulation Executive. I simply want to help by providing a little clarity here. What we are in fact trying to capture in this regulation—I say “we”, because the Better Regulation Executive has had some input into its drafting—is to ensure that what works very well at the moment is set in place in statute for the future and that the impact of regulations on the business community is understood. While this looks complex on paper as drafted, in practice it is largely what is happening now. It is not creating some bureaucratic monster that is having difficulty interrogating every small community business. However, it is important that the impact of legislation as proposed by departments on small and medium-sized businesses is understood. The expertise within the body is essential to this effect, but the quality of the impact assessment is the role of the statutory body. The business department must carry out the impact assessment and, in doing so, take into account the impact of legislation on SMEs. The independent body must then verify whether the impact assessment has been as robust as it should be.
My Lords, that is helpful and a conversation around some of these issues might be revealing. While what the noble Lord, Lord Curry, has said is probably a statement of where we are, I say to him only that we are forgetting that a new and proper quango has to be established. That is not the current situation. A number of reviews, reports et cetera are also built into the legislation. Again, those may be the status quo, but they are not currently given statutory provision. It is about balancing the additional statutory provision against the benefits that may or may not flow and, in a third dimension, against the extent to which this now appears to apply to people who probably carried on their daily lives without any previous understanding that they were in danger of being taken on by the people from Whitehall, who know best. However, we have said enough on this and I beg leave to withdraw my amendment.
Amendment 33Q withdrawn.
Amendment 33R not moved.
Clause 23 agreed.
Clause 24 agreed.
Clause 25: Appointment of body to verify assessments and lists in reports
Amendments 33S to 33V not moved.
Clause 25 agreed.
Clause 26: Amending the business impact target etc
Amendment 33W not moved.
Clause 26 agreed.
Clause 27: Sections 21 to 25 etc: interpretation
Amendment 33X not moved.
Clause 27 agreed.
Clause 28: Duty to review regulatory provisions in secondary legislation
Amendment 33Y not moved.
Clause 28 agreed.
Clause 29 agreed.
Clause 30: Section 28(2)(a): “provision for review”
Amendment 33Z not moved.
Clause 30 agreed.
Clause 31 agreed.
Clause 32: Sections 28 to 31 etc: supplementary
Amendment 33BA not moved.
Clause 32 agreed.
Clause 33: Definitions of small and micro business
33BC: Clause 33, page 29, line 12, after the second “business””, insert ““medium-sized business”, “large business” or “super corporate””
My Lords, in moving Amendment 33BC, I will speak also to Amendments 33BD and 33 BG. The amendments together would create a total of five definitions in UK law based on the measure of employee headcount. We are trying to introduce the definition of a micro-business, meaning a business with one to nine employees, a small business, meaning a business with 10 to 49 employees, a medium-sized business, meaning a business with 50 to 249 employees, a large business, meaning a business with a headcount of 250 to 1,000, and a super corporate, meaning those with in excess of 1,000 employees.
We very much support the thrust of the clause, and it is excellent to have a proper definition to work with. Our amendment seeks to establish a richer and, in our view, better way to define the different type of businesses. The basic argument for it is pretty compelling. We understand the need to make regulations and legislation as effective an operation as possible. Defining in law what is meant by the terms “small business” and “micro business” will make it possible for future Governments of any colour to exempt enterprises of that nature from new regulatory obligations. In addition, it can help to target particular elements of policy and support to the required businesses.
The definitions are based on the European Commission’s recommendation, which defines micro, small and medium-sized businesses by employees, turnover and balance sheet total—definitions which are already widely in use on an administrative basis. There are arguments to be had about the relative merits of headcount versus turnover and how to blend those numbers. It is widely acknowledged that it will not be straightforward to embrace everything cleanly with those definitions. It ends up as a complex Venn diagram landscape of connected definitions.
Nevertheless, there is a great attraction to making it as simple but sophisticated as possible. We believe that this five-group classification achieves that. It is of course accepted that the definitions are always imperfect, and that turnover is a factor in the size of a business. Nevertheless, there are good reasons to take a broader view than the Bill currently does.
The great merit of the Bill is its defined and single purpose: to focus on small businesses. Our challenge is that it does not go far enough, but we accept—to paraphrase—that a journey of a thousand miles starts with a single step. We believe that we should not stop to congratulate ourselves on starting the journey but remain focused on the future.
Here, we have a chance to do something with our amendment. Other places which have for a long time had very focused small business policy and even agencies are today looking at how they use definitions better to deal with the problems that we are debating now. The Bill represents a chance for us to address matters of the future.
Governments and policymakers in general have always had difficulty in improving the efficiency of markets in which small businesses operate. It is easy to use measures to deal with monopolies, oligopolies and so on, but in the markets in which small businesses operate it is very different. The Government’s role in relation to small businesses is naturally to consider how to establish political and economic stability, how government spending can trigger markets, setting interest rates in different places, forms of regulation, but also—and decisively—the role of market catalyst. Among the measures and levers that the Government have, it is important to recognise the diverse needs, aspirations and potential of businesses.
Small businesses are a key source of jobs in any economy. There are those start-ups which will have the ambition to become global players and will recruit in great numbers, but most small companies are small and will stay that way. Tax credits for hiring new workers are of great importance to a company on the threshold of a decision on whether to increase by one more employee or a small number. For aggressive start-ups with great confidence and belief in the future, the high-growth culture will make them more concerned about visas, immigration and the condition of education.
It is not just about growth. There are also great distinctions between companies relating to their ages and their relative requirements based on how long they have been in business and the challenges that they have had. Providing policy incentives, encouragement and exhortation can be done better if the type of business can be defined better. That is even now a strong debate in places such as the United States, with the Small Business Administration, and in other places where they have had long-standing agencies to target small businesses. Today, they are looking at further definitions to ensure that their measures can be as targeted and effective as possible.
In our view, this welcome area of the Bill would be strongly enhanced by richer and fuller definition. Even if the relevant measures are not introduced at this stage, there is no doubt that such definitions would help us to design much better policy in the future. In this context, I would be grateful if the Minister could reassure us that the Government have considered the Bill’s drafting not just in terms of 2015 but with regard to the future, and can assure us that the policy measures can be appropriately constructed to target different subsections of the small business community. I beg to move.
My Lords, I am grateful to the noble Lord for taking us back to the question of definitions in the Bill, which we have already discussed, and for setting out in a wide-ranging speech some of the logic behind his position. I shall read that with great interest when I have a little bit more time to reflect. I would like to go through the amendments that the noble Lord has tabled, which I think are to some extent probing in nature, and explain why we have done things the way that we have.
First, I turn to Amendments 33BC and 33BD. The Government are establishing definitions which will be broadly consistent with the European Commission’s, as I have said before. These definitions are widely used in the UK, and so by following the approach taken by the Commission, we will keep life simple for businesses. We are establishing statutory definitions of small and micro-businesses for a specific purpose, which is to help mitigate disproportionate burdens on smaller businesses, including community and voluntary bodies, by facilitating exemptions or other more proportionate treatment in new secondary legislation. We need to define small and micro-businesses clearly in order to exempt them from regulations where appropriate.
This policy intention explains why these definitions are different from those we have heard in previous provisions of this Bill. These definitions need to be precise enough for businesses to know whether they are covered by certain regulations or not. The rationale for the definitions is clear. It costs a small business 10 times more per employee, on average, to comply with regulations than it costs a large business—that is an interesting statistic to add to the noble Lord’s list. In contrast, medium-sized and larger businesses do not suffer from the same level of disproportionate burdens. For instance, those businesses are more likely to have access to specialist regulatory expertise. It would surely, therefore, be unfair to exempt larger businesses from certain regulations without also exempting smaller businesses. There is, therefore, no need to include larger businesses in these definitions.
The Government are committed to reducing regulatory burdens on all businesses, including medium-sized and large businesses, but the specific purpose of these proposals is to mitigate the disproportionate burdens that are most acute. I hope that the Committee can agree that, based on our policy intention, extending the definitions to include medium-sized and larger businesses is not required, and, indeed, could undermine the strong focus on mitigating burdens where they are most severe.
Turning to the detail of the definitions, I welcome the noble Lord’s support for the use of headcount. However, as he said, financial criteria can be an important adjunct to staff headcount in order to reflect the true scale of a business, and therefore the extent to which it suffers from burdens. If a business has the resources of larger businesses, those resources will mean that it is unlikely to suffer from the same disproportionate burdens, even if its headcount is relatively low. For example, such a business would be able to buy in specialist expertise to assist with compliance. For these reasons, in my view it would not be right for them to be treated as a small or micro-business for the purposes of this definition.
As regards Amendment 33BG, which I regard as probing as the noble Lord did not explore it, this Government believe that it is appropriate for the small and micro-business regulations to be subject to the negative procedure. The regulations will make detailed, highly technical provisions, which may require periodic minor changes. For example, the financial thresholds could need to be updated in line with EU definitions. I welcome the fact that the Delegated Powers and Regulatory Reform Committee accepted the Government’s judgment on this issue. I know that the House has great confidence in the views of that committee.
I am grateful for the debate on these provisions, and for the support that we have heard for the Government’s intentions in relation to small and micro-businesses. I hope that the noble Lord will withdraw his amendment.
My Lords, I want to reinforce some of what my noble friend the Minister has just said with regard to these definitions and whether they should include any financial criteria as well as the headcount. It is very important that they do, and I was disappointed to see that this amendment left out the financial provisions. If the Committee looked through the list of businesses that we were looking at the other day, while considering the amendment of my noble friend Lord Flight, your Lordships would see that some very large businesses with huge turnovers—or, for that matter, huge balance sheet totals—nevertheless have very few people working for them. They have very few employees and are not small businesses by any normal criteria. It is important to include financial criteria within these definitions.
I thank the Minister for her reply. The noble Lord, Lord Cope, made an important point about the size of businesses and the financial criteria when evaluating the different areas to look at. One has to take note of the huge imbalance that there is in the volume of businesses with very small numbers of employees and characteristics. You could distort that by the introduction of certain financial measures but, as I said, it is not that we believe that there is an absence of financial figures. If you are looking at where you can target policy, that is so but we want to illustrate a point within this—that there is a common interest in the promotion of small businesses and in trying to create measures to do that.
