Second Reading (Continued)
My Lords, I warmly welcome the Bill, and believe that it has the potential to create an even more favourable climate within which businesses can become established and grow. First, let me be clear about my own interests: not only am I in involved in small businesses, but I also declare an interest as the independent chair of the Better Regulation Executive. In the interests of transparency, let me state that the BRE has played a significant role in the formation of Part 2, Clauses 13 to 15, of the Bill. The Better Regulation Delivery Office, with which I also work closely, has been involved in Part 3.
This country has a long tradition of being an epicentre of business, but this Bill will ensure that there is an even more favourable climate in Britain for business to thrive. I hope that this Bill will help to position the UK as the lead country in Europe in which to do business, and build on progress to date. The Enterprise Bill will go further in helping to change the culture, in which small businesses will be able to start, uninhibited by mountains of red tape, and be given the help, support and encouragement that they need at every stage of their development to be able to grow, create employment and generate wealth.
The aim of Part 2, as the Minister said, is to extend the scope of the business impact target to include the regulatory activity of statutory regulators and to report publicly on the actions that they are taking in the fulfilment of their duties under the Regulators’ Code and the growth duty, and contribute towards the £10 billion target over the life of the Parliament. The result of the regulatory provisions will be to make regulators more transparent and accountable when performing their regulatory functions and, in particular, how they affect the activities of businesses. The transparency and accountability afforded by these provisions will ensure visibility of the impact of regulators’ activities on businesses, which will give further confidence to businesses that regulators are actively considering such impacts when making decisions.
The noble Lord, Lord Mendelsohn, has referred to the data published on regulatory savings during the previous Parliament. The RPC has been responsible for publishing those data, as he said, but he questioned their accuracy. The RPC is an independent body—I need to stress that—which jealously guards its independence. However, I have always had a concern that hard data alone are not a great indicator of success. The indicator of crucial importance is the attitude of business and business perceptions, and the most recent business perceptions survey shows that there has been a 10-point fall within the last five years in the number of businesses thinking that regulation is a barrier to progress. That for me is a much more important indicator than the hard data. However, the overall number of businesses that still consider regulation to be a problem means that the figure is still too high—so we still have more to do. I hope that we continue to drive this down further if we are to succeed in driving the change in culture that I mentioned earlier. That is why this Bill is important. Regulators need to appreciate the impacts of their actions on the bodies that they regulate. That is part of good policy-making, so I welcome its wider application to regulators now.
A key concern that has been expressed to me about these measures is the effect that they might have on the independence of regulators. I want to make it clear that this Bill does not constrain their independence and does not prevent them taking action in fulfilling their statutory duties. Regulators will be able to contribute to the Government’s overall business impact target, but they will not be required to meet any individual deregulation targets themselves. The responsibility for meeting the business impact target lies with the Government and government departments, not with specific regulators. Instead, it is all about transparency. The proposal will require regulators to report on any additional cost burdens or savings that their actions might impose on business, which they should be aware of in many cases.
I take this opportunity to welcome the regulators’ reporting requirements set out in Clauses 14 and 15. The Regulators’ Code and the growth duty are both positive measures designed to ensure that regulators consider the needs of business when exercising their functions. It is important that government and business are able effectively to appraise these important measures so that the impact they are having and the benefit they bring to business can be properly measured. To enable this to happen, regulators must be transparent about the action they have taken in respect of both measures.
I support Part 3 on the extension of the primary authority scheme. I hope this will not be a contentious part of the Bill. The primary authority scheme has been a huge success. It is highly valued by the business community. It has reduced bureaucracy and significant costs and improved efficiency, so this extension to the scheme is an important step forward in its evolution.
I shall now change course and comment on another key element of the Bill. A number of comments have already been made about the apprenticeship proposals in the Bill. I endorse the comments of the noble Lord, Lord Stoneham, on the disappointing figure for uptake in the north-east of England. The enrolment of apprentices is crucial to the establishment of a skilled workforce and the improvement of our productivity. I and others have a keen interest in the economy of the north-east of England. We need to focus on making sure that uptake increases and that we achieve the current targets within the scheme.
The Minister is aware that I have a serious interest in the agriculture, food and rural sectors. Apprenticeship figures in those sectors are also disappointing. They are crucial to improving our productivity within the agri-food industry. We need a concentrated effort to improve performance and uptake. I work very closely with the land-based colleges and their sector body, Landex. They are concerned about this and are keen to play a key role. I would be interested in briefing the Minister on this issue, if she would find that helpful.
I thank noble Lords for listening. I shall return to the subject of regulation and hope that noble Lords agree that these measures will be better for business and for Britain if we are able to introduce the more transparent, accountable and effective regulatory system which is proposed in the Bill.
I dislike crumby, financially repressive and socially uncaring capitalism very much indeed—by which I mean the misuse of market mechanisms to meet malign and mindless corporate ends. I much admire the market when it is free and socially responsible, when it becomes a great force for human advance and happiness. Good capitalism is very good indeed, with competitive markets and innovations piled on innovations for the common good.
Crumby capitalism is not the fault of market mechanisms but of the corporations that misuse their power to repress suppliers, work in covert monopolies and delay payments to smaller companies, sometimes bringing them to their knees. I therefore applaud the last coalition Government for making a start on some of the worst excesses of the big supermarkets and others by introducing the Groceries Code Adjudicator Act, which came into force in June 2013 and has powers to ensure that big corporates treat their suppliers lawfully and fairly. I think that the adjudicator has made a good start, but Christine Tacon has a task on her hands even to persuade suppliers to come forward for fears of reprisals by the supermarkets into which they seek to sell. There will be a long march to bring about the vital corporate cultural change which, in the end, is needed so much more than even the best of codes. I entirely applaud what the noble Lord, Lord Curry of Kirkharle, has just said about cultural changes being as important as legislative changes.
The Bill, which I strongly support even though it looks a bit like a big legal pudding made up of all sorts of ingredients hauled off the shelf, contains two themes that I judge seek to carry on the good work in the Groceries Code Adjudicator Act 2013 that I referred to: the measures to introduce a Small Business Commissioner and powers to deal with the late payment of insurance claims. In the case of the first of those two themes, the Small Business Commissioner, with a role in assisting small businesses in disputes with bigger, bad businesses, will be in a position to guide and help those who feel repressed. These practices, as the Minister pointed out in her introductory speech, currently have an annual impact on small businesses of more than £25 billion. However, the commissioner is empowered only to advise and assist, not to become some kind of tsar to go out there with powers to direct and resolve disputes, thus empowering small businesses to resolve their issues.
Promoting fair treatment for all is the theory of the Bill, as politely put, but in coarse reality that is also a matter of the big behaving better to the small. We must not expect too much too soon from this body, which has the power not to provide legal advice but just to exhort. Although exhortation and the use of the bully pulpit can be very important, the body does not have the power to arbitrate; it can only signpost the options for business conflict resolution. It will be a slow process; I come back to that groceries adjudicator, slogging on after two years of existence but still having to hold her latest big seminar for suppliers, better to understand the workings of the code, as she did most recently on 29 September—only last month. Many did not come forward for fear of those reprisals.
To make both the groceries adjudicator and the new Small Business Commissioner redundant will be a matter not of a few months or a few years but probably of decades. It will also depend on major cultural changes by malign big corporates. That is my observation based on years of big corporate experience and involvement in the financial world and as a shareholder, all three of which are declared properly in my entry in the register of interests. There are well-documented cases of corporate malfeasance back in the 1970s that took the companies involved 20 or 30 years to lay totally to rest through the introduction of vigorous codes of practice, ethics checking, internal corporate housekeeping and the vital task of never-ending staff education, for just as one lot of staff go through a period of cultural training, another lot are recruited.
Sometimes it takes big-stick legislation to deal with the handful of big corporate repeat offenders. Perhaps the best example of this, and I pay tribute to both sides of the House, is the introduction of our excellent Bribery Act 2010, which has induced enormous corporate change, albeit at the threat of the use of a big stick. I well remember the noble and learned Lord, Lord Woolf, who is not in his place today, saying during the proceedings on the Bill, I think at Second Reading, that he felt that while there was an urgent need for legislative provision, there was an urgent need for corporate cultural change as well to parallel what was being brought forward. I can only say a respectful “Hear, hear” to him.
Secondly, there are the provisions, which I also applaud, to deal with the financially repressive late payment of insurance claims. I think that these will have a much more instantaneous effect through the proposed introduction of a new Section 13A in the Insurance Act 2015 with an obligation to big business, in particular, in the insurance world to pay within a reasonable time all contracts of insurance. The insurance industry does not have to wait for the introduction of the provisions of this Bill; it should start doing it today. It has it in its power to do it today and it knows that these measures are coming. It is bad business for the industry not to start straight away.
It is wrong for some companies in the insurance industry, most of which I greatly admire, to delay payments quite deliberately as a matter of policy, massaging their figures, particularly in the run-up to interim or final results, to make the reported figures look that tiny bit better because they have paid out that tiny bit less—delays that have ruined some tiny businesses. Any such activity can hinder, or at worst torpedo, the efforts of small businesses to get back on their feet after, for example, the catastrophic floods, which the Minister referred to recently, down on the Somerset levels near where we live and have our webbed feet, and in other areas on the River Thames that were hit. However, nothing will work as well as it should do until all big corporates recognise that looking after their suppliers or those that they insure is simply good for enterprise, good for business and therefore good business.
So there are three separate hares running: the groceries adjudicator, the Small Business Commissioner and the impact of trying to persuade corporates in the insurance world to pay their claims within a reasonable time. I think that these three are interlinked. We should see how they proceed but I would certainly say to my noble friend the Minister that by 2018—three years hence—we will have a very clear view of whether they are working. We will need a review in 2018 and I look to her to perhaps give a pledge to at least look at the possibility of bringing forward a debate in that year about how these three separate themes are working and, if they are found not to be working, to bring on a latter-day equivalent of the Bribery Act to deal with the continuing problem in these three areas.
My Lords, in recognising the intention of the Bill to promote economic growth, I want to focus on just one part: Clause 18 and apprenticeships. I declare an interest as chair of the National Housing Federation, the body that represents housing associations.
There is a huge need to increase the number of apprenticeships and to ensure that they are of high quality. Looking in particular at the number of young people who are not in education, training or employment, I believe that there is an urgent need to focus on creating opportunities that will get them into employment. Work placements, traineeships and work experience opportunities can help some of the most disadvantaged in our society into a position where they can move into work and, for some, into apprenticeships. That is one of the key reasons why housing associations have become committed to building and developing both employment and skills support and apprenticeship programmes for their tenants and residents.
Many of those who are eligible for social or affordable housing are out of work or in low-skilled, low-paid jobs. The unique and regular contacts that housing associations have with their clients, together with their networks of local connections, provide an opportunity to offer innovative, tailored programmes to help those people into work and so provide the basis for stable tenancies. Both sides benefit, and the country benefits as well, as tenants become productive members of the labour force and no longer need to depend on welfare benefits.
I welcome the Government’s commitment to create 3 million apprenticeships by 2020, although I, too, acknowledge that that is a very challenging target. Housing associations want to play their part in creating those apprenticeships, but I am anxious that the Enterprise Bill will create obstacles and not opportunities for them to do that. Why do I say that? Clause 18 includes measures that would provide a power for the Secretary of State to set targets for public sector bodies in England in relation to the number of apprentices who work for them. They apply to most public sector organisations and require these bodies to have regard to any targets set on them and to report annually on progress against meeting those targets. The public bodies within the scope of the Bill will be set out in regulations, and a consultation is planned on exactly which bodies will be required to meet a target.
The Bill’s definition of a public body is:
“(a) a public authority, or
(b) a body or other person that is not a public authority but has functions of a public nature and is funded wholly or partly from public funds”.
It is paragraph (b) that concerns me. It would potentially apply a target to any body in receipt of public funds, which would certainly include housing associations, as well as many charitable bodies and many other recipients of public funding. I am anxious that the implications of this have not been carefully thought through. The consultation will, of course, allow concerns to be raised, but I want to flag this up now with the Minister in the hope of receiving reassurance on the issue.
I am concerned about two things. First, this is a broadly drawn definition of “public body” and could mean that larger housing associations, as well as many third sector and private sector bodies, will be brought into the scope of this legislation. Secondly, there is a risk that innovative approaches to apprenticeships, skills development and wider employment support may be stifled by the need to meet formal targets on apprenticeship numbers.