Considering the deregulatory issues about burdens and other sorts of things is one side of it—my noble friend Lord Stevenson outlined some of our concerns in relation to them—but this Bill is not just about removing burdens of regulation. It has to be about being able to promote small businesses, and people who are engaged in the activity of developing them, by easing their burdens and making their commercial activities much stronger and more successful. In that context, when we talk about regulatory burdens, every single poll of small businesses here, in keeping with those in other places, will demonstrate strongly that those issues are dwarfed in significance for them by the problems of payments—access to credit, cash flow and other sorts of things.
Within that context, we are also looking at the challenges which small businesses have in relation to competing in markets dominated by larger companies. On the issues that they have about access to markets, turnover thresholds and employment and other sorts of things, we are keen to think about how you can use these measures to try to design policy, support and other sorts of levers for the future. With a sense that the Minister will reflect carefully on that side of the coin, I beg leave to withdraw our amendment.
Amendment 33BC withdrawn.
Amendment 33BD not moved.
33BE: Clause 33, page 29, line 28, at end insert—
“( ) Those who represent businesses with 10 to 49 employees and are purchasing goods or services for use within their commercial activities will be considered consumers with all the rights acquired by the Consumer Rights Act 2015”
My Lords, in moving Amendment 33BE I will also speak to Amendment 33BF. For veteran observers of BIS matters, this debate will be quite familiar. These issues were raised during the course of the Consumer Rights Bill and the Government’s approach steered us towards considering this matter under the rubric of this Bill. This debate cuts to the heart of the level of commitment behind creating a framework that truly supports the backbone of our private sector in this country, and whether government are really willing to appreciate and tackle the market dynamics that favour bigger businesses over smaller businesses, as other countries have done successfully in stimulating small business. Indeed, small businesses are already treated as consumers in many parts of the European Union and many of the regulatory areas in our own country.
I will briefly set out the context and drivers behind the amendments. The argument is pretty straightforward. Small businesses, especially micro-businesses, have very little bargaining power because they are not making large-scale purchases. These companies do not have any more time or specialist knowledge than individual consumers. They do not have specialist procurement functions, procedures or external support, or even in-house accounting and legal expertise. We believe in extending protections to micro-businesses in the sale of goods and services.
My noble friend Lady Hayter meticulously spelled out these issues when she said that,
“we might expect a small hairdresser to know what they are doing when they are purchasing shampoo or hair-dryers, but they are not in any stronger position than any other individual consumer when they are getting a window cleaner in or buying a type of floor cleaner or purchasing electricity. Similarly, a small café that happens to offer wi-fi to its customers may be as vulnerable as the rest of us to poor service or being fobbed off by a wi-fi supplier. Similarly, small landlords may let out perhaps only one or two properties but some of those landlords will be classed as business and will not be able to enforce their rights when they are dealing with utility suppliers, or indeed the Post Office or anyone else, that they may deal with as a business”.—[Official Report, 13/10/14; col. GC 2.]
The Government have had some historical objections to such measures. First, they argued that small and micro-businesses are already protected under the Sale of Goods Act and the Supply of Goods and Services Act. That is why they directed us to this Bill, as opposed to the Consumer Rights Bill. That was reasonable and I agree with the point that these protections exist and are essential. However, they are not enough. The core problem for small businesses is that, in general, the level of protection afforded to business customers is significantly lower, reflecting a view that businesses ought to be in a position to look after themselves. A culture of caveat emptor, or buyer beware, is typically considered sufficient protection for business customers, other than in extreme circumstances. Moreover, very small-scale businesses are excluded from a range of commercial opportunities and proportionately penalised and treated as cash cows by a range of suppliers.
Secondly, the Government objected that it is an unnecessary and unusual intervention, but the truth is that it already exists. A number of regulators already treat micro-businesses as consumers. The Legal Services Ombudsman and the Financial Ombudsman Service both treat micro-businesses as consumers for their complaint handling. Ofcom extends consumer protection to micro-businesses and requires providers to apply an alternative dispute resolution scheme for dealing with unresolved complaints from domestic and small business customers. The Communications Act 2003 specifies that small businesses should be classified with domestic customers, as long as they do not employ more than 10 people or trade in the telecom sector. The Federation of Small Businesses has reminded us that small businesses also count as consumers in breaches of competition law; the FSB can act as a super-complainant in such cases. Small businesses will also be covered under Clause 80 as regards redress under competition law, where the opt-out provisions will cover small businesses; the Federation of Small Businesses can be party to that. What we are asking is therefore not that unusual. In fact, it is usual for this provision to be made to ensure the proper functioning of markets.
Thirdly, an objection has been made that business does not support it—even that the Federation of Small Businesses does not support it. This is both true and untrue. It is true that some big businesses do not want it. The Government have previously quoted consultations from the CBI. I can only say that, in my experience, some are good and some are bad: some react positively to deliver as if small businesses were protected as consumers, and others—this is really the main part of my experience—use the difference to provide inferior and costly service to the smallest commercial entities.
What is true is that the Federation of Small Businesses wants this measure. I know that this has been a matter of contention before, so I checked before speaking today. I think that last time there was a misreading of a report whose purpose was to inform the federation’s recommendations as being the recommendations themselves. When it comes to negotiating business contracts, the Federation of Small Businesses has identified four areas that add up to real detriment for those businesses. It talks about a “lack of expertise” in purchasing policy, high opportunity costs of time spent making purchasing decisions, low benefits, and little bargaining power. The Federation of Small Businesses firmly supports this recommendation.
Finally, the argument is made that there is no evidence that the measure helps, and that it could be bad in terms of how small businesses are treated by big businesses. I am bound to say that, while I am fairly new at this, it has not gone unnoticed that this has not seemed to stop government before. Indeed, I would even go so far as to say that some of the consultations on the Bill may well confirm the thrust of this argument, and the way in which the evidence is gathered can be quite narrow and sometimes give the appearance that our final evidential base is unlikely not to have unintended consequences as a result.
In my view, the argument about whether the Government can measure the impact of treating small or micro-businesses as consumers seems to be a minor objection. It is very easy to model an answer and I am sure that the department’s officials have grasped that or have used the time between this and the previous debate to get this right. I hear the argument about changing the legal framework for 4.7 million businesses without a full and complete understanding of the impact, but that is a rather false construct. I strongly reject the argument that we should avoid doing this because larger businesses will act with retributive force, or that they should be allowed to maintain a power imbalance because they do not like meeting proper business standards. I think that we also had that debate within the context of payments and access to finance. I also reject the argument that there is any meaningful and real business opposition. Would they suggest it? No. Do they really have any meaningful objections? I believe that they do not.
I hope that the Minister will be the bearer of some good news on this. There were some very encouraging statements in the other place and by Ministers on these matters. In fact, the Government’s response to the report by the Federation of Small Businesses into the consumer issues facing smaller firms and sole traders was also encouraging. I hope that the Minister has come here today with some additional measures strengthening the rights of these businesses, or even perhaps with the remarkable news that she will support our amendments. If my optimism is to be dashed, I hope that the Minister could place on the record—given all that has gone before—a reasonable exposition of the work the department has done to review the evidence in this area and create an evidence base, and say whether the Government categorically rule out amending the law in the future. If they do not do so, why not support the power to ensure that this can be done quickly and efficiently now?
If there is still a chink of light, given that this distinction is already made in statute law, regulator policy and other EU jurisdictions, would the Government be amenable to discussing how the Bill could clarify what is already a clear fragmentation in law and a mixed message to small businesses? I beg to move.
My Lords, I ask my noble friend to take very seriously the issues which are raised here. I look at it in a rather different way from the noble Lord, Lord Mendelsohn—that is, from the point of view of a small business itself. As my declaration of interest shows, I chair a number of small businesses. I have been recategorising them while reading through the amendments, so I also chair a medium-sized business. On the basis of this discussion, I am hoping that it will become a large business. I look forward to that. I do quite a bit of mentoring of people starting businesses. It is very hard for them to start a business. However, we know that innovation comes more from small businesses than anywhere else and that the bigger a business becomes, the less innovation there is. It is a crucial part of improving employment and the economy. We have to recognise that.
How do people start small businesses? Very often, they do not start it as a small business but as a person or customer. You begin something and realise that you have a kind of business, and then you try to make it into a business. It is a much more haphazard operation than those who have never started a business sometimes think. I hope that the civil servants present will not mind my saying it but one of the problems with all this is that nobody who writes this stuff has ever run a business or understands how a business is run. Having done the job as a Minister, I recognise that I was pretty unusual because I came from the business community. Most Ministers had not done that. We have here a Minister who is very well equipped, because she has played a major part in what can only be called a megabusiness, in the circumstances.
I want to look at it from the psychology of a person who is running a small business. He or she sees themselves as a customer of other people. They soon discover that one problem with being a customer of other people is the same as we all have as customers: they are bigger than you, so it is difficult to deal with them and you therefore need protection. That is why we have consumer protection laws—I see that one is going through the other place at this very moment. I find it hard to understand why it is not automatic that small businesses should be treated as customers to a point at which they are genuinely in the same league as the people from whom they normally purchase. There are arguments against that, such as saying that you are buying from other small businesses in the same position, but that happens with customers, too. This is not a difficulty to overcome.
Why is that important? We must recognise that the big difference between a small business and a big business is that in the small business, every individual working there does about five different jobs, if not 10. Often, when a new job comes along, you have nobody who has any idea of how to do it, so you scrabble about and try to do it yourself and then find someone who might do it rather better. That is how it works, whereas the big business has somebody to do each thing. As long as you are small enough not to have somebody to do each thing, you need the protection that any individual has when dealing with bigger firms as a consumer.
My noble friend may wonder why I bothered to spend time talking about that. There is a much more fundamental reason that I now want to express. I believe that we are losing the battle for the free enterprise system. I do not mean that in a party-political way. I mean the system which we all share of having a free society where people create wealth because they start things and find ways to satisfy people’s needs. We are losing that because so often the spokesmen for the free enterprise system are not actually speaking for free enterprise; they are speaking for oligopolies and monopolies. I have just been reading Naomi Klein’s book. It is pretty concerted nonsense most of the way through, because what she thinks of as free enterprise is actually the Koch brothers or the great oligopolies. We have allowed her to think like that because we have not presented properly what a free enterprise system within a free society is. To do that, we have to be a society where we discriminate against monopoly and bigness in favour of smallness and innovation.
That is why what the noble Lord, Lord Mendelsohn, has been talking about is crucial. That is the thought behind the whole Bill and why, in general, it has support on every side. I worry that we have not grasped this nettle hard enough to recognise what a tough world it is. If you are a small business, who are you dealing with? It is the oligopoly of the energy companies. It is no good kidding ourselves: this is not the same as dealing with the garage down the road but a different concept. You are dealing with the monopoly of many of the state services. I am concerned that we are not clever enough to talk about the problems of the National Health Service, for example, in the same way as we talk about the problems of monopolies generally. In a sense, it does not matter who runs them: monopolies have effects on the consumer which are unacceptable. We cannot talk about that because we have got ourselves into all sorts of silos. Therefore let us start where we can talk, which is to say that smallness and innovation present certain difficulties, which are manifest, and the biggest of those difficulties is: how do you deal with things that are much bigger than yourself, over which you have no control?
I do not know whether my noble friend has ever tried, as a normal consumer, to get something out of, for example, her electricity supplier. I can tell noble Lords that the time you spend on the end of the telephone, trying to find the person to have the conversation with, is not just a statistic as provided by Which? but a horrible fact of life. The only parallel is trying to do the same in the National Health Service: being told by your local doctor, for example, that although he has the closed shop of a pharmacy, and although the prescription was written by him and his dispenser has only to take the bottle from the shelf and give it to you, that it will take three days before you can have that prescription, because that is what he does. Why? Because he is the monopoly provider, and he knows that. That is no criticism of our National Health Service but a criticism of a system that means that people are in a position to say to people who, even when they are small, are smaller than they are.
I feel very strongly that this is not just a probing amendment. It is not just a reminder of how important the small business is and how it needs the kind of protection which we give to individual consumers. It is one of the elements which reach much further than that, because it is just a tiny example of what is deeply wrong with the society that we have created. Unfortunately, we characterise it as if it is an argument about capitalism. It is not; it is an argument about how individuals can cope with bigness, and how bigness can be made to be able properly to provide the services that individuals want.
I take this as a very serious amendment, not of course to be accepted because it has no doubt been written in the wrong way, and there will be this, that and the other reason not to accept it—I was a Minister for a long time, so I know exactly what can be said. However, I hope that my noble friend will recognise that this is a very important element and not something put forward because the Opposition want to find something wrong with the Bill. It seems that they want to improve it. This is not a contrary amendment. If it is not the answer, perhaps my noble friend will be able to provide us with an answer, because I am sure we will all be very happy to have it.
My Lords, I thank the noble Lord for his amendments on treating businesses as consumers. Like my noble friend Lord Deben, I have worked in small business—in fact I ran a small garden centre business, and represented 6 million small businesses in Brussels for some time. No one is more determined to try to think about the effect of legislation on small businesses and how to get that right and incentivise innovation, which my noble friend Lord Deben referred to. However, we should not entirely condemn our great companies, which deal in everything from electronics to aerospace and food. They do innovate, and many of them lead very substantial export efforts around the world. Like my noble friend Lord Deben, however, I worry about the free enterprise culture. In fact, I have been trying to get one of my four sons to create a small business, so far without success.
As a Back-Bencher last year, I learnt a lot about the difficulties of dealing with utility providers. That informed us on the Consumer Rights Bill, which we debated in this Room for many weeks—and I am delighted that the noble Baroness, Lady Hayter, has joined us after so many constructive discussions on that Bill.
I agree that we must support small and micro-businesses and put in place the conditions for them to prosper. That is why the Bill is so important and why this Government are doing all that they can to support these businesses. None the less, I remain concerned about the scope of the amendments. They are wide-ranging and not consulted on. Small business might be keen on them until they discover the unintended consequences for their own businesses. That may be wrong, but we just do not know. For example, the small printer gets more reassurance when he buys his ink, but he suddenly has to give full refunds to his small-business and micro-business customers for 30 days because of a fault that might previously have been subject to a more agreeable negotiation—if he had cash flow problems, for example.
We also need to remind ourselves that businesses, including small and micro-businesses, are not unprotected at the moment, as the noble Lord, Lord Mendelsohn, said. Provisions under the Sale of Goods Act and the Supply of Goods and Services Act apply to them now and will continue to apply. Under the unfair terms legislation, a business may limit its liability to another business if that is reasonable in the circumstances when they make an agreement. The existing regime gives appropriate protection, which is important, while allowing businesses to enter into flexible transactions, a point that I shall return to.
Small and micro-businesses make up 99% of all businesses in the UK—a total of 5.2 million businesses. Of those, 5 million are micro-businesses, which in aggregate employ 8.3 million people and have a turnover of £655 billion. That is an extraordinary and very good thing, but it means that a lot of businesses—a lot of value added—would suddenly face a change in operating rules under either of these amendments, even if those amendments are well meant. It also means that there is an incredible range of small businesses across all sectors of the economy, many being very specialist in their sectors and skilled negotiators in transactions. They are able to judge exactly what their interests are.
Businesses think about value for money and do not always require the detailed protection that we give to consumers. We give consumers general protections because they almost always face the same information asymmetries when they buy goods and services—that is, the range of goods and services that consumers are likely to purchase is so wide that they are unlikely to have detailed knowledge of them. The same is not true for small businesses. It is in the interest of these businesses to reduce this information asymmetry. The same incentives simply do not apply to consumers. In addition, consumers are less able to assess the cost and implications of their purchase decisions, whereas efficient businesses, by their nature, assess this information and make these decisions more effectively. The Government are of course keen to encourage businesses to become more efficient and to see a healthy and competitive market.
All businesses also need to enjoy the freedom to contract for goods and services on an individual basis. The current legislative framework allows for that already. The amendment would, at a stroke, reduce that freedom for 99% of all businesses—in the case of the second amendment, 96% of all businesses. The default obligations under the Consumer Rights Bill would apply, whether it suited a business or not. This could place a restriction on business negotiations.
Consider risk and reward—a defining concept of enterprising activity. This proposal could have a chilling effect by removing all risk in business transactions. Superficially, that sounds attractive for small one-off purchases, but what about the bulk deals, the order of specialist items or the removal of old stock? How would this encourage suppliers to take risks with cash flow? A supplier faced with the possibility of having to give a full refund to all its small business customers for 30 days, without scope to negotiate reasonably about any liability, would need to be extra cautious about its financing. Is that the right culture?
I of course recognise that the intent behind the amendment is to protect small or micro-businesses where they might not know more than a consumer when buying goods and services unrelated to their core commercial activity—I remember that in Committee we talked about kettles as well as hairdressers. But how do we make the distinction? What is core for one business may not be for another. The Consumer Rights Bill does not have a legal definition of a consumer good or service that we could rely on.
A further point is the difficulty for a seller in deciding the difference between the small or micro-business to whom the Act would apply and larger businesses to which it would not. That would certainly complicate implementation and I am passionate about having a good and simple implementation plan for the Consumer Rights Bill so that sellers abide by the new rules and consumers know where they stand.
The noble Lord rightly raised the question of the Federation of Small Businesses. The Government consulted on the subject of these amendments in 2012, and when the previous Administration was in power, they consulted in 2008. Stakeholders were clear that they preferred the simplicity of a Bill that dealt with consumers alone. The CBI and the BRC recognised that there were difficulties in treating small businesses as consumers when they gave evidence to the Commons Committee on the Consumer Rights Bill in February 2014.
I know what was said about the FSB and that its views may have come on since it responded to the 2012 consultation, but it did helpfully commission research on the issue. Its report, published in January last year, recognised the complexity and that there could be potential difficulties. It concluded that Government should carefully consider the point when drafting consumer protection legislation and that it was important for the sector regulators to look to protect small businesses. Ofcom was mentioned. We recognise and welcome protections in sector-specific regimes but, as I outlined, we have concerns with applying more general protections in this way.
I have some sympathy with noble Lords in their quest but, as I said when we debated the issue in the Consumer Rights Bill, we risk giving with one hand and taking with the other. The amendment has not been properly tested and could potentially undermine what we are trying to achieve in helping small and micro-businesses, which has to be the focus of the Bill. I hope the noble Lord will understand that this is not a sensible addition and agree to withdraw his amendment.
I thank the noble Lord, Lord Deben, for his powerful speech in Committee. I strongly agree with his central thrust about the operation of markets and what we have to do. There is a clear importance to the vibrancy and general benefit of very strong consumer-driven markets, and where we can get the asymmetries out of markets. That is something to be looked at in the general context of the Bill.
The noble Lord’s speech reminded me of research I read in relation to the Bill from the Brookings Institution, which talks about America, the custodian of great enterprise and small businesses. A piece of research indicated that although there were a number of innovative, high-tech businesses, there was an attrition of the traditional entrepreneurial culture of mom and pop businesses in America, and the measures they were going to have to introduce to try and deal with the problem. It strikes me that the problem we have with parts of the Bill is that, while it is hugely welcome and to the Government’s credit to have put it through and to be saying something specific about small businesses, the scope of ambition is a bit too narrow.
We have a huge challenge to encourage such businesses and this is a great opportunity to do so. Even in circumstances where it may not be possible—the drafting might be problematic, there may be synchronicities in policy, or all sorts of things—it is still important to maintain the sense of ambition, so that we can put into place now strategic anchors or even some of the exhortations or ambitions we have for small businesses in the future.
It is in that context that, while being hugely encouraged by the excellent speech of the noble Lord, Lord Deben, I was a tad disappointed by the Minister’s response. It contained a lot of things that I believe are, bluntly, utterly bogus. I just do not buy the notion that the western economy is going to collapse because micro-businesses are going to be given this protection. I do not buy the impact story. It does not ring true to anyone in business and I cannot believe it was presented. It is just not right. It is not right to believe that we can accept that the chilling impact of these things is going to be the principal reason why businesses are going to suddenly not transact. We know, even from our discussions, that within the context of late payments it does not have the same impact. If the Government accept what we are suggesting on the definition of micro-business and on late payments, we will have sufficient velocity in the markets for the cash flows to be less distorting and more encouraging.
I was also disappointed that there did not seem to be any real change or progress, or much work done, between the Consumer Rights Bill and the current position, even to the point of talking about the context of the FSB’s research on regulators, which concerns some of the other measures we talked about on previous amendments—the consultations related to the Consumer Rights Bill and other things. It did not look at the context of trying to use these measures to encourage and trigger small businesses.
We say very clearly that this is not about big businesses being bad. I do not believe that big businesses are bad; they are very important for this country for all sorts of productive things. However, we have to try to ensure that we push the fundamental context of small businesses: the market dynamics, the enterprise and the entrepreneurialism in which they exist.
On the statistics that the Minister gave us about the number of small businesses and the number of people who they employ, I have to say: do the maths. Most of these people are consumers, who, when they try to buy something for themselves rather than in the context of their businesses, have an easier time or more rights. I do not think that that is sensible.