It is important to stress that housing associations are not public bodies. Housing associations are not-for-profit organisations, generating the majority of their funding from private sources. The ONS currently classifies them as private bodies. The independent status of housing associations underpins their ability to borrow billions on the private market to invest in housebuilding and to support programmes for the communities in which they work. To date, they have raised £76 billion. The ONS is currently conducting a review of the classification of housing associations and considering whether they should be reclassified as public bodies, as we heard only in the last debate. The federation that I chair is keen to avoid the reclassification of associations as public bodies. The accounting rule changes that would flow from a reclassification could carry harmful implications for associations’ ability to borrow and their use of cash flow and surpluses—all of which are important for funding the new supply of houses. There is growing concern in the sector about cumulative legislation and policy interventions that attempt to direct the corporate strategy of associations, because this is the central tenet of the test that the ONS will consider in its classification review. Any proposals that position housing associations as public sector bodies are likely to add to this cumulative risk to the sector’s independence.
My second concern is the stifling of innovation. Social housing tenants experience considerable disadvantages in the labour market and many require additional support to enable them to fulfil their potential. Around one-third of housing associations see supporting their residents into employment, education and training as a key priority. They provide employment support and training and skills development. Alongside all that, they provide many work placements, traineeships and work experience opportunities. In doing this, they are helping to support some of the most disadvantaged people in our society so that they are able to move into work and, for some, to undertake an apprenticeship. I would be very concerned if these innovative approaches were stifled because of a focus on in-house apprenticeship numbers. For example, many housing associations use their supply chains to deliver additional apprenticeship opportunities. I would be concerned if targets for in-house apprenticeships reduced capacity to support these externally provided apprenticeships. Many of these are in small and medium-sized enterprises in the construction and maintenance sectors. Increasing the number of skilled operatives in these sectors will be vital if the Government’s housebuilding and wider infrastructure ambitions are to be met.
Housing associations are committed to developing and supporting apprenticeship schemes. Over the last three years, they have directly employed around 12,000 apprenticeship starters. Annually, their contribution accounts for just under 1% of all apprenticeships across England. They are ambitious about helping even more people into work and they are good at doing it. I hope that the Minister can reassure me that the Enterprise Bill will not include housing associations in the definition of “public body” and that it will not jeopardise housing associations’ aim of increasing the number of apprenticeship schemes they can support.
My Lords, any Bill called the Enterprise Bill starts with me prejudiced in its favour. I think that everyone who has spoken is in favour of enterprise in principle, but experience also makes one look at the detail. After all, many enterprising business men and women, when asked what the best thing the Government can do for them, say, “Keep out of our way”, and start from that point of view. Every change in legislation or regulations, even if it is in favour of the particular businesses concerned, needs to be looked at by them to see what it says and does.
As many have pointed out, this Bill is full of variety. It has eight quite different parts, not counting the general provisions at the end. I am not sure what dictated the logic of their order, but I notice that, broadly speaking, the odd-numbered parts help SMEs directly while the even-numbered parts are directed primarily at the public sector.
Part 1 sets up the Small Business Commissioner, charged with changing the culture of late payment of debts by large companies. This is a hoary problem, but it is still very much with us despite successive Governments’ efforts over many decades. The noble Baroness, Lady Donaghy, referred in some detail to the problems of the construction industry. If anybody doubts that such problems are serious, they should look at the business section of the Times today, where there is a very long and interesting article explaining exactly what they are.
The title “Small Business Commissioner” sounds wide, but, as has been pointed out, the role is limited. The Bill’s provisions ensure that they concentrate on this one matter of late payment. It will require a very special individual—as has already come out in the debate—to change the culture through the voluntary means that are at the disposal of the commissioner. They need, after all, to overcome the forces generated by the relentless pressures of cash flow which lie behind the problem. I think that the concentration of the commissioner on this one issue is right at this time, because it is a very important issue which we have failed to solve, but perhaps in time, if the commissioner succeeds with late payment, the remit might be extended by statute to cover other sources of concern to SMEs—but that is for the future.
However, one limitation on the commissioner’s role concerns me now. Under the Bill, the commissioner cannot deal with problems or complaints against local authorities and other public bodies over late payment. This can be a problem also for SMEs—I had several cases mentioned to me not so long ago. My noble friend Lord Patten referred to the Groceries Code Adjudicator, but I see that that office itself is being criticised for late payment. Whether the criticism is valid I cannot tell, but it is an example of where there seem to be problems.
Clause 3(1), read with the definition in Clause 3(11), limits the commissioner’s advice specifically to problems with larger businesses and excludes problems with public authorities that pay late. This limitation applies also to the complaints procedure. Clause 3(10) includes public authorities in the definition of “supply relationship”, but rules it out again in the next subsection—but that is a matter for Committee. I understand that the reason for excluding public authorities is that it is regarded as creating double jeopardy because of other mediation mechanisms that are available. However, given the limitations on direct action by the commissioner, I would like to see him or her at least able to give general advice and information under Clause 3: for example, about the mediation available in the case of public authorities and its efficacy, just as the commissioner can do in respect of larger companies.
The other odd-numbered parts of the Bill are welcome: Part 3 on the extension of the primary authorities scheme; Part 5 on the new implied terms for insurance contracts; and Part 7 on the extension of industrial development grants to electronic matters—we all know about broadband speeds in rural areas, for example.
The even-numbered parts are also welcome. The extension to regulators of the impact targets from last year’s small business Act in Part 2 seems an entirely positive development. One learns something every day in your Lordships’ House. I did not appreciate until just now that there are 70 national regulators. It is an enormous number which had not been borne in on me before.
I welcome also the extension in Part 4 of apprenticeship targets. The protection of the definition of “apprenticeships” may sit a little oddly in the Bill, but it is done by an insertion into the apprenticeships Act 2009, which itself built on John Major’s Government’s Act of 1994. The noble Lord, Lord Mendelsohn, referred obliquely to a television programme, but the Bill protects the word “apprenticeship” but specifically avoids protecting the word “apprentice”, so I do not think that there will be any trouble with the popular television show of that name, started by Donald Trump in America but obviously taken up by our colleague, the noble Lord, Lord Sugar. I strongly support apprenticeships as a method of training for work and, indeed, for life. I became a chartered accountant through an apprenticeship scheme—in England, we were called articled clerks, but in Scotland they were called apprentices, rather more accurately.
Part 6 permits the disclosure of HMRC information to local government on non- domestic rating valuations. Many of us who have served in the Treasury know how very closely HMRC guards all the personal tax information that it collects, even from Ministers. It is deeply embedded in its culture. We understand its reasons and respect it greatly for doing it, and it is a principle that we should uphold. Yet there is duplication at present, with the same or similar information being given by businesses to the Valuation Office Agency and to local authorities. The Bill states that the VOA can share its information with a local authority. I am not sure exactly what the extra information might include. The valuations, agreed for every property, are already fully public knowledge—the size in square metres and that sort of thing—but no doubt we shall hear more about that in Committee.
This is a useful Bill. It is necessarily technical and acceptably miscellaneous. In short, it is a kind of legislative herbaceous border full of interesting flowers, but no doubt some will detect some thorns or maybe even some weeds as we progress in our discussions.
My Lords, I, too, feel that there is much to commend in the principles behind the Bill and the reasons for introducing it. I particularly welcome the intentions towards small business and the general move towards proportionate regulation, no more so than in the business of the insurance payment provisions. However, in the time available it is necessary for me to focus on just two areas. The first is in Part 2—the proposal to bring the Equality and Human Rights Commission within the scope of the business impact target. I support the views of the commission expressed in its excellent briefing paper when it questions the reasons for that. It is not, after all, a regulatory body, but sets the framework for those bodies that are. First, as the briefing says, the proposals here could fetter the commission’s work. Secondly, they could impair its international status. That requires some explaining from the Minister. I pay tribute to the noble Baroness, Lady O’Neill of Bengarve. Had she been here at the beginning of the debate, she would doubtless have given chapter and verse much more eloquently than I am able to, but I press on.
My second area of interest is in Part 6 of the Bill. I declare my professional and other interests, not least as a payer of non-domestic rates. Back in 1975, I was an employee of the Board of Inland Revenue Valuation Office, so I come to the situation of non-domestic rating with some background knowledge. However, since that time, a once cheap and effective property tax was subsequently deemed unfair by the Thatcher Government, the residential part then became the community charge—of which probably the less said the better—and was subsequently changed again to the council tax, about which we have heard a lot recently due to the outdated nature of valuation bands. I will return to the question of things being out of date presently.
Business rates remained pretty much as they were, but ever more was demanded in terms of the product from that source of taxation. The year-on-year inflation-proofed increase through the national non-domestic multiplier, which is the figure applied to the rateable value to give tax due, remains the only certainty—a little like death and taxes. I have mentioned to the House before that one of my own business tenants, occupying about a thousand square feet of converted offices, pays three or four times in business rates what a residential occupier pays in council tax for the equivalent space, and for that he does not even get his dustbin emptied.
We now have about the highest annual business space tax anywhere in Europe, charged at nearly 50% of an assessment of rental value last fixed by reference to the market peak of 2008. The revaluation that would have come into force this year, based on what would have been the antecedent year of 2013, might have evened things up a bit, but the last Government deferred it. Other safeguards have been eroded too, such as those reflecting an uneconomic state of repair, the empty rate concession, access to adjudication within a reasonable timeframe, anomalies such as the relatively low level of rateable value on some hugely accessible retail superstores and, conversely, the way in which expenditure on costly but unremunerative environmental upgrades to premises such as steel works—adding to the rateable value, if you please—persist. The increased procedural requirements of the valuation tribunal for England now inevitably mean getting expert advice, so the costs of access to justice have risen.
There has been an inexorable move to shift the onus for substantiating the case on to the appellant ratepayer when in fact the Valuation Office Agency is the prime mover in setting the assessment in the first place. Businesses conclude that they are being treated unfairly, which is not least reflected in some 300,000 outstanding rating appeals of which admittedly maybe only a quarter will be truly justifiable. That is still a large number. The Valuation Office Agency staff are devoted mainly to dealing with the 2017 revaluation—the one that would have happened this year that was deferred—and do not have the resources to deal with the backlog. Meanwhile, the appellant businesses continue to pay the full amount until the reduced assessment is determined. All this is a blot on the enterprise landscape.
There is growing evidence, also, that standards within the Valuation Office Agency have been slipping for some time. I refer specifically to its rating functions: I make no comment on its other activities. I have been told of numerous cases where information that it offered about comparable property transactions—even in cases before the valuation tribunal and the Lands Chamber—has been misleading or inaccurate, never mind the badly prepared cases leading to unnecessary costs. I have experience of the valuation office claiming that it had “robust rental evidence” that turned out to be based on financial deals between lenders and borrowers in which the rent was governed by the repayment terms and was nothing to do with an arm’s-length transaction at all.
In the UK, property professionals share a lot of information and there is huge transparency, which greatly assists market fluidity. We should never forget that. In the rating context, the Valuation Office Agency is entitled to demand information on rents and, following revaluation, it has for some years posted details of every rating valuation and its breakdown on its website. The noble Lord, Lord Cope, commented earlier on some of the things that I will touch on. However, the agency does not always know the precise circumstances of any particular rental deal and, due to variables, most valuations produce a range of values rather than a precise figure. Nevertheless, it is an enormously advantageous position and indeed one of great trust. The property market is, after all, based on trust.
The professional bodies, particularly the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation, both of which I am a member of, make mandatory practice statements incumbent on surveyors acting as expert witnesses or advocates. These mirror the requirements of Rule 35 of the Civil Procedure Rules, which is the Ministry of Justice instruction to experts giving evidence. But these need to be observed by all, not just by those who are outside. Given all this, one would suppose that in responding to a business that has started the appeal process ultimately leading to appeal, the valuation office would be happy to discuss the basis of the valuation underlying a property tax at an early stage. However, I am informed that there has been an increasing reluctance by the agency to divulge anything until the matter is literally listed before the valuation tribunal. That is merely adding to the problem and the likelihood of sustained appeals.
The agency has long cited the confidentiality of data under the Commissioners for Revenue and Customs Act 2005, which is what the noble Lord, Lord Cope, referred to. But here we are concerned with evidence that it is bound to produce in any event at some stage in the context of an appeal. By the time an appeal gets to be processed, the information is likely to be several years old so I question how valid this protection of sources really is. I am also told that every time the agency has advanced such a premise in the Lands Chamber, it has been overruled. A legal opinion has been sent to me by Mr Holgate—now the honourable Mr Justice Holgate—which I will forward to the Minister, which gives a very different perspective on this point of controlled confidentiality. Furthermore, the whole thing is an untested assertion that rental information actually falls within the 2005 Act.
Across the rating valuation industry and business ratepayers, there is consensus that things have to change. However, it does not appear that the Government have been listening. From what I have seen, the business and professional interests are no more in favour of the proposals before us than they were a year or two ago when the Government stepped back from implementing them. That pause for reflection gave people some hope, but unfortunately that has not been demonstrated within the terms of this Bill. To say that Clause 22 is unwelcome is an understatement. Admittedly, it facilitates the sharing of revenue information with certain other bodies, but it also makes clear what it does not permit—in this case the sharing of information with the ratepayer and his professional valuer. This is an impediment to progress. I also have to point to the somewhat disingenuous manner in which—it is thought by the private sector—a department of state has gone about this whole process. That is regrettable. I also understand that this failure to share information according to Clause 22 would adversely affect business in improvement district schemes.
My questions to the Minister are these: how will Clause 22 be used in practice? Secondly, will its use extend to denying access to the evidential basis of an assessment in the valuation tribunal proceedings or in the higher courts? I think we should know that.
I now turn to Clause 23. Here it is proposed to insert a new subsection (4A)(c) into Section 55 of the Local Government Act 1988. Provision is made to bring in a power for the valuation office to impose financial sanctions on those who in its opinion provide false information. However, as I have pointed out, the private sector is far from the only manipulator of facts or the sole source of misinformation that might be described as being provided “knowingly, recklessly or carelessly”, to use the wording from the Bill. So the idea that the valuation office in its present state should be judge and jury in its own cause does not come naturally. What defence is available to those who might be so accused, and to whom might they have an independent right of appeal?
Noting that this clause would also introduce the facility of making a charge for an appeal prompts me to point out that the root cause of all this is successive Governments underresourcing this overworked tax and its administration. That is the core of the matter. If the Government just made it easier for ratepayers to check the basis of assessments from day one, most of the appeals would evaporate and huge costs would be saved. Will the Minister, even now, reconsider this?
I appreciate that the Local Government Association—I am an LGA vice-president—is in favour of this part of the Bill. I would be too if the current standards within the valuation office or its agents were the same as those demanded from others. I acknowledge the severe problems for billing authorities, but short-changing businesses on matters of fair treatment is not the way forward. Is this fair and just governance for people and businesses or is it protectionism for state institutions that lack a decent property tax? It looks to me rather like the latter.
I ask the Minister to look again at this part of the Bill and to cross-examine her officials very closely as to the background to what is proposed. For my part, I will forward to her and place in the Library a copy of a very succinct background paper I received from Mr Jerry Schurder, head of rating at surveyors Gerald Eve, with his full permission. The wider reform of business rates clearly lies outside the Bill, but I finally say this: if a cost-effective commercial property taxation system is what the Government are looking for, there are many eminent persons and bodies who would be more than willing to help. For my part, I will be returning to this subject as the Bill progresses.
My Lords, it is with great pleasure that I speak on the Enterprise Bill, a subject close to my heart as well. Certainly, with the deficit down by half and projected to reach surplus by the end of the Parliament, the fastest-growing economy in western Europe and the best destination for foreign direct investment outside the US, we all have a lot to be proud of. The party opposite says, in effect, that that is enough now and that it is time to turn the page on boosting our competiveness, time to stop encouraging investment and time to put up taxes on families and businesses.
This Bill is to be welcomed since it does the opposite. It puts the pedal back to the metal and asks: what next to boost enterprise in the UK? No complacency, no sticking with what we have and definitely no reversal of what we have achieved. It contains many measures but I will focus on just a few of those that will help small businesses in particular. After all, there are some 5.2 million small businesses in the UK—more than in France, and more than in Germany.
The very welcome sight of the noble Duke, the Duke of Wellington, being introduced to the House today reminded me that someone once called us a nation of shopkeepers. Today, we are a nation of fast-growing businesses, businessmen and entrepreneurs. I accept, of course, that regulation is necessary to protect consumers, employees and the environment. As the Bill shows, it can be necessary to protect small businesses from large ones. However, we must make sure that it is proportionate and necessary. Specifically, we must make sure that it does not damage growth, employment and competitiveness—the engines of job creation.
In a recent survey, which pretty much every Peer seems to have quoted, 73% of scale-ups said that they would be able to grow faster if dealing with regulators was easier. It is amazing what Google can do. This means that regulators have to keep in mind the economic impact that they could be having on their stakeholders, especially small businesses. The Small Business, Enterprise and Employment Act, passed earlier this year, requires the publication of the business impact target, as we have heard. This sets out the economic impact of new legislation on business. However, it covers only regulation and legislation undertaken by Ministers. To increase transparency, the intention is to extend the scope of the target to include the regulatory activity of all statutory regulators—which, as my noble friend Lord Cope of Berkeley revealed to us, is some 70 organisations—not just in so far as they exercise powers on behalf of Ministers and departments, but in so far as they exercise their own statutory powers. The Minister will, when empowered in due course, specify the relevant statutory powers in secondary legislation.
It is to the last point that I will speak, focusing on the financial services in which, of course, I declare an interest as I earn a living from that industry. When drawing up this secondary legislation, it is essential that in respect of financial services, as well as regulatory organisations such as the FCA, the Financial Ombudsman Service—FOS—whose board is appointed by the FCA, is also included and made to report on business impact. There are, of course, seven other ombudsmen whose work I know less, although I have seen a little of the Pensions Ombudsman, and I think that my comments would apply to all the ombudsmen who operate under regulatory authorities, although, as I say, my focus has been interaction with FOS, the financial ombudsman.
Let me be clear that consumers, particularly in financial services, need proper protection. However, the situation we have now can be hugely damaging for firms being investigated by FOS or the FCA. FOS, which many people regard as a somewhat opaque organisation, can make rulings in an opaque manner itself, with no resource or recourse available to businesses so impacted. Extraordinarily, it seems that there is no right of appeal, even where decisions have a materially damaging effect on their own businesses. It must be the case then that FOS at least should be made to account for the impact of its decisions in the same way as other regulators.
I will cite just one recent example: that of retrospective regulation, which is, of course, hugely damaging for firms since it creates a climate of uncertainty where a firm never quite knows if it has fulfilled its compliance responsibilities. In a recent review, the FCA rejected all feedback it received, pointing to areas where regulation is being applied in this way. However, I looked at the example of SIPP operators, and there we have a case in point. The FCA has previously acknowledged, quite rightly, that SIPP operators are not responsible for the advice given to SIPP members by advisers. However, a recent decision by FOS has upheld a case suggesting that SIPP operators are responsible for investments that were made and have now gone bad. Clearly, this is palpable nonsense. It has highlighted how difficult it is for bona fide businesses to appeal against FOS’s decisions and threatens to cause huge disruption to an important sector of the financial services industry—the point being that FOS and similar organisations can make decisions that are very damaging to business without having any obligation to report on the growth and business impact.
As far as financial services are concerned, I therefore urge the Minister to ensure that the FCA is included within the regulators’ code so that when it holds its thematic reviews, as it calls them, it has regard to growth and economic impact, not just consumer protection, and has perhaps to consider which other organisations should be covered. Perhaps more importantly, I urge the Minister to consider including the ombudsmen services in the regulatory code. It seems strange, given their enormous powers, that they—and in particular FOS—are excluded from the list. Dare I say it, further steps need to be considered to ensure their transparency and accountability.
Next, I will mention the Bill’s approach to business rates. We have heard a lot about rates recently. The Bill contains important measures that mandate the sharing of business rates data across local governments and authorities, so that business does not have to share the same information twice. This is extremely helpful, but perhaps the most significant point is on appeals. A 2014 consultation identified that too many rating appeals are made without evidence, under a process that lacks transparency and takes too long. The very helpful Administration of Business Rates in England: Interim Findings makes the point that more than 70% of all challenges on the 2010 rating list resulted in no change.
How did we get here? I can do no more than share my experiences with noble Lords and declare an interest, in that I, too, sadly, pay business rates. When I started my business some 27 or 28 years ago, a man from the council came round to see me in the office and told me that he wanted to look around to determine the rateable value. I had no idea how the system worked and at the time had other worries on my mind, as most new entrepreneurs do. I asked him what would be the value and subsequent rate applied to me. “Well”, he replied, “I’ll give you a number, but it won’t really be relevant or matter as you will appeal against it and then we’ll find a number that works”. I was surprised to find that he was right. I had to take, and pay for, expensive professional advice. The thought occurred to me all those years ago that there must be a better way.
As luck would have it, this was in 1989. As my noble friend the Minister will recall, the previous Conservative Government had established a deregulation unit reporting to the DTI and the Cabinet Office, headed by an ambitious young adviser called Francis Maude—now my noble friend Lord Maude—with a keen and very bright civil servant advising him. I served on the tax division of the task force and seized my moment to look at business rates. I raised a number of issues at the time, not least that the Valuation Office required a business to resubmit the same information on every return, as opposed to keeping the information and simply asking whether it was still correct. Somewhat horrifyingly, I learned that the Valuation Office is still not digitised and still requires nearly all of its information to be submitted on paper. Sadly, in 1997 the Labour Party closed down the deregulation unit and my recommendations never progressed. That happened almost immediately, so once again it is up to the Conservatives to try to make life easier for businesses and entrepreneurs, as opposed to making life easier for civil servants.
The Bill provides for a revised system that is clear, sets out how long it should take and any and all action required. We should be clear that this process needs to be updated, because it is clearly not fit for purpose. However, I stop short of mandating annual reviews, which have been discussed. Yes, they would reduce the incentive to appeal, but they would cause annual chaos and be hugely expensive, costly and inconvenient for everyone—except, of course, chartered surveyors. Improving the current system to bring parties together earlier and with more transparency is a sensible step forward.
Other noble Lords have spoken about different but important measures in the Bill, such as apprentices, the Small Business Commissioner and public sector exit pay caps. All together, they add up to an attractive package of measures that would allow us to bolster our competitiveness further instead of standing still. Unsurprisingly, then, the Bill has been endorsed unanimously, as far as I can tell, by all the business groups.
The party opposite may say that we do too much for businesses and not enough for consumers and workers. That is because they may not have understood that to be on the side of business is to be on the side of workers. Entrepreneurs create jobs and businesses nurture employees. We do not set one against the other. This is one nation: we back investors, businesses and workers. The cause of all three is advanced by the Bill.
My Lords, I will avoid the temptation of going down the rates road any further. Equally, I will not try to get into any international comparisons. I am reminded of the story of President George W Bush, who, when discussing French business acumen, said, “The French, they don’t even have a word for entrepreneur”. Therefore, we have to look at what we have here today.
It has to be said at the outset that BIS is not a legislating department. Therefore, by and large, when it gets the chance, its first reaction is, “Oh yes, this is wonderful”. Then it starts saying, “What do we put into it?”. We have a Bill that the generous might call a curate’s egg; others might think of it as a bit of a dog’s breakfast. I suppose that our task will be to make it into a reasonably acceptable curate’s egg at some stage. That is not to say that the Bill is a total basket case and there is nothing we can do about it, but I believe that, when we look at the establishment of a Small Business Commissioner, that position should be more than a kind of citizens advice bureau for 500 businesses per annum.
As the noble Lord, Lord Patten, said, we need to have an element of the big stick in the hand of the commissioner. Advice on payment disputes, frankly, is not enough. We have had discussions on payments matters in this House—I have been a Member for only 10 years—on innumerable occasions. Before coming here, I was chairman of the Trade and Industry Select Committee, which predated BIS as a department, and we engaged in a study on retentions. We got such a feeble response from the Ministers that we called the authors of the response, the civil servants, back in to see us again. That kind of thing does not happen very often with Select Committees. To say that the civil servants were not happy about it is something of an understatement. They had no substantial case to answer. The impression that we had was that the Ministers had been got at by the big building firms and they had told the civil servants to palm something off to the committee.
The fact is that retentions, which are only one element in the payment problems of British small businesses and in particular in the construction sector—I speak as the president of the Specialist Engineering Contractors’ Group—take various forms. Normally, when a building is being constructed, the first element, apart from the foundations, is the steel construction. There are numerous stories of steel construction firms that are not paid until the grass is laid around the car park at the end of the whole job, which might be two and a half to three years later—they have just kept a little bit back. In the intervening period, the steel structure will have been covered by concrete and will have had various other things done to it. The point I am making is that that is a cynical attempt by the major contractors in a lot of construction projects to hold back money that they then use for other purposes. I am not saying that there is anything criminal about what they use the money for. In fact, it might be argued that they are supporting other bits of their business empires. However, it is very inconvenient for the usually rather small businesses that depend on prompt payment.