I must ask the Minister to reconsider, to rethink some of the points made by the noble Lord, Lord Deben, and some other things about what we can do to achieve greater outcomes for small businesses. We also ask her—at least for my benefit—to spend some time scrutinising some of the work that has taken place since the Consumer Rights Bill until now to try to get some sense that we have properly assessed this and done some work as to whether or not they should reject this amendment. On the basis that I know that she will do that, I beg leave to withdraw the amendment.
Amendment 33BE withdrawn.
Amendments 33BF and 33BG not moved.
Clause 33 agreed.
Clause 34 agreed.
Clause 35: Exclusion of home businesses from Part 2 of the Landlord and Tenant Act 1954
33BH: Clause 35, page 32, line 27, at end insert—
“( ) In considering what is reasonable for the purposes of subsection (4), the court shall have regard to all relevant factors including but not limited to the following—
(a) the nature and location of the premises;(b) the nature of the business and the extent to which the activities of the business are comparable to activities carried on at home which are not business activities;(c) whether the business requires any structural change to the premises comprised in the tenancy;(d) the number and frequency of visitors likely to come to the premises in connection with the business;(e) the number and frequency of deliveries and collections of goods likely to occur at the premises in connection with the business;(f) the amount of any noise or other environmental impact likely to arise from the business;(g) the likely effect of the business on the parking of vehicles in the vicinity of the premises; and(h) the proportion of the property used for the business.( ) Where a dwelling-house is let under a tenancy to which subsection (2) applies the landlord and tenant may agree in writing under the terms of the tenancy or in any other document signed by them—
(a) that a particular business, or(b) that a particular description of business, if carried on in the premises, shall be a home business for the purposes of this Part of this Act.( ) Any such agreement shall be binding upon the parties.”
My Lords, Amendment 33BH stands in my name and that of my noble friend Lord Stevenson. It deals with the issue of so-called home businesses that take place in rented or leased homes.
At present, landlords who let residential property to tenants who also use their homes for business run the risk of their tenants claiming security of tenure as business tenants under Part II of the Landlord and Tenant Act 1954. To protect themselves from this, landlords usually prohibit any use of the residence for business in the tenancy agreement. However, should the landlord in some way acquiesce to such businesses, the tenant gets security under the 1954 Act, notwithstanding the wording of the agreement. That is why the Government have included Clause 35 in the Bill, which will allow that, where a home business is carried on by a tenant, it should not qualify for security of tenure under the 1954 Act. Landlords could thus accept some working at home by tenants without risking losing control of their property—the tenants having only normal residential security of tenure. Secondly, where a tenant carries on a home business in breach of any prohibition against business use and the landlord gets to know about it—and thus at the moment is seen effectively to acquiesce to it—the Bill as drafted would not give the tenant statutory rights.
The clause seems sensible but my first question is: why is the measure in the Bill? Although we support its intention, we are unaware of any problems, debate or any evidence that led to its inclusion. Helpful though Clause 36 may be, will the Minister outline a little more of the background? We doubt whether it will have much impact, but that is no reason for us to oppose its inclusion. We welcome what it could do but we have questions about the wording, hence the amendment.
The most obvious, indeed crucial question is: what is a home business? The definition in the Bill, which has been described by my noble and learned friends as hopelessly wide, states:
“A home business is a business of a kind which might reasonably be carried on at home”.
I kid you not. That is what the Bill says.
That is fraught with uncertainty. Whether a tenant’s business is one which can reasonably be carried on at home will depend on a great number of variables. Indeed, there is an almost infinite range of businesses which householders carry on at home at present. Probably all of us over the weekend were doing a bit of office work at home. I am excluding civil servants from that; I would hope they had a good weekend off. We have catering, music teachers, tutors, web design, computer programming, craft work, repairing and restoring anything from machinery and vehicles to furniture, books, TVs or musical instruments, hairdressing, jewellery-making, secretarial services, fine art or even Barbara Hepworth’s wonderful sculptures, journalism, charity work, medical, counselling, physical fitness training, accountancy, legal advice, or, to return to the Consumer Rights Bill, dress-making. I know that the Minister understands my particular interest in that.
Whether all of those can reasonably be carried on at home depends on the home. What can be done in the back yard of a remote cottage is rather different from what can reasonably be carried out in a flat on the third floor. So, to assist the courts, and to provide some certainty for landlords and tenants alike, the test of “reasonableness” needs fleshing out. Presumably it must be reasonable from the point of view of the premises—something which is sufficiently close to activities which householders might carry out on their own account, such as sewing, studying, reading, writing, cooking, handicrafts, gardening, DIY, and so on may not seriously impact on the fabric, condition or layout of the premises. Nevertheless, there could be environmental considerations.
Is it reasonable to receive deliveries, customers, clients, patients or students, or to carry out noisy activities when you live in close quarters with your neighbours? Will the business generate an excessive amount of traffic on the roads, creating congestion or parking problems? That will be particularly the case where the Bill will now deny statutory rights to businesses in which the landlord has acquiesced, since there will not be an earlier agreement between the landlord and the tenant over whether what the tenant is doing at home is indeed a home business, given that there is no independent definition of that.
It is for that reason that the first part of our amendment seeks to suggest the factors that the court should take into account—and therefore factors that the landlord and tenant need to be aware of when the court is deciding what can reasonably be described as a home business. The second part would specifically allow a landlord and a tenant to contract out of the Landlord and Tenant Act 1954, probably providing that they notify the court, as has been possible since the 1970s under some other circumstances.
The success of this probably desirable measure will depend on how any definition is received in the real world, and whether there is sufficient clarity or guidelines to enable both parties—the landlord and the tenant—to know where the statutory rights will fall. The amendment attempts to identify a way forward to provide the clarity needed for the measure to have effect that I assume the Government desire. I beg to move.
My Lords, I welcome the noble Baroness, Lady Hayter, back to the Dispatch Box on the Bill. I start by answering her question about why we are doing this. Clause 35 will help support the further growth of home businesses by removing the current incentive for landlords to bar tenants operating a business from their home. As we have heard already, there are nearly 5 million small and medium-sized businesses in the UK. Of those, 2.9 million are home businesses. Home businesses are of growing importance to the economy, with an increase of half a million since 2010. The Government want the home business sector to continue to flourish. That is why we are committed to do what we can to overcome obstacles, and Clause 35 is a key part of that work. Landlord and tenant bodies agree that that is a sensible step, so why not use this opportunity to act now to help the enterprise culture and the small businesses that we all agree are so important?
For those who rent their home, things can be particularly complicated. Landlords can be wary of letting them run a home business. Indeed, residential tenancy agreements will often include a prohibition on business use. Section 23 of the Landlord and Tenant Act 1954 provides that where there is a business use for a property, a business tenancy exists. Because business tenancies enjoy greater security of tenure, private residential landlords are keen to avoid them, as they fear that it may be more difficult to get their property back at the end of a lease. That is what Clause 35 will address by amending Part 2 of the 1954 Act.
I add that the opportunities created by the digital world, bringing ever more innovations into the marketplace, make that provision even more important. This change could help to encourage the enterprise culture. I think that it is a sensible move and would assist the graphic examples that the noble Baroness, Lady Hayter, gave, although I think it will take a little longer to get the younger generation sewing again. However, perhaps craft skills are coming through and there is certainly an element there.
I thank the noble Baroness for tabling the amendment, but we are concerned that the effect would be to cause confusion. It would not prohibit the types of business activity listed, but it would create uncertainty as to whether certain types of business carried on in a home would make the home subject to the business tenancy provisions of the Landlord and Tenant Act. As I said, currently, Section 23 provides that where there is a business use for property, a business tenancy exists. Because business tenancies enjoy a greater security of tenure, residential landlords are often keen to avoid them.
Clause 35 is aimed to remove that disincentive on landlords when they are considering allowing a home business from their property. Under our proposal, landlords would continue to have a veto. The landlord continues to have a right to impose conditions—which I think is important, because it can relate to matters such as noise, which can be a big issue—or prohibit a home business outright if that seems appropriate to the property in question. However, we believe that the amendment could have perverse consequences, create bureaucracy, disincentivise landlords from being willing to consider a home business and encourage them to set unnecessary conditions.
Let us take an example. Suppose that a tenant were to ask the landlord for permission to operate a home business. The amendment would encourage the landlord to check whether the proposed business fell foul of the factors listed. The landlord might have to judge what constitutes a reasonable number of clients calling at the property, the impact of deliveries, and so on. In the face of that increased burden, landlords might become risk averse and say no. We also have concerns about providing for a binding agreement between landlord and tenant on whether a particular business or description of business carried on in the business should be a home business. That could have a detrimental impact on business tenants—that is, those in premises where business is the predominant use—if they were to lose the rights secured for them by the Landlord and Tenant Act. The security afforded by business tenancies means that tenants can invest in their businesses, building up good will, buying equipment and stock, without fear that they will have to leave the premises before the end of the tenancy.
Amendment 33BH would allow people to define for themselves, by agreement between the landlord and tenant, what a home business tenancy was. Some landlords might seek to use this to exclude business tenants from having the security of tenure provided by the 1954 Act. There is already provision for the exclusion of security of tenure in business tenancies by agreement, and with tested procedures involving notices and declarations by the parties. I believe it would be undesirable for this clause to provide an alternative route for landlords to avoid security of tenure. The tenancy agreement can state in terms that the tenancy is a home business tenancy, as set out in the clause, and the tenancy agreement is legally binding, provided that the tenancy is a home business tenancy within the meaning of the 1954 Act.
I know that the noble Baroness was probing to some extent, and I hope that she has found my explanation of this background useful. I think that this is a concrete and important change, which I commend to the House.
My Lords, it was not meant as a probing amendment at all. It was tabled because the very senior advice that I have taken from the top planning chambers in the country says that this is not going to work unless people know what it means; it will end up in court and that is where the definition of a home business will have to be decided. When someone claims, as a residential tenant, “Well, I’m sorry, I’ve been running my business as a speechwriter for the House of Lords at home and am therefore a business, not a home business”, that will have to go to court. The landlord is going to say, “No, it’s a home business because you live there as well”, but the tenant will say, “No, the major thing is that it’s a business”. The advice is absolutely that the courts will need guidance as to what is a home business.
A landlord would be sensible to claim that an enormous business was a home business, just because the person running it also happened to live in the place, because of course that would deny them the right of security as a business. So the landlord will be saying, “This is a home business”, while the person running the business will be saying, “No, this is a normal business and I happen to live here”. I mentioned Barbara Hepworth. Anyone who has been to her house will know that there is a bedroom there, but 80% of the house is her sculpture gallery. Of course, she owned that house. Still, if a house has one room that is a bedsit and nine rooms that are a business, is that a home business?