The issue of retentions has been covered today in the business section of the Times, as has been mentioned. We cannot have a commissioner for small businesses who does not have any teeth or powers relating to payments and the scandals that happen here. Ultimately, most of the small businesses that have grounds for complaint do not take their complaint the whole way because they are frightened that they will never get any repeat business from customers who are late payers. It is therefore a difficult area, but one in which government needs to give leadership. Regulation should not be a source of fear for the good companies. It is a force to make recalcitrant companies implement good practice. Sadly, there are still a number of them. I do not wish to blacken whole sections of British industry, but we know the sums involved and the amounts of money that are written off annually. That requires us to look afresh at the terms of the Bill to see what amendments could be entered into.
As I said earlier, I am not completely negative about the Bill. I happen to think that the apprenticeship provisions are a source of encouragement. We have already had a very interesting discussion about the whole question of training, as the noble Lord, Lord Baker, mentioned. We have examples of good practice in one area, but perhaps we could look at an area that is a bit deficient in Committee—namely, in encouraging public bodies in this regard. Should not the contracts awarded to private companies by public bodies contain encouragement and, indeed, a requirement for those private companies to take on a number of apprentices in the course of the relevant project? I know there were examples of this in the Olympics programme and, I think, at Heathrow Terminal 5. It would not be a bad thing to include a measure of that nature in the Bill to give it a broader base for apprenticeship expansion.
I know from my own personal experience in the east of Scotland where we used to have the Rosyth dockyard and Ferranti, the major defence contractor, as then was, that in the 1950s, 1960s and 1970s they trained about 1,000 people every year—usually boys in those days. When we had for a brief period in Scotland what we called Silicon Glen, a lot of the employees had come out of the dockyards and the high-tech defence industries. There was an assumption that these companies could train more people than they required because they could afford to do so as they were given a financial incentive. That has been lost and it is one of the prices that we paid for privatisation. I will not get into the old argument, but the former public utilities and similar types of companies were extremely good at training people. They often gold-plated the whole process, but that meant that the rest of the industry was able to take up the slack.
I realise that there will be a substantial division between the Government and ourselves on the whole question of exit payments. I do not understand what this has to do with entrepreneurialism. It seems to have more to do with post-election triumphalism and hubris and putting the boot into a certain part of the system. The number of people who will be affected by this measure, but who will not receive massive payments, is very large. We will find that it will prejudice voluntary staff reduction agreements, result in acrimonious litigation, prevent much needed departmental reforms in the immediate short term and could well be grossly unfair as regards the severance and pension arrangements of low-paid, long-term local government workers. Many of us on this side of the House will need great reassurance from the Minister that something can be done about this in a way that will not prejudice the agreements which have been entered into by successive Ministers on how problems of this nature should be dealt with. It seems that a whole raft of undertakings have been thrown out of the window in pursuit of a cheap headline-chasing ploy.
To promote business success and enterprise we need to realise a raft of achievements, many of which are akin to motherhood and apple pie but nevertheless have to be pursued. We could make something of the Bill. As I say, it is a bit of a dog’s breakfast at the moment, but there is within it the grains and elements which could provide a basis for an understanding across the Chamber. We could achieve something which would assist small businesses, promote skills and reassure those people who are pretty certain that their jobs may well be lost as a consequence of government cuts and local government reforms that they will not lose out on what they assumed would be their pensions and final rewards. We are not talking here about the hundreds of thousands of pounds being given to chief executives and the like but about ordinary people who have committed themselves for very long periods of their lives to rates of pay which were considerably less than what they would have got in the private sector, but who stayed because of their commitment to their jobs and because they thought they would get some form of index-linked slightly better pension in their retirement years. In the name of cheap hubris after the election, it would be wrong of us to prejudice these people’s retirement and termination of employment opportunities.
My Lords, it is an enormous privilege, as ever, to address your Lordships, particularly on a subject so dear to my heart—supporting great British enterprise. I must declare my interest as the chief executive of TalkTalk Telecom Group.
As a business person, I am proud to support a Bill that will strengthen the UK’s position as the best place in Europe—perhaps even the world—to start and grow a business. The measures in this Bill will undoubtedly benefit all businesses, but I particularly welcome their focus on Britain’s SMEs. As many of your Lordships have already said, SMEs are the lifeblood our economy, employing over half our workforce and accounting for 99% of all British businesses, but, of course, they are also the seed-corn that creates big businesses. We want to encourage a vibrant and dynamic economy that drives growth from small businesses into big. Put simply, we will not fulfil our potential as a country without a thriving small business sector.
This Bill contains a number of elements, as many have said. In the interests of brevity, I want to focus on just two areas where I have personal specific experience: the role of regulation, and the importance of investing in a skilled workforce. The right, good regulatory framework is at the heart of how we ensure Britain is the best place in the world to run a business. As a passionate believer in free markets, I fundamentally think that consumers make better decisions than Governments do. Where markets are competitive and informed consumers are sovereign, companies are forced to constantly innovate, improve the quality of their services and put a downward pressure on prices. That may make life harder for established companies in the short term, but ultimately it benefits customers and ensures that our industries and our economy remain globally competitive.
The risk is that regulation, however well intentioned, becomes a barrier to that competitiveness. Where it becomes excessive or burdensome, it restricts innovation and risks forcing up prices for consumers while making lawyers richer. That hits the poorest hardest. I very much welcome the ambitions in the Bill to tackle red tape and bad regulation. However, regulation is not all bad. A much more successful entrepreneur than I am who comes from Silicon Valley once coined the phrase that monopolies are like children: if you do not have any, you do not really understand what the fuss is all about, but once you have a child of your own, you will fight to the end of your days to protect it. Monopolies are exactly the same, which is why, if you want to have strong competitive markets, strong regulators are equally important. I very much welcome the balance the Bill brings in making sure that we create a strong regulatory framework but focus also on hunting out red tape and bureaucracy, which hinder small businesses particularly. It is small businesses that are most hindered by having to deal with an army of regulators or lawyers, much more so than the big companies such as the ones I run.
Taking a couple of specifics, extending the business impact target to require regulators to consider the economic impact of their actions is a very good discipline. It is a welcome safeguard against the risk of overregulation becoming a barrier to our nation’s competitiveness and it will allow for deregulation wherever possible. That is to be welcomed. On the other hand, introducing regulation in the form of the Small Business Commissioner is also to be welcomed. That is exactly the sort of good regulation that we should encourage. I am sure that we will discuss in some detail in Grand Committee exactly how the Small Business Commissioner’s responsibilities should be set up but I encourage my noble friend the Minister to make sure that we keep that regulation as light as possible and do not fall into the trap of trying to define in so much detail that we err on the side of creating bad and complex regulation. Wherever possible, we want to create organisations that have a simple, clear brief to add to the role played by those 70 existing regulators.
Briefly, my second theme is apprenticeships. I really welcome the Bill’s commitment to ensuring that Britain has the high-skilled workforce we need to compete. As a chief executive, I know that the quality of my workforce—its skills—is absolutely the most important asset that any company can have, the most important ingredient in our success. Arguably, for far too long in this country we have been guilty of attaching disproportionate weight to academic qualifications—I say this as someone who is well overeducated. Of course we want to encourage people to apply for degrees and of course we want to aspire to having some of the best educational establishments in the world, but the Government are absolutely right to focus on expanding the range of vocational opportunities as well. Talent comes in many forms and we must ensure that we have the tools to help every young person fulfil their potential. That means a diverse mix of opportunities rather than career straitjackets.
Apprenticeships are undoubtedly an important part of this and I welcome the measures in the Bill to increase the number of apprenticeships in the public sector and to protect the quality of apprenticeships and the brand “apprenticeship” itself. But we must also remember that, just as degrees are not the only qualifications worth having, apprenticeships are only one form of vocational education. As well as delivering 3 million apprenticeships, I urge the Government to look at how we continue to support other activity that allows employers to invest in the training and recruitment of young people. That means encouraging long-term partnerships between companies and educational institutions; expanding the role of work experience and sandwich placements; encouraging flexible working arrangements that encourage and incentivise people to pursue new qualifications while still at work; and recognising that one size does not fit all. As we expand apprenticeships, it is crucial that we build the broadest range of opportunities for the broadest range of talents.
In summary, this is a very important Bill. I have touched on only two elements—regulation and vocational education—but I hope I have shown in a small way how the Bill will support businesses and customers and expand opportunities for our young people. That does not benefit just those directly affected, it helps to create the long-term growth our economy urgently needs to thrive and, with that, to make affordable the benefits that we would like to see cover all portions of society. I am proud to support the Bill.
My Lords, I welcome the policy aims behind the Bill and its goal of promoting the growth of enterprise by reducing some of the burden of regulation, particularly on small businesses. As a former small business owner, I sincerely hope it will prove effective in achieving that goal. I shall comment on two areas relating to the Bill: first, the clauses relating to apprenticeships; and, secondly, the issue of cash retentions in the construction sector, which is not covered by the Bill as currently drafted, but in my view should be.
Turning to apprenticeships, Clause 18 allows the Secretary of State to set apprenticeship targets for prescribed public bodies. This should contribute to the promotion of good employment practices with regard to apprenticeships in the public sector, as well as help to meet the Government’s overall target of 3 million new apprenticeship starts in England during this Parliament—both of which I welcome. However, what really matters is not so much how many apprentices start as how many complete their apprenticeships, with real skills and opportunities to gain real and permanent jobs—outputs rather than inputs. How will the Bill ensure the quality of public sector apprenticeships, not just their quantity? As with so much about apprenticeships at the moment, it is still far from clear how funding and delivery processes will actually work in future, and I can imagine that some public sector bodies might be concerned at the prospect of having to pay the proposed new apprenticeship levy and meet a target for new apprenticeships while facing budget cuts.
Clause 19 seeks to raise the status of apprenticeships by making it an offence to describe a course or training programme as an apprenticeship if it is not a “statutory apprenticeship”. I wish that there was a good abbreviation for “apprenticeship”. The obvious one would be “app” but unfortunately that has already been taken. Again, I welcome the aims of protecting the reputation of apprenticeships and seeking to promote the growth of statutory apprenticeship schemes, but I have been struck by the number of emails I have received from organisations concerned that this provision may have a stifling rather than stimulating effect on the growth of apprenticeships. Concerns expressed to me include: whether the definition of acceptable apprenticeships might exclude some vulnerable groups, such as people with learning difficulties and disabilities, from the opportunity to undertake such apprenticeships; whether it will apply equally across all the devolved Administrations, which have their own apprenticeship regimes, and, if so, how; and whether local trading standards teams are best placed and adequately resourced to enforce it.
Apprentices whose training is provided directly by their employers are excluded from the terms of this clause. There seems to be some risk of confusion attached to having such a significant exception to the prohibition on using the term “apprenticeships” for anything other than statutory apprenticeships. In any case, the Government say:
“There is little evidence to suggest that the existing scale of misuse of the term ‘apprenticeship’ is widespread”,
so I wonder whether this is really the best way to enhance the status and attractiveness of apprenticeships. Having said that, I very much support the point made by the noble Baroness, Lady Harding, about promoting other forms of vocational education as well as apprenticeships. I look forward to hearing the Minister’s—I hope reassuring—comments on these points.
The other issue I wish to raise relates to an aspect of payment practice in the construction sector that is extremely damaging to productivity and investment in the sector, especially for small businesses, but is not addressed in the Bill at all. This is the issue we have already heard about of cash retentions, whereby a proportion—typically 5% but sometimes as much as 10%—of payments due to subcontractors at each stage of a construction project is routinely withheld. Notionally this is to provide a mechanism for remedying defects if the subcontractor does not do so itself. The noble Lord, Lord Cope, mentioned the timely report on this issue in today’s Times. It was also powerfully addressed by the noble Baroness, Lady Donaghy, and the noble Lord, Lord O’Neill.
According to research done by the Specialist Engineering Contractors’ Group, which represents more than 60,000 firms with over 300,000 employees, 99% of them small businesses, the total of such retentions at any time is some £3 billion. Subcontractors may have to wait up to three to five years, or even significantly longer, to receive the payments they are owed. In some cases they do not get paid at all, when the client business that has held back money owed to them goes bust. To add insult to injury, the cash retained is often used either as working capital or to fund investment by the debtor company, while the subcontractor to which it by right belongs, having completed the work involved, is unable to use it to enhance its own productivity through extra recruitment or investment. According to the SEC Group, the amount lost by small firms in this way just this year, because of insolvencies up the supply chain, is almost £30 million—enough to employ some 3,000 apprentices. Other construction sector bodies share this concern, including the Forum of Private Business, the Federation of Master Builders, the Finishes and Interiors Sector, and the National Federation of Roofing Contractors.
The Construction Supply Chain Payment Charter, issued in April 2014 by the Construction Leadership Council set up by BIS, included 11 commitments, one of which was to aim to move to zero retentions by 2025. More than 20% of public bodies, and some leading private sector businesses, have already abjured the use of retentions. Other jurisdictions around the world, including in France, Germany, Australia, New Zealand and the USA, have tackled or are tackling this issue to boost the productivity of their small businesses. A possible solution, along the lines of the existing tenancy deposit scheme which provides protection for landlords, would be to require all cash retentions to be held in a form of trust on behalf of the subcontractor to whom they really belong. This would have the beneficial effect of protecting a subcontractor from supply chain insolvencies, and perhaps of making it easier to seek loan funding against the value of cash retentions held in trust for it.
The Bill of course creates a Small Business Commissioner to assist small businesses in payment disputes with larger ones. But nothing in the proposed powers of the commissioner would address the specific issue of cash retentions and, as we have heard, experience shows that small construction firms are likely to be extremely nervous of using the commissioner to pursue disputes with their larger client businesses because of the possible impact on their own future business if they are seen as troublesome or difficult subcontractors. This is what the noble Lord, Lord Patten, described as the fear of reprisals.
I have a simple question for the Minister. Given that movement on this issue would have clear potential to galvanise the construction sector in terms of enhanced productivity and investment—especially those small businesses which the Government are quite rightly so keen to encourage and support through the Bill—why on earth should they have to wait until 2025 for any prospect of it being fixed? It is evident to me that given the choice between resolving the cash retentions issue and setting up the proposed Small Business Commissioner, welcome as that is, the vast majority of small construction firms would plump without hesitation for the first. So why not seize the excellent opportunity presented by the Bill and tackle both?
My Lords, I think that no one champions more the huge and wonderful increase in entrepreneurship and small business in the UK. I have often done that here in your Lordships’ Chamber and the Bill contains a lot of useful micro-provisions that are helpful for small business. It has the excellent objective of supporting the UK’s position as the best place in Europe to start and grow a business. I hope very much that the Small Business Commissioner initiative will work. There is certainly the need for SMEs to save the time and costs of going to law to resolve disputes.
I am slightly sceptical about the success which will be achieved in cutting £10 billion of red tape. I am afraid my experience is that the regulatory and administrative requirements on SMEs and sole traders continue to grow inexorably, of which the most annoying to me are the never-ending and pointless AML requirements. By 2018, small businesses will also be faced with the cost and effort of providing pensions, even if they have only one employee. I will also repeat the points that I made in the September economy debate: the EU’s competition Commissioner is obliging the UK to change our very successful EIS and VCT schemes to qualify for EU state aid approval. The changes will limit severely the supply of equity risk capital for SMEs that are moving into a growth phase and, for reasons not yet explained—and contrary in this case to the accommodating facilities of the European Commission’s 2014 risk finance guidelines and the general block exemption regulation—exclude acquiring and sorting out SMEs with problems from qualifying for EIS and VCT status. I declare my interest as chairman of the EIS Association.
I support strongly the expansion of apprenticeships and congratulate my noble friend Lord Baker on the success achieved by university technical colleges in preparing young people for apprenticeships. I also wish the Government every success in stopping overgenerous taxpayer-funded six-figure pay-offs in the public sector.
I will talk about the specific requirements in the Bill for insurers to pay insurance claims within a reasonable period of time, as in Clauses 20 and 21. I suggest that all would agree with the objective of enhancing protection for SMEs and consumers but the provisions in the Bill are causing widespread concern in Lloyd’s and wholesale insurance markets. I should add that I have absolutely no involvement with Lloyd’s or the insurance industry. The CEOs of the Lloyd’s Market Association, Lloyd’s itself and the International Underwriting Association have written to the Economic Secretary, setting out their concerns in detail. I hope that the Government will come forward with their own amendments to disapply Clause 20 in respect of large insurance risks, where statutory protection is not appropriate or necessary for international business and commercial risks written in London.
The damages for late-payment provisions are the same as those ultimately removed from the Insurance Bill before it was introduced to Parliament in 2014, which was then on the advice of the Law Commissioner. I would like to quote David Hertzell, who was then the Law Commissioner. In his evidence to the Special Bill Committee of the House of Lords on that Bill, he said:
“It is absolutely impossible these days, and probably always was, to draft law that can cover both ends of this huge spectrum of different types of business. We have drafted something that we think fits the vast majority of businesses that sit within the middle of the bell curve. At the more sophisticated end, we expect businesses to take care of themselves, as they do now with their individual contracts, and at the less sophisticated end we have the Financial Ombudsman Service. This legislation”—
which became the Insurance Act 2015—
“is intended to be focused on the mainstream commercial marketplace. We expect the people who operate outside that marketplace to contract on different terms, as they do now. It is a default regime that essentially seeks to achieve as neutral an outcome as possible”.
The Insurance Act, if it is to be amended by Clause 20, will create a difficult framework for the London marketplace. Where Lloyd’s takes real issue with what the Law Commissioner said is that the Insurance Act has not created a neutral regime. Contracting out will be technically and commercially difficult and—the worry is—more so than switching to another legal destination such as Bermuda. The LMA and IUA put forward a proposal at the same time as the Insurance Bill in 2014 to create a remedy of damages for reckless or deliberate mishandling of claims, which seemed to go to the nub of the problem that the Law Commission wanted to cure but without exposing the market to bad faith or speculative litigation. It was a pity that Parliament chose then not to adopt the industry proposal.
There has been no consultation with the LMA or IUA regarding this Bill’s provisions, although HM Treasury said back in 2014 that the Government would continue to work with stakeholders to reach and agree solutions. The Government have not taken heed of what the Law Commission described as the “legitimate concerns” of the London market. Combined with other problems contained in the Insurance Act, the Government are not taking account of the balance required in English law if it is to remain the law of choice for different types of business and, in particular, international insurance business including reinsurance underwritten in the London markets.
The provisions would introduce a further significant element of uncertainty into insurance contracts written under English or other UK law. What would be a reasonable time for payment or reasonable grounds for dispute? Speculative claims for damages are likely to be made as a matter of course when a valuable or complex claim is disputed. Consequential damages claimed could be disproportionate to the cover purchased and the premium paid. Claims handling costs will increase significantly because of speculative, vexatious claims. There will be significant problems in the dispute resolution process, whereby insurers may have to disclose legally privileged advice to show that they are acting reasonably. Claims reserving will be problematic if large secondary claims for consequential losses are made. All this would lead to higher loss ratios, capital requirements and premiums. Unfortunately, the contracting out of the damages for late-payment provisions within the Bill will be a commercial non-starter, especially in soft market conditions. Wholesale insurers are already subject to FCA regulation in relation to claims handling, where the FCA has not found evidence of any systematic late payment of claims.
The Bill’s impact assessment also contains unrealistic underestimates of the damage for late-payment provisions, with continuing costs of investigating unmeritorious claims of just £375,000 per annum for the entire industry and increased litigation costs of £100,000 for five years for the entire industry. These sums could be absorbed by just one major speculative claim. The impact assessment is also inaccurate and incomplete in other major respects.
Applying enhanced statutory protection against late payment of claims is inappropriate and disproportionate for the wholesale life industry. The net effects and costs will damage the international competitiveness of the London insurance and reinsurance markets and are likely to lead to a rapid switch from English law to other jurisdictions such as Bermuda, with major implications for London. The wholesale insurance industry would therefore like to see Clause 20 disapplied in respect of large risks, as defined under the EU solvency II directive, and reinsurance claims, so avoiding the problems that I have spoken about.
My Lords, I applaud the aims of the Bill. In introducing it, my noble friend said that it was about making life easier for small businesses, and who would not want to do that? It will encourage smaller firms, deregulate and champion apprenticeships—all worthy aims. At this stage, I should declare my interests as listed in the register, including directorships of regulated companies.
We have a relatively successful economy, but not a perfect one by any means, and complacency would be misplaced. The persistent trade deficit—now a whopping 5.5% of GDP—is a real cause for concern. To deal with that, we need not just to support small business but to actively encourage those businesses that can grow into world-beaters. Britain is good at starting businesses. As we have heard, we have more than 5 million of them. The problem is that too few of them become big businesses. BIS published a survey in 2013 which found that 1.5 million businesses were not growing but, even more depressing, did not want to; 2.7 million were not growing but—slightly more encouraging—they wanted to, they just could not.
Trying to get to grips with this issue, last year, a serial entrepreneur, Sherry Coutu, produced the Scale-up Report for the Government. Her thesis was that competitive advantage for nations comes from focusing not on starting up but on scaling up businesses. Not every business is capable of scaling up—probably only about 6% of start-ups will ever get to national, let alone international scale—but, if it can be done, the rewards are huge. Deloitte’s has undertaken research that shows that if we succeeded in scaling up our businesses, by 2034 there could be an extra £225 billion added to our gross value.
Companies struggle to grow both domestically and internationally. The inventiveness, which is there to get them started, seems to fade at the problems of growing. What obstacles do they encounter? Finance is there, but it is nowhere near the top of the list. Obviously, late payments cause cash flow problems and cash flow is all-important; what the Bill proposes to deal with late payments will be very welcome, but that is not the main thing that is holding back our growth companies.
Top of the list is skills, so I welcome the move in the Bill to increase the number of apprenticeships. There is already a huge increase in that field but more to be done. This afternoon, we heard from my noble friend Lord Baker about the success of his technical colleges. We need people to go into such vocational education rather than getting just another university degree. We need to continue to improve literacy and numeracy—as we are—but getting those skills into the workplace where they are needed takes time.
If our growth companies are really going to get the motor that they need, some of them need to bring in those skills from overseas. One proposal that Sherry Coutu makes is that there should be a special scale-up visa that would allow growth companies to bring in the talent they need. I know that my noble friend the Minister is fearless; I wonder whether she would dare to broach that with the Home Secretary.
The other thing that holds back our potential growth companies and comes very high on their list of issues is leadership. They just do not have leadership skills, and struggle to break into new markets. Supportive relationships with big companies would really help in that area. There could be a symbiotic relationship between big and small companies; we have already heard reference to that this afternoon. My noble friend Lady Brady talked about the ecosystem which the Bill should be nourishing, improving relationships between big and small companies. We are not doing enough yet to improve the relationships along the supply chain and to foster the smaller companies that could benefit so much from the mentoring that big companies could give them, from the introductions to new markets that big companies could provide and from access to the infrastructure that many established companies have, which could open the door to those potential growth companies to really get going.
For the time being, our Small Business Commissioner will be very limited in what he does: just talking about late payments. I concur with my noble friend Lord Cope of Berkeley that, in the short term, that may well be the right thing to do—late payments are a big issue—but in the longer term, like him, I should like the Small Business Commissioner to take a much more proactive role in encouraging relations between small companies and big ones. In the mean time, the Department for Business has many different initiatives—some might say, still too many—to help small firms.
Elsewhere in the Bill, I welcome Parts 2 and 3, which are bringing about a sensible approach to regulation. Extending the duty of other regulators to take account of the need for growth is a positive step. Extending the primary authority scheme may not get the general public dancing in the streets, but it will bring sighs of relief from many smaller firms. To enable a business to have to deal only with the rules of one authority rather than many must make sense. As the Secretary of State himself put it:
“Thanks to Primary Authority, cheese makers don’t have to display their cheddar on wooden boards in one place and on steel platters in another”.
That must be a step in the right direction.
My Lords, I commend the thinking behind the Bill, seeking as it does to improve matters for business in our island nation. I shall concentrate on just three areas: late payment of insurance claims, gold-plating of EU directives and the attitude of regulators. I declare my interests as set out in the register, in particular as an employee of Hiscox insurance group for 25 years, much of it at a senior level.
First, on the late payment of claims provisions, I note that these are substantially the same draft clauses dropped due to time pressure from what is today the Insurance Act 2015, but with important additional wording that would prevent the ability to contract out of the new obligations. I have been in touch with the British Insurance Brokers’ Association—BIBA—which represents nearly 2,000 insurance intermediaries and has additionally as partners the bulk of British insurance carriers. It is, as am I, highly supportive of these provisions. I know well from long experience that those insurers which seek to pay valid claims rapidly look on with frustration at the small minority of competitors which make a business of not doing so. These provisions would be a great help for small businesses—the small and the brave—which are the bedrock of our nation’s prosperity today and a foundation for its prosperity tomorrow.