The noble Baroness is rightly concerned about this question ending up in court with lots of legal proceedings, which we all agree is what one wants to avoid in good regulation. To some extent, we have thought about that. We have taken a power in the Bill that allows us to further specify the definition if that proves to be the case, so she is right and I am wrong.
That is why we thought it should go in the Bill rather than waiting for regulations. I think that we share the desire that this should work, but it will work only if landlords and tenants can have confidence. As I say, just because a person running a business from a rented place happens to live there, I assume it is not the intention that they should therefore lose the security that they get under the 1954 Act. This will also open up to quite big businesses, and I wonder what thought has been given to the planning issues that arise from this. Local government certainly needs to think about how big a business would be before there were planning implications.
The Minister said that there were 2.9 million home businesses; she did not of course say how many of those were in rented accommodation as opposed to owner-occupied. Maybe she would be able to write to me about the figures—or she may be getting them at this moment—for how many of those 2.9 million are in rented accommodation. I worry that this is so vague that it will not give certainty and there will have to be test cases in court. Without some guidance from Parliament about what we had in mind for what is probably a welcome and well intentioned measure, the fear is that there will not be enough certainty. We know that landlords are pretty risk averse, for understandable reasons. There will be so much uncertainty that the measure will not be implemented.
I do not have the figure that the noble Baroness would like, so I shall write to her. However, the powers apply only to tenants with a residential tenancy, so there is no risk that someone with an existing business tenancy could lose security. That is an important clarification. It does not affect existing planning requirements either, but I note the point she made. The planning requirements continue to apply. They are complicated, but it does not do anything about planning.
Existing businesses that will lose the right to secure tenure are those where the landlord has acquiesced because he has known about a business being taken on. Until this Bill becomes an Act, those businesses have security, and they will lose that, not necessarily wrongly, but it is not quite correct that all businesses will retain the rights they have. This is something we may come back to. We will certainly take further advice. People who are very active in this field certainly have concerns, and the Minister may also need to check a little more widely on that. For the moment, I beg leave to withdraw the amendment.
Amendment 33BH withdrawn.
Before calling Amendment 34, I must advise the Grand Committee that if it is agreed to I will not be able to call Amendments 34A or 34B due to pre-emption.
34: Clause 35, page 32, line 36, leave out from “instrument” to end of line 42 and insert “,
(d) may not be made unless—(i) in the case of regulations made by the Secretary of State, a draft of the statutory instrument containing the regulations has been laid before Parliament and approved by a resolution of each House of Parliament,(ii) in the case of regulations made by the Welsh Ministers, a draft of the statutory instrument containing the regulations has been laid before, and approved by a resolution of, the National Assembly for Wales.”
My Lords, amendments to Clause 35 will help to clarify the definition of home businesses to be captured by amendments to the Landlord and Tenant Act 1954, subject to the affirmative procedure and, additionally for Wales, a resolution of the National Assembly for Wales.
As my noble friend Lady Neville-Rolfe mentioned, there are around 4.9 million small and medium-sized businesses in the UK. Of those, 2.9 million are home businesses. Home businesses are of growing importance to the economy with an increase of 500,000 home businesses since 2010. There can be obstacles to those wanting to run a business from home, but this Government want the sector to continue to flourish. That is why we are committed to do what we can to remove them.
For those who rent their home, things can be particularly complicated. Many tenants state that landlords can be wary of letting them run a home business. Indeed, residential tenancy agreements will often include a prohibition on business use. One of the reasons landlords do this is that the current legislation encourages them to do so. Section 23 of the Landlord and Tenant Act 1954 provides that where there is a business use of a property a business tenancy exists. Since business tenancies enjoy greater security of tenure, residential landlords are keen to avoid them as they fear it will be more difficult to get their property back at the end of a lease.
It is this area that Clause 35 seeks to address by amending Part 2 of the 1954 Act to exclude home businesses from its provisions. First, we are inserting a new subsection into the 1954 Act. This deals with the instance where a landlord initially includes a prohibition on business use but subsequently agrees to home business use, defined as business of a kind which might reasonably be carried on at home. Secondly, Clause 35 adds a new Section 43ZA to provide that where a dwelling is let as a home and the tenancy allows a home business use from the outset, or does so subject to the consent of the landlord, a business tenancy is not created.
Amendment 34 establishes a basic definition of a home business in new Section 43ZA(4) to ensure that only businesses that could reasonably be carried out in a home benefit from the exemption from Part 2 of the 1954 Act. The regulation-making power at subsection 43A(6) allows cases of what is and is not a home business to be prescribed. I believe, however, that the main provision is sufficiently clear that the use of this power may not be needed.
I should also make clear that these provisions will not interfere with existing tenancies. Subsection 35(5) provides that the provisions apply only to tenancies entered into after the coming into force of the provisions. Subject to the National Assembly for Wales’s agreement to a legislative consent Motion, these provisions will apply to both England and Wales. These provisions will provide certainty for both residential landlords and tenants. By doing so, we will make landlords more amenable to home business use.
I believe that removing the existing obstacle that stands in the way of tenants in the rented sector being able to enjoy the benefits associated with running a home business is difficult to argue against. I see no reason why people who rent should be prevented from having benefits, such as lower overheads, or from being able to balance their work and family responsibilities more flexibly.
I hope noble Lords can see that these amendments are a sensible updating of the law to reflect how we increasingly use our homes. The related government amendments to Clauses 152, 153 and 157 are purely technical and ensure that amendments to Clause 35 and after also apply to Wales. On that basis, I hope noble Lords will support these amendments. I look forward to hearing the noble Baroness speak to the amendments tabled in her name.
Amendment 34 agreed.
Amendments 34A and 34B not moved.
Clause 35, as amended, agreed.
35: After Clause 35, insert the following new Clause—
“Section 35: supplementary and consequential provision
(1) In section 41 of the Landlord and Tenant Act 1954 (trusts), after subsection (2) insert—
“(3) Where a tenancy is held on trust, section 43ZA(2) has effect as if—
(a) paragraph (b) were omitted, and(b) the condition in paragraph (c)(i) were a condition that the terms of the tenancy require at least one individual who is a trustee or a beneficiary under the trust to occupy the dwelling-house as a home (whether or not as that individual’s only or principal home).”(2) A dwelling-house which is let under a home business tenancy is to be regarded as being “let as a separate dwelling” for the purposes of—
(a) section 1 of the Rent Act 1977 (protected tenancies),(b) section 79 of the Housing Act 1985 (secure tenancies),(c) section 1 of the Housing Act 1988 (assured tenancies), and(d) any other England and Wales enactment relating to protected, secure or assured tenancies.(3) Subsections (1) and (2) do not apply to the tenancies mentioned in section 35(5).
(4) Subsections (2) and (3) do not limit the circumstances in which a dwelling-house which is let under a home business tenancy is to be regarded as “let as a separate dwellling”.
(5) In this section—
“enactment” includes provision made—(a) under an Act, or(b) by or under a Measure or Act of the National Assembly for Wales,“England and Wales enactment” means any enactment so far as it forms part of the law of England and Wales,
“home business tenancy” has the same meaning as in section 43ZA of the Landlord and Tenant Act 1954.”
Amendment 35 agreed.
35A: After Clause 35, insert the following new Clause—
“Exclusion of home businesses from non-domestic rate liability
Where a residential property is used for one or more home businesses by the owner or by a tenant, that property shall not be or become subject to a non-domestic rate.”
My Lords, I apologise most sincerely that events conspired so that I was unable to attend earlier discussions of the Bill, but I hope that the Committee will nevertheless allow me to speak to the amendment standing in my name. I raised the matter with the Minister in a meeting with Cross-Bench Peers before Christmas.
I should declare an interest as a trustee of a trust which in a small way lets out residential property. In another part of my life I am involved in working with entrepreneurs, some of whom invest in and let out property. I have also run a small business and an international chamber of commerce for several years. Enough about me.
As others have said, there is much to be welcomed in the Bill. One aspect of that is the removal of the risk to a landlord letting out residential property that a business run from such a property will give rise to a business tenancy under the 1954 Act. I certainly assure the Committee that this is a very real problem for landlords letting out property. In that, I have absolutely no doubt. I share the concerns expressed by the noble Baroness, Lady Hayter, about the definitional aspects but I am sure that many of us have had the experience of trying to write page after page of legal definition and ending up by replacing it with the word “reasonable”. I suspect that tenancy documentation will evolve to cope with this issue.
However, there is a second leg to this issue: the fear which landlords have that allowing a residential home to be used for a business will end up getting them entangled in the rating system, particularly if that business does well, grows and prospers, which presumably we would all welcome. That concern among landlords relates not just to the period when a tenant is in occupation but when they leave; the landlord fears finding themselves with a property that is unlet but subject to business rates. The effect of that is simply to make landlords reluctant to let out property with home businesses, to put clauses in agreements which prevent it and to avoid colluding with tenants who nevertheless try to start up such a business.
I am sure that many of your Lordships will be aware that small businesses can apply for relief from rates. However, almost everyone seems to be in agreement that the rating system is not simple; indeed, it is complex. Perhaps as an indicator of this, I notice that there are a number of businesses which, as a chargeable service, offer to assist small businesses in navigating through the rating system. I would hate to put them out of business but, as an indicator of the complexity that small businesses face, the market speaks for itself.
Moreover, I believe that among landlords there is a perception that it is dangerous to allow someone to run a business, no matter what reliefs there may be available, within their residential premises. The noble Lord, Lord Deben, touched earlier on the point that perception of regulation is every bit as important as its actuality. This amendment seeks to achieve simplicity and clarity by making it clear in straightforward terms that allowing a home business to operate will not bring the property within the rating system. It is my proposal that combining clarification on the tenancy issue and the rating issue would be the two sides of the bridge that get us across this river of landlords’ resistance to letting out residential properties to people who wish to run businesses within them. I beg to move.
My Lords, I was tempted to intervene in the last debate that we had on the amendment of the noble Baroness, Lady Hayter, because this is quite an interesting issue. I am not going to be able to support fully the noble Lord, Lord Cromwell, but I am pleased to come in on this debate. I have often voted for him in parliamentary by-elections because his was a name that I knew. I also thought that the genes were probably more in favour of change and reform than conservation.