I spoke in this House in the debate on the gracious Speech about the problem of gold-plating older EU directives, something recognised by our EU neighbours who refer to it as “sauce anglaise”. I stress the word “older”. In 2011, the coalition Government brought in an admirable fresh approach to the bringing of EU directives into UK law. Not only were great efforts to be made to avoid gold-plating, but also things have become self-correcting through the use of review and sunset clauses in the regulations concerned. The previous Labour Administration latterly tried to prevent gold-plating, really in the wake of the excellent Davidson review of 2006. However, the absence of the default use of review and sunset clauses means that EU directives brought into UK law in the period from 2006 to 2011 generally have no mechanism to self-correct. The situation for directive-driven legislation prior to 2006 is that there is plenty of gold plate about, as the noble and learned Lord, Lord Davidson, found. Does the Minister agree that these older, pre-2006 bits of EU-inspired legislation represent potentially very rich pickings for the Government’s target to save £10 billion in red tape?
A particular case in point is the insurance mediation directive, or IMD, which dates from 2002 and was put into effect in the UK in January 2005. BIBA told me today that,“the UK is the most expensive regulatory regime on the planet, five times the cost of our major competitors and fourteen times the global average”. That is not so much gold-plating as lead-plating, which prevents our world-leading insurance intermediaries fulfilling their full potential. To put the size of this industry in context, BIBA also advises that its intermediary members employ 100,000 staff and account for 1% of UK GDP. UK insurance intermediaries are regulated by the Financial Conduct Authority, the FCA. Will the Minister confirm that the FCA is to be named as a specified regulator by the Secretary of State for the purposes of the Bill? For the older, gold-plated situations I described, the admirable regime envisaged by the Bill will apply only if the regulators concerned are specified by the Secretary of State, so I urge that he is very thorough here. I agree entirely with the words of the noble Lord, Lord Leigh.
Finally, I turn to the attitude of regulators. The best regulators in my experience over many years and in quite a few countries take a very helpful and collaborative approach. However, bad regulators can treat those that they regulate aggressively and as if assuming non-compliance, and/or use poor enforcement and/or excessive monitoring requirements, all of which can turn straightforward regulation into a costly and disruptive burden. I very much welcome Part 2 of the Bill, which in particular will allow those being regulated to feed back what it feels like, leading to a sort of reverse naming and shaming. That is likely to be a healthy step in driving a change in approach for those regulators that need to improve. However, it is important to patrol the fear that some have, well-founded or not, that if they complain about their regulator they could be subject to additional scrutiny from it, and thus be discouraged from giving useful feedback. I am not sure at this stage how that is best dealt with. Additionally, it is important to consider to whom the reports contemplated in the Bill are best addressed so that there is a clear potential for sanction where a regulator performs consistently badly. Again, I am grateful to the Minister for the opportunity to discuss this shortly. That said, this is an excellent Bill overall and I wish it well in its passage through Parliament.
My Lords, I speak as a businessman and as somebody who has employed many people through several business ventures. My business interests have related to insurance, financial services and property. I have spoken many times in your Lordships’ House and elsewhere on the importance of supporting small businesses. I am a great supporter of SMEs and in my business life have rendered them support, with the result that my company has flourished and the SMEs too have done well. I used to own a company which provided facilities for the placement of businesses on insurance schemes to more than 1,200 intermediaries. We found our sub-agents to be innovative and made good use of opportunities we were able to provide. There were mutual financial benefits.
Five years ago, the Government inherited a substantial budget deficit. Much progress has been made and our economy is growing once again, but there is still some way to go. Business and enterprise have been and will continue to be at the heart of our recovery. Our economy will only grow if business is allowed to grow. The Government have a responsibility to assist businesses where they can. We must make it as easy as possible for businesses to establish themselves, to build and to flourish for the long term. Above all else, we must make the United Kingdom the best place to grow and run a business. Our country has an entrepreneurial spirit. We must foster and encourage this, not least with our small and medium-sized businesses.
Many of the measures in the Bill will offer greater support for small businesses in particular. We need to fully understand the contributions of small businesses to appreciate the importance of this Bill. It has long been said that small businesses are the backbone of our economy. Last year there were estimated to be around 5 million small businesses in the UK. They in fact constitute more than 99% of our total businesses. They are responsible for 48% of private sector employment and around a third of private sector turnover. They not only drive growth and provide jobs in the wider sense, but also bring fresh ideas and open new markets. They often innovate by challenging the status quo.
The Royal Society of Arts recently published a report into the health of small businesses. It found that when comparing like-for-like long-standing firms, micro-businesses actually have higher productivity levels than larger firms in many cases. Micro-businesses in particular are booming, but they are also struggling. The number of micro-businesses has increased by nearly 50% in the last 15 years, so that they now account for a third of all private sector employment. The report also found that small businesses are more efficient at innovation. They create more innovation for every unit of research and development expenditure and extract more financial value from these developments. The workplace employment relations study has also found that small business employees are the most satisfied in the labour market. They score highly on job control, influence on decision-making and loyalty to the business.
With this in mind, it is imperative that we do all we can to assist and nurture small and medium-sized businesses. It is in all our interests that they thrive. In many respects they must be empowered to compete on a fair and level playing field with larger companies, as some of them often suffer from an imbalance in bargaining power. They are most vulnerable to unfair practices and often do not have the resources to challenge them. Meanwhile, they are also under greater pressure to protect their commercial relationships. In particular, smaller cash flows also mean that many small businesses experience problems with late payments.
The Small Business Commissioner will provide the reassurance and capabilities that small businesses need to deal with such problems. Our SMEs need to know that relevant advice and information is available to them, and where to find it. Where they require dispute resolution or need to file official complaints, they will now have a central resource to which they can turn. A commissioner will also encourage a change in the culture of how businesses deal with each other. There must be fair treatment for all businesses, large and small. It is particularly welcome that a voluntary mediation service will be provided through the commissioner. Where disputes need to be taken further, avoiding the need to go to court will save much time and money.
We need only look at the success of the Victoria Small Business Commissioner in Australia. Over half of cases dealt with by the commissioner have been successfully resolved. They cost businesses 30% or less of the cost of going through litigation. Over half of the complaints received have also been resolved within one week, and 80% within 12 weeks. Can my noble friend say what specific lessons have been learned from this success in Australia? In summary, the new commissioner will provide SMEs with the support they need to thrive in an often volatile market.
One of the biggest barriers to businesses is red tape and bureaucracy. This affects large corporations too, but small businesses are often disproportionately affected. They identify compliance as one of their biggest inhibitors to growth. I am extremely proud that our Government have committed to cut red tape, and that commitment must be appreciated. The business impact target forms a key part of implementing this pledge. It is an innovative way of holding government to account for regulations it introduces. However, this deals with only half the problem. It is clear from businesses that the actions of regulators are just as impactful as the legislation itself. It therefore makes sense to extend the business impact target to include regulators, as they hold just as much responsibility as government Ministers.
We must look not just at the rules, but at the way they are enforced. If extra costs are imposed on businesses by the behaviour of regulators, we must know about it. This will mean even greater transparency of the real impact that specific regulations have. Ultimately, I hope that this will reduce regulatory burdens on businesses even further than previously forecast. That in turn will free resources, increasing productivity further still. More widely, I also hope that businesses will continue to come forward and report burdens through the Government’s Cutting Red Tape programme.
It is also extremely important that all regulators are properly engaging with the growth duty and the Regulators’ Code. They must be consistent and proportional with the policies on enforcing different regulations. It is also important for businesses to see that regulators are behaving with integrity. I welcome that measures in the Bill will give businesses a voice in declaring how they are affected through regulators’ regard to these duties. Making regulators more accountable and transparent will provide reassurance and clarity to businesses. It will also ensure a more stable system of regulation in the long term.
I commend the extension and simplification of the primary authority scheme. It has proved very popular and has doubled its membership in each of the last five years. Having a single point of contact for robust and reliable advice reduces time, risk and complexity. This is particularly valuable for small businesses, which often do not have in-house expertise on regulatory issues. As many businesses as possible should be able to access the benefits of the scheme. Extending it to other areas of legislation will also mean that more regulators can participate. Simplifying the formation of primary authority co-ordinated partnerships is also particularly welcome. I understand that the Government reviewed the operation of the scheme with hundreds of businesses and authorities that use it. Such extensive consultation is to be commended.
As someone who has been involved in business in the insurance and financial services sectors, I am glad that the Bill proposes for insurance claims to be settled within a reasonable period. I support this in principle, but it needs to be looked into further. However, this was my own practice when I was in business: I used to instruct my staff and loss adjusters to settle claims as quickly as possible. The questions of liability and quantum need to be established, and if the claim is valid the payment should be made as soon as possible. By doing so we will create good will and compensate the policyholder when they need our help the most. I feel that a satisfied customer is your best method of advertising.
I also welcome the provisions regarding apprenticeships and the drive to use the public sector as a model employer in this respect. This will indeed enable the Government to meet their target of establishing 3 million extra apprenticeships in England over the next five years. We must continue to develop our financial services sector but we also need to enhance our manufacturing base to enable us to expand our economy and create more jobs. This can be achieved by expanding our apprenticeship programme, which will provide us with more trained staff to fulfil the needs of the various sectors in the country.
The Bill will make life much easier for businesses to operate and innovate. It will provide extra support where it is needed and eliminate bureaucracy where it is not wanted. It will cement the United Kingdom's position as the best place in Europe to start and grow a business. The Bill will have my support in principle.
My Lords, at this stage in a Second Reading debate, it is tempting to throw one’s speech away and reflect a bit on what has been said. I confess that I find it very difficult to pull out of what has been said things that I am certain about. The debate has been very much about people’s behaviour towards each other, asking why people pay late, or about cultural change, asking why people go on behaving in a way that you would think they would want to change. In pursuing those things, we have been taken to Australia by both sides of the House and, indeed, I shall also concentrate most on the proposal to have a commissioner for small businesses.
We also had my noble friend Lord Flight quoting the Law Commissioner, from some time ago, in saying that,
“we expect businesses to take care of themselves”.
But I do not think that we in Parliament—or a lot of us—do not believe that businesses or people can take care of themselves; we think that they need a lot of assistance. When it comes to this Bill and business practices, as my noble friend Lord Cope most elegantly said, we have even and uneven numbers.
We have heard some very powerful technical speeches relating to either one or another parts of the Bill, but I shall try to concentrate on the first part and try to deal with the argument that some people have made that it does not do enough, while others have suggested that it will not work. The conclusion from the second argument might be that it might be better not to try to do it that way in the first place. However, we all agree that there is a very serious problem—that many large and small businesses pay late and get paid late. So there is no doubt at all that there is a big problem, but there always has been. Is the law deficient in providing guidance and remedies for late payment? I am not sure that it is. Contract law is pretty thorough. The question of retentions is of course a completely different subject—it is different from being paid late. If you agree that you will have a retention in your contract, you have one. In my youth, with large construction contracts, you could always go to the bank and swap a cash retention for a bank guarantee. So I am not so sure that the present situation, in terms of technical, legal memories, is so short of what we would need or want.
If we agree that there should be further state intervention, we have a duty to decide whether it will be effective. In the case of Part 1 and the Small Business Commissioner, whose duty is going to be giving advice and information and trying to deal with complaints, my first impression is that it will engage him in a huge variety of problems. It would not be possible to describe how wide that variety could be. I go back to when I was running what I think was a small business—although, until we get the scope regulations, we do not actually know what a small business is; it could be that it is much more widely defined than simply one that employs fewer than 50 people, or one that is close to a start-up, or, as my noble friend Lady Wheatcroft, said, one that is not prepared or interested in scaling up. In the variety of circumstances, it would not be sensible to turn the description “small business” into some sort of fetish.
Indeed, in the days when I was responsible for collecting debts, I got rung up and told that so and so had not paid and asked to go and do something about it, and what I did was to get into a Hillman Minx van, DXG 813, and went to see the buyer. When you went to see the buyer, they would probably say, “It’s that wretched accounts department—they never keep up with paying the bills on time”, or they would say, “The inward goods reception said that you’d sent eight, but I can only see six”. So I would say, “Let’s go out into the yard and see whether we can find the eight”—and we usually did. And the buyer would then say, “Well of course those people never could count”. So at that time I was on the side of those who thought that the best thing to do was to sort out your own problems.