I have to disillusion the noble Lord but I am very grateful for his support. I must disabuse him of that—I have no genetic link to others of that famous name. My family is older but my instinct to chop off the heads of the overmighty may have been inherited by mistake.
I do not take away from my comments because that is exactly how I was behaving in those elections.
The amendment cannot be supported as it stands, although it has good liberal tendencies. It is a very difficult area, as the noble Baroness, Lady Hayter, said. It is difficult to get a balance here between defining by restriction what we can do and opening it up; the general tenor of the Bill is to try to open up the issue to encourage home businesses. The one thing that this amendment does not make absolutely clear is that the tenant or owner must occupy this property, so any tenant or somebody who owns it would have that overriding right, and the planning law does not accept that. Therefore in that sense the amendment cannot be accepted. This is the issue—whether we define the planning restrictions on home businesses in the legislation; the Minister has already told us about the danger.
With great respect to the noble Baroness, Lady Hayter, as regards some of the definitions she has used, she accused the definition of “home business” of being vague, but the fact that you have to take account of the location of a property does not tell you whether you can allow a home business. That will be a matter of judgment, therefore quite vague, whereas the intention of the legislation is to open this up and to encourage home businesses, obviously within the planning restraints that are currently there: you have to occupy the property, you cannot fundamentally change the home for the business, you cannot have people coming to buy from the premises, and you cannot employ people. We know that there is already great flexibility in where we are and that people do those things, but obviously, if they overstep the mark, there is the danger that if their neighbours think that their community life in their residential area is disturbed, they will object and have the grounds for doing so. Therefore this is an area of great interest. I would be in favour of where we are in the Bill, where we do not define it in the legislation, although we may come back to it through regulations. Clearly we cannot accept the amendment because it does not make it absolutely clear, which it has to, that the premises have to be occupied by the owner or the tenant.
My Lords, the noble Lord, Lord Cromwell, raises an interesting point. Before I go any further, I declare an interest as a practising chartered surveyor. Rating is one of the things I get involved with; I am a landlord of holiday and private rented accommodation as well as business accommodation, so I get a bit of everything here.
The chief difficulty is one of fact and degree about when things move from being “residential property” as a term of art to something quantifiably different. The problem is that they are different tests for different purposes. For instance, there may be a test under regulations that come out as a result of the Bill. A different test may be applied by the Valuation Office Agency to determine what is and what is not a business. When I think in terms of holiday lettings, for instance, I am aware that if a residential property is available to let as a holiday unit for more than 120 days in the year, I think, it is deemed to be a business use. I am not suggesting that there is an issue between holiday letting and home businesses in this instance, but that exemplifies the point about the fact and degree transition.
The empty rates issue would be a live one were it to kick in, because the amount levied under empty rates is typically considerably more than the amount that would be levied under a council tax assessment. I have raised this matter before in the House, and used as an example a property of my own, a 1,000 square foot property let as offices to a business tenant under a conventional contracted-out commercial lease. The rating assessment, off the top of my head, was £12,000 rateable value, and something over £5,500 was payable annually by that small business in business rates.
Fifty yards up the road I occupy a large residential property in band H, but I pay nowhere near £5,500 or so in council tax. My bins are emptied for me within that charge, which, of course, is not the case for the business rate payer. The issue comes about because of the way in which business rates are levied. As I have said before, business rates are disproportionate when compared with residential rates given the services provided and the nature of the accommodation in question. Assessments made on property value, services or any other measure you might choose do not support that differential. There is potential to change this situation through a change of definition and results from a non-domestic assessment, bearing in mind the tests that may be used by the Valuation Office Agency, which is charged with optimising the revenue obtained from those rates. This issue needs to be clarified.
I do not for one moment ask the Minister to answer all those points but this issue needs to be clarified because all these various organs, whether they be concerned with planning or valuing non-domestic properties for rating purposes, need to be streamlined and they all need to sing from the same hymn sheet. This simply will not happen if people have doubts about this issue and are fearful about what is happening elsewhere in unstated regulatory practice.
My Lords, we should be very grateful to the noble Lord, Lord Cromwell, for raising this question. It is only part of the question, if I may put it that way, because there is a real issue which the previous speaker was absolutely right to raise. We have to think this through and I am not sure that it has been thought through. What is the nature of a property which was rented originally, or, indeed, owned originally, as a house, and then a business is started within it under the terms of the Bill? I put it like that because it was pretty clear in the past what you had to do: you were running a business, so you had to report it to somebody and somebody told you whether you could or could not run a business in those circumstances. That is, bluntly, more or less what happened.
We also know that a very large number of people run businesses, do not report them to anybody and nobody cares too much. As long as they do not make too much noise or other nuisance, everybody is perfectly happy. However, that is an unacceptable position because some people manage to run a business in those circumstances but others do not and that is not right. We want to encourage people to start a business in these circumstances because it is the natural way to do so. We do not want interfering local authority personnel to arrive and say, “You can’t do that in your garage. You have got to move to our extremely nice and very expensive industrial estate”.
Two tax elements are involved here. I do not think that the noble Lord, Lord Cromwell, mentioned the other one. I am very interested to know what happens about VAT. If a house is said to be a business premises as a result of this measure, there is also the question of whether, if you sell it on, you retain your right to sell on your principal residence, because it could be your principal residence as well as your business. How would that interact with selling a business premises where you have received rent? Then there is another question about how you have structured the business and which part of it is used as a business. The Committee can see immediately that there is a series of complications here. I dare to say to my noble friend that I am not quite sure that people have actually thought this through.
I want to do precisely what the Bill is intended to do, which is to say that you cannot prevent people running a business from their own homes. That is not an acceptable way for either a landlord or local authorities to operate. I know some areas where local authorities have operated absolutely appallingly in what they insisted on. They made it very difficult for people. This is not just in small circumstances. There was a really bad example in my constituency when I was a Member of Parliament in which a local authority said that it was unacceptable for a marquee to be put up in a very large house with a very large amount of ground around it because it was being used as an exemplar of marquees. They could have a marquee if they wanted one for a party—as long as they did not have too many parties—but to have a marquee as an exemplar of marquees, because the business was for marquee renting, was unacceptable without planning permission, which the local authority would not give.
People get themselves into terrible situations. We need to be quite sure where we are going with this particular change. However, I think that the amendment in the name of the noble Lord, Lord Cromwell, is not acceptable for all the reasons that have been given: it is not complete enough and it opens the gates to misuse of the Bill, which none of us wants. We have to ensure that the person lives in the house; that is obvious. This is one of those really difficult situations because it is like the question of the elephant: you can describe what you mean by this, but to write it down in a satisfactory way is quite difficult. Clearly, if a house is largely used for a business and a flat is effectively attached to it then that is different from the house being used as a house in which some of the rooms are used for the business. Some of the rooms may sometimes be used by the business. All those things make it extremely difficult.
I do not want my noble friend to think that the only answer to this is not to do it; that would be a great disappointment and I am sure that she will not think that. We want to do it, but I am not sure that this little bit has been as thought through as it will have to be. The noble Lord, Lord Cromwell, has rightly brought it to our attention and I hope that my noble friend will accept that we need to know more about this before we can be entirely happy with it.
My Lords, I welcome the noble Lord, Lord Cromwell, to the Committee and thank him for joining our discussion, and for putting us right on the history of the Cromwell family. More seriously, he has brought his practical experience of enterprise and of the subject. I thank him for his support for the Bill, and I think he supports Clause 35 as well. This has been a good debate. It is excellent when Back-Benchers raise these sorts of concerns with amendments of this kind.
For completeness, I should add the wider action that we have taken on business rates. In the 2014 Autumn Statement, the Chancellor announced further help for business rates, bringing the total support for 2015-16 to £1.4 billion. That included some very significant measures targeted specifically at smaller businesses, such as the doubling of small business rate relief for a further year and the £1,500 discount for smaller shops, pubs and restaurants. We have also, of course, given councils powers to grant discounts entirely as they see fit. When they do so, we automatically meet 50% of the costs. Those powers can be used to support small businesses to encourage growth.
It was also good to have the support of my noble friend Lord Stoneham. As usual, he made perceptive points about the drafting and rightly drew attention to the requirement for owner-occupation.
It is always good to have the noble Earl, Lord Lytton, joining the debate, in view of his knowledge of the subject. I note what he says about empty property rates and the services provided to business rate payers. Of course, the current system on empty property rates was introduced by the last Labour Government. We recognise that the empty property rate can be burdensome, especially at times of economic difficulty, but the need to balance changes to the system owing to fiscal consolidation has meant that we have left things as they are.
I turn to the amendment and the issue at hand. The purpose of the proposal is to exclude home-based businesses from paying business rates altogether. I agree that this is an important issue, and we have to provide sensible and clear rules on home working so that they support growth and businesses know where they stand. However, we believe that the amendment is unnecessary, as we hope that we have indeed already achieved the desired outcome through some sensible and clear rules. We have ensured that, in the majority of circumstances, home-based businesses will not attract business rates—the noble Baroness will be glad to hear that. We provided that clarity through guidance published by the Valuation Office Agency last summer. The guidance clearly sets out the circumstances in which the Government do not expect businesses to pay business rates. That guidance is available on the GOV.UK website.
As a result, in the majority of circumstances home-based businesses will not attract business rates, but there are some exceptions in the interests of fairness. For example, a dentist’s surgery on the ground floor of a domestic house continues to attract business rates. Indeed, that example serves to illustrate why we favoured guidance over legislating on this matter in this Bill. Guidance allows sensible decisions to be made reflecting the circumstances on the ground in each case. Attempting to legislate to cover all situations could, I fear, increase uncertainty over home working and allow some substantial businesses to avoid business rates. I hope that noble Lords agree that is not what we wish to achieve, and that clear guidance is the best approach in this situation.
My noble friend Lord Deben raised questions about tax, so I shall comment on VAT in particular. A home-based business, as I am sure he will know, should remain liable for VAT in the same way as other businesses, subject to the same thresholds.
I was referring not to that issue, but to the issue of clearing up the connection between business rates and home businesses. Unless we do that, there could be circumstances in which the home became liable to business rates and then it could be seen as a business property. I want to make sure that, if such a business was sold, the owner could maintain the right to sell his own property without VAT—
Yes, the capital gains tax element becomes very serious in that regard. I know that my noble friend will tell me that, happily, it is all here, but I am just not sure that everybody will understand that. I want to make sure that the guidance makes it clear that people are protected.