Nobody thanks you for bringing in a third party if, in fact, you could and should be solving your own problems. Two is company and three is a crowd. So I wonder where the idea came from for a Small Business Commissioner who would help to solve this amazing variety of problems by providing advice and information and concentrating on the question of the cash flows. Why would anybody believe that it would really make a difference? It is probably a follow-up—as was indicated in some depth and detail by my noble friend Lord Patten—to the Groceries Code Adjudicator. At some point in the passage of that Bill, I was heard to say that I was the only member of Her Majesty’s Opposition, because I confess that I never thought that the Groceries Code Adjudicator would have an easy job. I always thought that it would be very difficult. I think that the adjudicator is a very good public servant. I read everything that she says and that she has done, and I believe that she is as workmanlike, sensible and sophisticated an operator on behalf of the state as one could wish to see. She has been going at it now for two and a half years; she has the power to investigate and is making an investigation into Tesco. I suppose that Tesco opened itself to the thought that she should investigate it. She has the power to fine and the power to name and shame, but she has proceeded very cautiously—and she has not been able or wanted to implement those provisions of the Bill.
So this time, while probably thinking that that was the situation, we are faced with a much less draconian approach in the case of the Small Business Commissioner. But I still wonder whether it will actually have any real effect. Will a cultural change take place? Will everybody start to pay their bills in a different way because of the Small Business Commissioner? My answer to that is that it is not likely. Either the cultural change will come from within business itself, or it will not come at all. I do not believe that in this case this form of state intervention has anything to offer us, and therefore I say in conclusion that I am very glad to see that the Secretary of State will be given the power to evaluate and then to abolish.
My Lords, this Bill will help small businesses up and down the country get on with the task of making things and providing services. It will help to ensure that regulators are on the side of business, rather than in conflict with it, and it will help millions of young people develop skills and get good jobs. These are all wonderful things. I want to address the general themes of the Bill in turn and start by declaring my interests in business and enterprise as recorded in the register.
Given the problems that some small businesses have with late payments for services provided, it is good to see that a Small Business Commissioner will be introduced. The problem could possibly be solved with tighter contracts at the beginning of any deal, but small businesses by their very nature do not have the resources to deal with the hurdles that are sometimes put in front of them. It is important that any good work that the new commissioner does is taken seriously and promoted. That would hopefully have the knock-on effect of speeding up payments without the need for cases to be referred to the Small Business Commissioner. That means that it is important that we can see the tangible results that will be delivered by the commissioner and can measure his effectiveness.
Incidentally, are not slow payments the symptom of a problem, not the cause? I know that small businesses often complain about this subject, but my experience is that slow payments happen most often to boring businesses without anything that the customer regards as unique. Would it not be better for the supplier to spend his time improving his product or getting better capitalised? I am not sure how any small business proprietor will actually have the time to complain to the commissioner, and I am pretty certain that the customer who is the subject of the complaint will get himself a new supplier.
Trying to ensure that our regulators are pro-growth is a good thing, and I welcome this direction of travel. However, it is reasonable to expect that the growth duty should already be an implied duty for all regulators. The fact that this clause is needed at all shows that regulators are too often unhelpful and that they impede growth, possibly knowingly. Perhaps we do not need to change the legislation; we just need to change the regulator. I cannot but wonder whether, had this been enacted at the beginning, in the primary legislation that set up the regulator, it would have been harder for the regulators to come up with any excuses. I am pleased that the Bill finally settles the seemingly obvious matter that regulators should be pro-growth.
Extending primary authority powers will make life a lot easier for many small businesses. Dealing with one local authority has saved a lot of time for small businesses, and therefore saved them money. Bringing regulators within the scope of the scheme also demonstrates that the Government are on the side of small businesses by making their life a lot easier, but does the Bill allow for a regulated person to nominate an authority to be regulated by, with the Secretary of State accepting that unless there was a very good reason not to? It seems to me that this would put even more trust in businesses to make the right choices for themselves.
Apprenticeships are a wonderful thing. I have a background in manufacturing, so I fully appreciate what value they can bring to a company, not just in skills, but especially in loyalty and commitment, and I commend the Government’s drive to have more apprentices working in government and at Britain’s car makers, energy companies, pharmaceutical manufacturers and all the other wealth-generating businesses in our economy. If I have one concern about apprenticeships, it is how they may be vulnerable to being interfered with by educational institutions. Academic education happens in schools. Children who thrive in schools go on to university. The implication, therefore, may be that an apprentice did not thrive at school. It is not correct; I went from secondary school directly into business, missing out university. I have had the privilege of having great apprentices working in my businesses. One was so good that we promoted him to team leader within about a year of his start. I am not sure how such a promotion would fit into statutory apprenticeships. Apprenticeships and degrees are, of course, both things to be proud of, and pride is often the best driver of high standards. The Government are doing all they can to ensure that apprenticeships are valued and respected and that they are a viable path for millions of young people. That is wonderful.
The late payment of an insurance claim can be devastating for a business that is trying to get back on its feet. My only experience of a large insurance claim was a good one. There was a fire in my factory, and ACE paid out £500,000 in just seven working days. It provided a great service. I tell this story because I worry that the press will say that this section of the Bill carries with it an implication that insurers generally pay late. This is not true. As with every industry, there are good players and there are bad players. While we check the bad players, we should applaud the good ones.
It is entirely sensible to streamline the reporting of non-domestic rates. It is ludicrous that businesses have to report their information several times over. It highlights an important point on the valuation of rates. There are many consultancies in operation today that promise to reduce your business rates bill in exchange for a percentage of the saving. The fact is that they are usually right. It works. That shows that there is something more fundamentally wrong with the system if so many valuations are incorrect. There must be a good case for reform of the system if the majority of professional practitioners are working on a success fee. I am glad that the Government are working to improve the reporting processes and, hopefully, also the quality of information that is held, meaning that businesses are not paying over the odds.
Industrial development is a noble aim, but I am sure that most taxpayers and businesses do not agree that Ministers can pick winners better than the market, so while I commend the sentiment, because this Government back business, I am nervous about increasing the threshold for industrial development from £10 million to £30 million.
I again applaud the Government for their intention to end sky-high exit payments in the public sector. These deals do not really exist in the private sector to the same extent. That is not a universal rule—some very odd deals are handed out to those at the very top of the private sector—but I hope that shareholders are far more active in standing against this type of behaviour. Taxpayers are the shareholders in the public sector, so it is right that action is taken. However, I am concerned about the 28-day payment limit. Can the Minister assure me that there will be safeguards in place that mean public sector organisations cannot simply stagger these payments over two months rather than one? Is the limit in practice going to be £1,140,000 paid over a year, or would we be better to change the 28 days to one year?
In general, this is a great Bill, albeit over a bewildering variety of subjects.
My Lords, I support the Bill and the measures it proposes for encouraging opportunity, productivity, enterprise, jobs and economic growth, and I particularly welcome Parts 2 and 3, as I have had a long and active interest in better regulation and deregulation and have been a member of the Better Regulation Commission, the Risk and Regulatory Advisory Council and the Better Regulation Strategy Group. All these bodies were established to give independent advice to successive Governments over the past 10 years on how to improve the quality, address the quantity and reduce the unnecessary burdens and unintended consequences of regulation.
I join other noble Lords in welcoming the extension of primary authority powers. Primary authority powers have to date made life easier for all sizes of business, including small businesses. On a broader scale, requiring all national regulators that oversee the business landscape to give greater consideration to reducing the compliance burden that they impose on firms is welcome, as is obliging all regulators to be brought within the scope of the deregulation target. In considering the impact of legislation, it is logical that the manner in which regulation is enforced is given the same level of scrutiny as the regulation itself. As the Minister said in opening, the business community sees the actions of regulators as being at least as important as the content of legislation in determining their experience of regulation.
A further important point is made in the impact assessments associated with this Bill—that,
“the costs imposed on business by regulators’ activity are not routinely measured or reported on. As a result there is a lack of transparency around the size and scale of these costs”.
I therefore welcome the proposal to include the actions of regulators within the business impact target, and that the reporting requirements attaching to that target, which will be subject to independent scrutiny by the Regulatory Policy Committee, will include the activities of regulators. This will encourage regulators to pay greater attention to the way that they operate and the effect they have on the businesses that they are regulating. It has to make sense for there to be greater incentives for regulators to design and deliver their responsibilities in a way that better meets the needs of business.
These measures comprise an important part of the Government’s headline commitment to cutting a further £10 billion of red tape. They lie at the heart of Part 2 of the Bill, and it is on Part 2 that I want to focus. In doing so, I declare an interest as chairman of the United Kingdom Accreditation Service, the national accreditation body. UKAS has a successful record of working with regulators, as its accreditation has proven itself to be one way in which the burden of regulation and its enforcement, or both, can be credibly and intelligently reduced.
In many regulated areas, such as environmental protection or food safety, the robust assurance provided by UKAS accreditation is used to good effect by regulators to target their enforcement activities where they are needed most, and to reduce them where they are needed least. For instance, businesses with accredited certification to ISO 14001 for their environmental management systems are visibly demonstrating, through UKAS-accredited third-party assessments, that they take their environmental obligations seriously. In such instances, the regulator can provide what is known as earned recognition to businesses with accredited certification. This enables reduced inspection requirements for the regulator, which can either make a net saving on inspection resources or redeploy those resources to focus on where the risk is greater. It also benefits the business, which saves on reduced levies charged by the regulator and avoids the business disruption of preparing for and undergoing a regulatory inspection.
I could cite many other areas beyond environmental protection and food safety where UKAS accreditation is enabling regulators to take advantage of earned recognition, or what is known as co-regulation, to improve the way in which they engage with those whom they are responsible for regulating. For instance, UKAS accreditation in the health sector is now recognised by the CQC as a source of information to support its hospital inspections regime. Other examples where UKAS accreditation is assisting regulatory regimes include drinking-water quality, emissions trading, microgeneration, energy efficiency, asbestos testing, gas safety, competent persons schemes under building regulations, farm assurance and animal feed, animal welfare and greyhound tracks.
I therefore hope that the extension of the business impact target will encourage regulators to make even greater use of UKAS accreditation, among other options. It is one tried and tested means by which regulators can sensibly reduce the burden of regulatory enforcement by allowing businesses to earn recognition through robust third-party assessments and manage their own activities in a responsible way.
Regulatory relief can contribute to reduced costs and greater investment, which in turn can drive economic growth. In this context, I note from analysis carried out by the National Audit Office and BIS that small and medium-sized businesses anticipate being among the biggest beneficiaries of regulatory relief. However, as I have already pointed out, businesses will not be the only beneficiaries. Regulators will be able to target their limited resources in a more informed and risk-based manner. This should help them to achieve their statutory objectives in a more efficient manner, which in turn will benefit society as a whole. Given the fundamental benefits that arise for both the regulator and the regulated, I would be interested to learn from the Minister whether a similar approach will be applied to the regulatory burden imposed on voluntary and community bodies, and indeed on those providing public services.
I welcome the new reporting duties that the Bill proposes placing on regulators. The Regulators’ Code sets out a good framework, based on the recognised components of better regulation, within which regulators should work. It is also right that regulators have a duty to consider the need to promote economic growth in the way that they carry out their duties. I therefore strongly support the requirement proposed in the Bill for regulators to publish information and produce an annual report on how they are performing in respect of the code and the growth duty. It will improve the transparency and accountability of the relationship between the regulators and the regulated. It will enable businesses and others to hold regulators to account in a more informed and intelligent manner, and it will enable good practice in the context of the implementation and enforcement of regulation to be understood and shared more easily. I support the Bill and look forward to its later stages.
My Lords, owing to a mix-up my name was not on the speakers list, so, instead of my prepared speech, here are four bullet points for speaking in the gap.
First, regarding the commissioner, many attempts have been made to encourage prompt payments, and all have failed. In most companies, cash out requires cash in, and firms have their own carefully calculated cash flow. Without considerably more powers, a commissioner would not be able to do very much about that. Where I think a commissioner can be of value is in resolving disputes quickly and cheaply.
Secondly, on the Industrial Development Act and poor broadband, the Minister will be aware that BT says that money is not the problem. Others say that what is needed is competition for BT. The Bill should increase the powers of Ofcom so that it can deal with this. While I am on the question of broadband, the Bill ignores that rising form of work referred to as “the human cloud”. The Bill should find a form of arrangement that is suited to this type of work.
Thirdly, as apprenticeships have become more politicised, so they have become more complex. The Bill should provide a clear route of progression through all this.
Fourthly, on public sector redundancy pay, small businesses need good people in public services, particularly in the use of science and technology funded by the Government. This clause can be misinterpreted, it does not encourage that, and it should not be there.