I understand what my noble friend says. He is talking about untoward effects, which we are not in the business of creating if we can possibly avoid it. The sensible thing would be for me to take away that point on VAT and capital gains tax. I am always rather careful about saying things about capital gains tax, as it is a complex subject. So we will write on that issue and copy the letter to anyone else who is interested in that point.
I finish on another positive point by reminding noble Lords that, in his Autumn Statement, the Chancellor announced that the Government would conduct a review of the future structure of business rates. The review will report before the Budget in 2016, and the Government will publish its terms of reference. I would encourage interested parties, including noble Lords with expertise in this area, to engage with this review, because it is an important opportunity.
I hope that the noble Lord has found my explanation somewhat reassuring and, on this basis, will withdraw his amendment.
I am very grateful to the noble Baroness for her comments and to the range of speakers for the breadth of topics that we appear to have covered somewhat inadvertently this evening.
On occupancy, changing one word in the amendment, from “used” to “occupied”, would deal with that, but I think that the issue runs wider than that. Equally, if the property became classified as business premises, as the noble Lord, Lord Deben, is concerned, if it were excluded from rates, that would merely strengthen the case for it not to be so classified. However, I do not dismiss the suggestion that this is a complex area. Opening up any new area of opportunity will always keep tax lawyers busy trying to find ways to work that to their clients’ advantage.
On the question of perception, I am grateful for the reference to the government website. I have a couple of extracts here, and I notice the language:
“You don’t usually have to pay business rates for home-based businesses … You may need to pay business rates as well as Council Tax”.
One category is entitled, “You’re a small business but don’t qualify for relief”. Flippancy aside, I register that it is a question of perception. For landlords trying to work through that, it is much easier just to say no.
In the hope that that will get further consideration, I am happy to withdraw my amendment.
Amendment 35A withdrawn.
Clause 36: CMA to publish recommendations on proposals for Westminster legislation
35B: Clause 36, page 33, line 31, leave out “in particular” and insert “in consultation with consumer advocacy groups”
My Lords, the amendment is in my name and that of my noble friend Lord Stevenson. I shall speak also to Amendment 35C in this group. Clause 36 empowers the Competition and Markets Authority to make and publish recommendations about the impact of any proposed legislation on competition. That is clearly to be welcomed. The CMA, after all, exists to promote competition in the interests of consumers and therefore, should laws be proposed that could be detrimental to consumers, we should know about it in advance.
Indeed, the Government recognise that regulation, procurement and other activities can affect markets and therefore envisage the CMA playing a key role in challenging the Government where they are creating barriers to competition. However, there is one problem with the clause. That arises from our failure, when the CMA was created, to persuade the Government to establish a CMA consumer panel analogous to those for the Legal Services Board, Ofcom and the Financial Conduct Authority, or some such similar mechanism, to ensure that real insight from consumer advocates and from the consumer perspective was built into the CMA’s judgment on such matters.
It is a matter of regret that we failed in that, given that the CMA’s primary duty under Section 25(3) of the Enterprise and Regulatory Reform Act 2013, which set it up, is to,
“seek to promote competition … for the benefit of consumers”.
It therefore seems essential that the voice of consumers be embedded in the CMA’s view as to whether draft legislation will be to the benefit or detriment of consumers with regard to competition.
Hence, Amendment 35B requires the CMA to undertake its consideration of draft legislation in consultation with consumer advocacy groups. Amendment 35C takes the Government’s new clause one stage further by requiring the CMA to undertake a similar exercise not simply when legislation is proposed but to carry out an annual health check on the state of competition and consumer protection in key markets, including by listening to consumers, consumer advocates and small businesses.
Without consumers at the heart of the Government’s drive to increase competition and tackle the cost of living crisis, any plans or measures are likely to be ineffective. Big business and special interests can always get the ear of Ministers, civil servants and regulators, and big businesses can and do—as we heard earlier from the noble Lord, Lord Deben—take advantage of market weaknesses.
We see this in the failure to pass on reductions in fuel prices and in the banks’ failure to work in clients’ interests. We see it in the bus market, where bus fares have risen by 25%—five times faster than wages. Big bus companies have cut crucial routes that people rely on to maximise their own profits. Indeed, the failure in competition within the bus market costs the taxpayer £305 million a year. We see it in myriad other markets where the consumer is unable to shop around—the monopolies and oligopolies, referred to by the noble Lord, Lord Deben, in the earlier group. Indeed, if ever there was a failing market, it is where energy companies have not passed on reductions in wholesale costs to consumers. We have to have a mechanism for action to force such companies to cut their prices when wholesale costs fall, or where phone calls simply cannot get through to the right person, again as described earlier by the noble Lord, Lord Deben. We have to have a mechanism for an annual review of vital markets to identify those where consumers are being taken for a ride.
For years consumers and their representatives knew that energy price cuts were not being passed on to users, but there seemed to be no mechanism for making the Government take action. Labour wants consumer groups, such as Which? and Citizens Advice, to work with the CMA and sector regulators to draw up an annual competition audit or health check of Britain’s economy, which will lead to a programme of action for regulators and the Government. We need this analysis to identify broken markets, so that Ministers and departments can respond accordingly.
Amendment 35C would ensure that the consumers are at the table when priorities for action are decided. Consumers and their advocates should not have to shout from outside. They should be given a direct say in how to tackle abuses or concentrations of power which undermine competition. Without this amendment, decisions as to whether markets are working in the interests of the public will be taken solely by regulators. These sadly have failed to protect small businesses in the banking sector when the mis-selling of interest rate swaps undermined some 40,000 small businesses. They failed retail clients when banks were selling PPI and endowment mortgages. Regulators have failed to ensure that users got a fair deal from the big six energy firms.
In all of those cases, consumers and their representatives were well aware of the serious problems with markets not working competitively, but they were denied a proper hearing. So our approach is to embed the consumer interest into decision-making, so that decisions about priorities for improving competition are taken in the public interest, in the interest of consumers and in the interests of small businesses, and with policymakers having to confront problems rather than leaving them to drag on. The proposed annual competition health check, led jointly by consumers and the competition authorities, would ensure that regulators and politicians act where markets are not working in the public interest. Crucially, it will include consumer organisations and small business representatives, rather than just being done by the CMA. I beg to move.
I did not intend to speak on this but the noble Baroness has referred to me so often. I had better explain to her that I think that this is nonsense. It is nonsense from beginning to end because it misunderstands how business works and what the Government should do. The last thing we want is the establishment of a collection of people who professionalise the representation of consumers. Any of us who have ever had to deal with the double standards which some of them put forward about their own businesses and the way that they are never quite sure whether they are representing the consumer or some business operation which they have, which is part of the way in which they support themselves, recognise that this is not sensible. What is sensible is to have a proper organisation whose job is to ensure proper competition.
The Government ought to be concerned about having proper competition. I would be strongly opposed to the idea that the only people concerned with proper competition are the consumers. Government and the competition authorities should both be committed to ensuring competition. Decent companies, of course, can be very much in favour of competition until they see that there is an advantage if they are monopolistic. I do not blame them for that: it seems to me perfectly simple that everybody would like to have a nice, comfortable life in which they do not have to compete with anyone else. You therefore need a balance in society where you constantly refresh the market; you constantly make the market work. However, the idea that you do that by way of consumer representatives misses the point; we have to make government do it. That is what the Government are there for; it is not what Which? is there for. Which? is there precisely to be outside the system and to shout. Government is supposed to run the system so that there is proper competition. I do not want government to be excused from that.
Therefore, I do not agree with these amendments. I hope that the Minister will recommit the Government to ensuring proper competition. They should ensure, too, that the Competition Commission has the powers, the resources and the intent to achieve the best level of competition possible. We should also begin to have a bit more of the philosophical background to this, which is essential if we are to win the battle. If we cannot have competition as we ought to have it, frankly, the argument for the free society is difficult to maintain. If that is important, let us make it the purpose of government and the Competition Commission, and not say that it has to be run on a sort of old-fashioned, tripartite basis, which is to allow the Government to get off the hook. They should be on that hook firmly for promoting competition.
My Lords, I apologise to the Committee for having joined your Lordships so late that you seemed to have made good progress without my help and I shall try to focus on this amendment. I do so partly because I was going mildly to support my noble friend but also because the noble Lord, Lord Deben, has provoked me to say how much I disagree with what he has just said, including going into the wider philosophical and ideological areas right at the end, because a free society requires representation of people’s views as well as mechanisms, legislation and regulations and so on.
At various stages, the Government have recognised that consumer organisations of one sort or another are important in ensuring that competition is delivered. I am very happy to see that this clause gives the CMA the ability to comment on draft legislation, which is absolutely right, but, in doing so, it has to pay attention to its prime objective, which is not to create competition full stop but to create competition in the interests of consumers. Since in various contexts successive Governments have recognised that there needs to be some focus on that consumer input, it is important that we have some requirement on the CMA at least to consult such organisations when it is making an assessment of future legislation.
For example, many of us, including the noble Lord, Lord Deben, sat through lengthy proceedings on the previous Energy Bill, which sets up a whole new system of energy regulation and government interventions, with state and consumer subsidy of various bits of the energy system. It does not look entirely like a free market; I think that the noble Lord, Lord Lawson, at one point referred to it as Gosplan. It is not quite that, but it is a whole range of things to ensure delivery and availability of energy ultimately in the interests of the consumer, but it will change the nature of our whole energy system.
After that, the Government and Ofgem decided to refer the structure of the energy market to the CMA. Logically, it should be the other way around. Many years ago we should have had—of course the sector regulator rather resisted it—a CMA inquiry into the energy supply system, and we should have based the legislation on that. But we are where we are. However, it is very important that a big piece of legislation such as the Energy Bill is subject to the test of whether it will affect the way in which energy is supplied to consumers, including business consumers.
Looking to the future, we have a quasi-statutory requirement: Citizens Advice acts as the representative of energy consumers. The powers—I declare my past interest as the chair of Consumer Focus—have passed to it, specifically in relation to the energy sector, which is an oligopolistic sector where it is very difficult to ensure that competition operates.
That is not the only example. My noble friend has referred to the financial sector. Seven years after the financial collapse and the “too big to fail” discussions, one organisation still supplies virtually a third of the total mortgage market. We do not have effective competition within the retail financial services sector. In the transport sector, there is a franchising system for the railways which has been shown to be less than totally adequate in recent years. There is a statutory body, Passenger Focus. If there were legislation to change the way in which the franchising system operates, we would expect the Government to take into account the views of that organisation. If the CMA is, rightly, to be given a pole position in commenting on future legislation, and if there was railways legislation in that context, then we would expect it to consult Passenger Focus.
We have just passed a Water Act which has marginally extended competition in the business supply sector. In that area the Consumer Council for Water, another statutory body supported by the Government, had some doubts as to whether it would operate effectively. That would need to be reflected. The water industry is, par excellence, a so-called natural monopoly on which we are trying to impose some unnatural competition. I am in favour of that, but the way it operates and affects individual consumers and small businesses needs to be brought into the equation.
The CMA’s role is to look at new legislative proposals—sectoral or general—and ask whether they enhance competition for the benefit of consumers. These organisations, which in many ways the Government support and in other ways finance, or require industry to finance, are the repositories of a fair amount of wisdom—not total wisdom by any means—and expertise. It is important, therefore, that, if we, rightly, impose on the CMA a requirement to comment on proposed legislation, it does so after consulting and taking into account the views of such organisations.
With regard to my noble friend’s second amendment, it would be healthy to have from the CMA an overall assessment of the level of competition in our economy, taking into account in its report the views of consumer groups. It may be slightly too frequent to address the total economy once a year, nevertheless the CMA should be required to do that, and there is a role for the consumer organisations in that too. However, my noble friend’s first amendment is essential if we are to give the CMA this responsibility, which I believe we should.
There is a fundamental difference between saying that the CMA should consult with a range of bodies, which is what the noble Lord says, and the way in which the noble Baroness presented it, which suggested that it was a kind of duo or tripartite, or some sort of system where they do all this together as part of the same thing. There is a difference between saying that the CMA has a responsibility, which it carries out by, of course, taking into account the views of all these people, and saying, on the other hand, that it is a kind of function where they are part of the actual operation. Doing that second—and that is the point I was trying to make—removes the fundamental responsibility of both Government and the CMA to do this job properly.
My Lords, we have limited time as we are in Committee so I will only take a moment. It is certainly true that, at the end of the day, this report will be the CMA’s report and all it says is “in consultation” with these bodies. My noble friend and I both argued that the internal proceedings of the CMA should reflect a different structure of relationship with consumer bodies. That is now past. However, we are now saying—as I understand my noble friend’s amendment—that the CMA has a responsibility for producing this report, but it should do so clearly and explicitly and in the Bill, in consultation with the bodies that represent consumers and which the Government have recognised as so doing.
My Lords, I apologise for not being here at the beginning of proceedings, but I have to intervene on this. Consumer groups are extremely effective in making their views known. They lobby us very effectively and they certainly lobby the CMA. While it is right that the CMA should listen to them, I do not think that there needs to be any formalisation of that relationship when it is looking at legislation. On the second issue, the idea of an annual report on the state of competition in the economy, I agree with the noble Lord, Lord Whitty, that this would be a massive undertaking for the CMA to have to complete every year. In fact, it is very hard to see how it would be able to undertake its main role if it had to produce that report on an annual basis. It also seems to me that because consumer groups now have the right to bring a super-complaint, there is a degree of duplication anyhow in the amendment. If consumer groups feel very strongly, they can make their super-complaint. Therefore, I take issue with the amendment.
My Lords, Clause 36 is important and I thank the noble Baroness for providing us with an opportunity to debate it. In our various dealings on other legislation, we have agreed on the importance of competition to consumers and the role that consumers play in making competition a reality. The Government are very keen on competition and I am not going to try at this late hour to engage in the philosophical debate between my noble friend Lord Deben and the noble Lord, Lord Whitty, both of whom have great experience of regulation, regulators and competition. Indeed, I learned from the noble Lord, Lord Whitty, during the passage of the Water Bill, when I was on the Back Benches. I am clear, however, that the Government want to ensure that the powers are in place to effect proper competition. I hope this clause will be a significant contribution to that, empowering the CMA formally for the first time to make recommendations on legislation.
Amendment 35B relates to consulting consumer groups. The CMA is the independent, expert competition body. It is the body best placed to assess the likely impacts on competition of legislative proposals. In considering proposals from Government, it will take into account their impact on consumers. This is a key value and it is enshrined in the CMA’s primary duty as set out in the Enterprise and Regulatory Reform Act 2013. This states that,
“the CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Consumer advocacy groups have a valuable and vital role to play in scrutinising proposals brought to Parliament. That will continue and they can make their views on proposals known as and when they see fit. As the noble Baroness, Lady Wheatcroft, rightly said, they often do that in many different ways. The CMA works closely with consumer advocacy groups, including Which? and the Citizens Advice service. CAB is also an active member of the Consumer Protection Partnership, although, sadly, Which? chose not to join it. The CPP brings together publicly funded enforcement, advocacy and advice organisations to share, compare and interpret intelligence to identify trends in the causes of consumer detriment. Regular scheduled meetings of this group and its sub-group are held throughout the year, and it plays an important role.
The CMA’s main responsibility is to ensure that competition and markets work well for consumers. That is one of the main reasons we value competition: it leads to better deals for consumers by encouraging innovation, new products, new ways of doing things and more competitive prices. In its annual plan for 2014 the CMA made a commitment to put consumers at the heart of everything it does. It is embedding this approach in its thinking and processes across the organisation, as well as establishing a programme to reach out to consumers and to a wide range of consumer organisations. An example of the success of that approach is the low income consumers project, where the CMA engaged actively with the CPP and other organisations that have a role in protecting consumers to review how problem debt affects consumers’ decisions and choices regarding the goods and services they purchase. There is also a practical timing point in response to this amendment. Requiring the CMA to consult others before making use of its new power would inevitably delay the timeliness of its recommendations, which might in turn diminish its influence and impact on new legislation.
Amendment 35C relates to an annual competition health check in collaboration with consumer advocacy groups and representatives of small business. Well functioning markets work for consumers, business and the economy, and for small business. The aim of the CMA is to make markets function in that way and to promote competition. In understanding markets and establishing priorities, it is of course important that the CMA takes into account the views of interested parties, including consumer advocacy groups and small business. However, effective mechanisms are already in place to achieve that. The intelligence gathered by the CMA through its engagement helps to inform its annual business plan. On 26 November it published its draft annual plan for consultation, and its strategic assessment was published the following day. The draft version of that plan sets out plans and priorities for the coming year. The consultation gave interested parties, including small business, the opportunity to provide views and comments on the proposed priorities. The consultation period closes on 23 January and a final version of the plan will be published in March.
The CMA has limited resources, and it is important that it is focused in the most effective way. New and effective mechanisms are already in place to enable it to gather intelligence, including vital consumer intelligence. The introduction of a new duty to produce an annual competition health check would divert resources away from tackling problems in markets that have already been identified, which at present, of course, include banking and energy. In view of the comments that the noble Baroness made, I am sure that she welcomes that. The CMA inquiry is a very important moment for the energy market. The independent and authoritative analysis that the CMA will bring will start rebuilding trust. The investigation is looking at many very important issues: barriers to entry, the impact of vertical integration, market power in generation, and weak incentives for companies to compete in retail markets, including of course any lack of consumer engagement.
To conclude, therefore, we are doing enough, and the provisions in the Bill should be welcome, although I suspect that we may not agree this evening. I am very grateful for the support of my noble friends Lord Deben and Lady Wheatcroft, and other noble Lords, on this important amendment. In the circumstances, I hope that the noble Baroness will agree to withdraw her amendment.
I thank the Minister but her suspicions, as ever, are completely accurate. We do not agree.
We are getting close to the time to finish, but I have two things to say. The problem with the CMA or for any of us who are legislators, in government, or whatever, is that the impact of malfunctioning markets falls most heavily on consumers. They are the ones who get ripped off when markets do not work. Not to have embedded in discussions in both identifying those problems and in looking at solutions the very people who feel the whack of it seems to be a mistake in legitimacy terms.
I agree that consumers are absolutely central to this. I have said it on many occasions, but I believe that we have a reinvigorated CMA. The processes for engagement with everybody, including small businesses and consumer groups, which are the subject of the second amendment, are very strong. It would be a mistake, as others have said, to put yet more requirements and red tape into this area because I fear that that would have an adverse effect on the ability of the CMA to tackle and use its competition powers to look at these very important markets in the way in which it is looking at energy.
The Minister might well say that. However, the Which? manifesto—I gather there is a general election in the offing—is that the CMA and all sector regulators should carry out routine, cross-examining analysis on the state of consumer competition. That may sound familiar to those who have been reading the amendment. The Minister may be very confident that consumer representatives feel that everything is tickety-boo—sorry, Hansard—but that is not how the consumer organisations themselves see it, and they have called for this. That is an important element. They still feel that they are shouting from the outside.
I take very much the comments made by the noble Baroness, Lady Wheatcroft, on what the problem is, as someone who has both run a lobbying organisation and an embedded consumer body within a regulator. The difference in the impact that one could make is enormous. Shouting from the outside one tends to do late. Indeed, I think the Minister gave it away when she said that consultation could delay something. The suggestion I hear from that is that we will have our report and then we will consult on it. That is not what we are trying to do.
There are systems within the CMA set-up, including the CPP, which allows it to consult on things. Who knows what the exact facts are, but that is how the system is designed. It is to try and give pre-eminence to competition which is done in a way that is envied by other member states I visit. They are very concerned both about competition and consumers.
The Minister thinks that we are not very far away. She is saying “Do it in consultation” and I am saying that, too. I tabled an amendment about consultation and the noble Baroness is saying that we are doing it in consultation but does not want this amendment because she does not want to do it in consultation. That is not quite an accurate portrayal of what we are saying but it sounds as if we are closer than maybe the Minister wants to admit. Having a review of how something will affect the competition and asking the CMA that is meant to do this only for consumers and not do it in consultation would be strange. Therefore, adding the words,
“in consultation with consumer advocacy groups”,
seems easy. That was the first amendment.
On the second amendment, the idea is to make sure that all the time somebody is asking, “Are there failures in the market?”. The difference between us is that it sounds as if everything is going well, yet our experience is that consumers are not always getting a good deal from parts of the market. The system that is set up is not good enough. We have been in government. My noble friend was actually in No. 10 but he obviously was not doing enough at the time. My other noble friend was a Minister, so it clearly goes back a long way. The idea is that we should have a driving mechanism, which is what the second amendment is about. The first amendment is important and one to which we should return. The idea of excluding those who are most affected by the lack of competition cannot be right, but for the moment I beg leave to withdraw the amendment.
Amendment 35B withdrawn.
Amendment 35C not moved.
Clause 36 agreed.
Clause 37 agreed.
Committee adjourned at 7.35 pm.