My Lords, I thank all the speakers who have contributed to this debate. It has been extremely interesting, we have had had a lot of expertise on display and a number of points have been made. It was great on our side of the Chamber to feel that we were all in this together, and it was not until about halfway down the list that we had the first attack on our “anti-business” feelings, which of course I utterly refute. In any case, I am allowed to say what I like, and I say clearly that we support business. We support many of the measures in the Bill and will be pushing very hard for the Government to go further on a number of points, because we think that is the right thing to do.
However, as my noble friend Lord Mendelsohn said at the beginning of the debate, we have been slightly misled by the aspirations for the Bill. In pre-briefings it came out as something that would put red meat back into the whole question of enterprise, but I am afraid that it is much less than that. I think that it was described as another “pudding” Bill—I did not catch the exact words—and as a “legislative herbaceous border”, although perhaps a “rockery” might have been more appropriate because there are many rocks and hard places into which sensitive plants might fall if we are not careful as we take the Bill forward. But enough of such metaphors; we should go on to the reality of what we are about.
Although the Bill in itself is not something that one could argue against, the problem is that it lacks a lot of the ingredients that I think would have been expected of a measure labelled “Enterprise Bill”. Indeed, if the Government are not careful, they may well end up with one or two of these things being argued for in Committee. For instance, a couple of noble Lords have mentioned the need for more management, expertise and leadership in small businesses, in particular. There is not much, if anything, in the Bill about that. There is nothing here about support for exports—something that we have talked about in your Lordships’ House on a number of occasions. There are still problems with getting small businesses to aspire to export and getting medium-sized businesses ready to export more than they currently do. There is nothing here about lending or investment, which is still a major problem for small business if we want to see growth there. If we are talking about where the markets are, why is there nothing here about our approach to the EU, particularly, for instance, in the digital single market, which I know is occupying a lot of the Minister’s time? It would have been nice to see something there, perhaps leading where in the past this Government and their predecessor have held back a bit.
The noble Baroness, Lady Wheatcroft, was sharp on the question of immigration and the need to get more support for the expertise gaps that are sometimes found. I hope that the Minister will respond on that. However, it all points to a lack of anything in the Bill that could be described as an industrial policy. That perhaps does not feature so large in the thinking of the current Secretary of State, but it could well be reflected on as we go forward. Some other points were made and I shall touch on those as I go through.
I am struck that Parts 1 and 2 deal with issues that were raised extensively in the previous Session. There were two Bills that could easily have taken the materials now before us but they did not. We have come back to them not so much to amend but merely to extend points that were made in previous debates and discussions. Those points were not always made from this side, but we recognise them in some of the wording before us.
The introduction of the Small Business Commissioner, in Part 1, has been widely welcomed. In a sense, we do not need to go over this ground because it is common between us: poor contractual practices—for example, unfair payment terms and breaches of contract such as late payment—reduce the economic and financial resilience of small businesses. Indeed, recent data from the Federation of Small Businesses confirms that late payments alone are costing small and medium-sized businesses £26.8 billion per annum. Of course we must do something about that. However, what we have here seems to be an investigation and a register of issues rather than anything that might tackle the problem. We welcome the potential contribution that a Small Business Commissioner might make to help change, in particular, the culture of poor contractual practices within supply chains and to enable small businesses to resolve contractual disputes quickly and easily, but I think that this is a very pale imitation of what is needed. We have heard from all around the House that what is now available in the Bill will not provide “good capitalism”, as it was described by the noble Lord, Lord Patten, and it will not provide the rod of steel by which we think the practices currently in play need to be tested. As the noble Baroness, Lady Wheatcroft, said, this is something that we will have to return to, if not in Committee then perhaps in later years.
The problem seems to be that the Government recognise the issue but do not agree on its scale. There will be one commissioner dealing with perhaps 500 cases a year when we are talking about roughly 5.4 million small businesses in the country. As we heard, when the situation is compared with that in Australia, one finds that the gap is substantial.
With regard to the powers, why does the Small Business Commissioner not have the authority to deal with regulators, big business, government and local government when they do not perform according to the standards that we want? Why is its scope so limited? Why is it not given the powers of a mediator? At the moment we are seeing the introduction of alternative dispute resolution right across our economic field. Why is there not some thought of linking up what is proposed for the Small Business Commissioner with the ADR system? As I have already hinted, I suspect that primary legislation will be required, with automatic costs and interest being applied to those who do not pay small businesses in time, because the code of practice simply does not work.
That is the sort of thing that we would like to come back to in Committee, but we think that two further things that have been represented to us are important. There should be a power within the commissioner’s office to name offending companies. Without that, I do not think that the actions that it takes will stick. Naming should be mandatory if the respondent is found to be at fault. I also think that it would be reasonable for the commissioner to have powers to make referrals to the Competition and Markets Authority if there is clear evidence of significant market distortion across the economy as a result of late payments and poor supply chain practice. These are very minor areas in terms of what I have already sketched out as being important to us in Committee, but perhaps they are things that the Minister could think about.
We welcome the Government’s move to include the broad range of regulators within the business impact target. Alongside requiring regulators to publish both an annual report on their performance against the regulators’ code of practice and a report on the impact on economic growth, that will help to give a sense of the administrative and inspection burden that regulators places on businesses. In Committee, we would like to get further information and clarity from the Government on the fees, charges and levies that might be introduced within the annual economic growth impact report. Increasingly, regulators are imposing fees and charges for providing advice and services which are much needed in the small business sector, but we need to know more about that.
However, we are very disappointed that the Government have not stepped up to the plate on the EHRC, and we have already heard concern expressed about that. This was raised during the passage of the Small Business, Enterprise and Employment Bill, when the Minister was very firm that she felt it right that it should be excluded from primary legislation. Why has she not done that for this Bill? Perhaps she could answer that when she comes to respond.
We support the extension of the primary authority scheme. This was originally introduced by the Labour Government and we think that it has worked. It will help considerably if smaller businesses and other regulators are included in that. However, we have been told by those who have written to us that the Government are not consulting as widely as perhaps they could, and I hope that they will pick up on this point in the remaining stages of the Bill. Some key issues are affecting councils and I think they feel that they have not been able to make this point. In Committee, we will also probe whether it is possible for councils to charge for the work that they do on this scheme. They should be able to charge reasonable fees that would be negotiated and agreed by the primary authority, rather than being limited to charging on a cost-recovery basis. At a time when local authorities are being very badly hurt by cuts, this is something where value for money might prove valuable to them.
We spent a lot of time talking about apprenticeships in our discussions here. We like the proposal to protect the term “statutory apprenticeship”, and the offence that is being created of providing or offering a course as an apprenticeship if it is not a statutory apprenticeship is appropriate. In many ways it parallels what was required to safeguard the gold standard of a degree. Presumably the lessons will be learnt from that and we will certainly be probing that point. There have been difficulties in getting it right over the years and that has led to a number of concerns. However, I am sure that the Government will be able to get it right.
The noble Lord, Lord Baker of Dorking, who unfortunately is not in his place, talked about the challenging nature of the 3 million target, and that was picked up by a number of people. However, the point that he made was really the subject of a different debate. It is a debate that I regret is not prompted by the Bill and I wonder whether there will be room for it in Committee. The point here is that you cannot just bring in a statutory requirement for a particular type of apprenticeship without, as the noble Lord, Lord Baker, said, thinking harder about the split between vocational and non-vocational education in schools, about the role of the colleges and about the way in which the integration of work takes place. This is not a new debate; it has been around for many, many years. One would hope that, in building next to the structures and changes that the Government have introduced in the higher educational sector by bringing in the statutory apprenticeship route, they would also allow time to develop a properly rounded appreciation of what we are offering the children in our country who progress through primary and secondary school and then have a choice to make—in the view of many people it is currently made far too early—between a vocational and an academic course of study, to build in flexibility so that those who take one route are not excluded from the other, and to allow for linkages between the various types of training so that we have the possibility of reaching a level 5 comparison between the academic and the vocational courses which does not label people as being in one section all the way through.
These are words that everybody has heard, and we have all paid lip-service to them over many years. However, we do not ever seem to be able to get them right in Britain. Why is that the case? I say “in Britain”, but in fact it is not strictly true in Scotland. The system there is much more open in terms of the ability to move between various subjects and different types of educational skills acquisition. We should take a humble approach to this in England, and learn from the experience that works, to allow the proper and right thing being done here about apprenticeships to bite properly for the benefit of our economy as a whole.
I think also that, if we are going to do this, we have to think harder about what it is that apprenticeships do in relation to the wider context of employment. By that, I am thinking about trying to bring people out of poverty—although that is not the only reason for this—and find the most productive way forward. We have to build into anything that comes out of this Bill a monitoring process for what is happening on the ground. We will need demographics about who is applying for apprenticeships, what is happening to them and what the good and bad things about it are. We should be able to think of apprenticeships not just as something that happens in itself but as something that creates a job at the end of the training—something that sometimes does not happen.
We should focus harder on the 18 to 21-year olds who are leaving the secondary education system and joining the workforce, but also continuing in training. Although it is much resisted by government, it is true that the majority of apprenticeships currently go to those in the older 22 to 25-year old age group. Have we done enough to think about gender and apprenticeships? There seems to be a large gender inequality in where apprenticeships are going. Are vulnerable groups getting access to apprenticeships in the way that they should be, particularly those leaving care? What about those from a BME background? What about disabled people? These are all important things; although they will not necessarily drive the system, it would be fantastic to get it right if we can.
Finally, I hope that during the discussions we have in Committee we can think about the sort of reports, which I have mentioned, that will be very necessary if we are to take this forward. The statutory duty for apprenticeships is an important step forward in a long journey, and we want to get it right. We will also be probing the requirement that trading standards teams should enforce protection of the term “apprenticeship”. It is not at all clear that that is the best body to enforce this—it does not do employment; it does process. It is important that we get that right. We should also think harder about the way in which the requirement to make apprenticeships happen in the public sector has at least an implication for the private sector as well. It may not be appropriate to do this in a top-down way, but certainly it is setting up a difference between the approaches that would not be sensible in the long term.
We have talked a lot about the late payment of insurance claims. The provision seems an obvious adjustment of a long-standing difference between the systems that operate in the United Kingdom. The question of whether an insurer should be liable to compensate for losses caused by the failure to settle a claim within a reasonable time seems right. However, we have a long way to go on this, and I look forward to picking it up again in Committee.
On the non-domestic rating issue, we had a very helpful intervention from the noble Earl, Lord Lytton, which will repay a lot of reading. I do not think that answers will be readily forthcoming to all the points that were made this evening, but I am sure that they will be picked up. It is important that we get this right. At the moment, the system seems rigged to go wrong. We will certainly need to try to get the best out of the Bill, while taking on board the points that have been made.
We are all slightly confused by the industrial development provisions in the Bill. I had not realised that broadband in Wiltshire was so bad that the issue had to be picked up by the Minister herself and forced into the Bill—perhaps I am overstating the point. At a time when we are hearing that BIS is going through a bit of a contortion act around its budget and may not do quite as much funding or activity as before, it seems a little strange that the Bill contains a provision to increase funding for the Secretary of State. I look forward to hearing more details from the Minister when she responds.
The question of whether the problems we have will be solved by money was raised well by my noble friend Lord Haskel. I will not repeat the points that he made, but he raised the important issue that it is competition that is the problem, not money.
Finally, my noble friend Lady Rita Donaghy and others covered the ground on the public sector employment restriction of exit payments very well indeed. Rather than go through the issues again, let me say that there is something that can be done here, and probably there is a will to try to get this right. However, if the system that is being proposed catches the lower paid, impacts on pensions and destroys good industrial relations, we have to ask whether it is worth it.
My Lords, we have had an interesting debate on the measures contained in the Enterprise Bill. I am grateful to the noble Lord, Lord Stevenson, for his comprehensive summary, and to my noble friend Lord Cope for his analogy with the herbaceous border. In an autumn when gardens have been flourishing, I hope that the sun will shine on this Bill, on our small businesses and on our plans for apprenticeships.
I am grateful for what seems to be virtually unanimous support for this Bill from the various business groups and this House; not necessarily for every detail, but I look forward to a constructive debate in Grand Committee.
Enterprise has been part of the British DNA since Elizabethan times—possibly before—and this Bill will provide a new range of opportunities. It is pro-market, pro-competition, pro-innovation and pro-investment in people and technology, and not pro-vested interests, as my noble friend, small business ambassador and judge on “The Apprentice”, Lady Brady said. My noble friend Lord Sheikh made similar points based on his own business experience.
I am pleased to note that a number of my noble colleagues, including my noble friends Lady Harding, Lady Wheatcroft and Lord Patten, and the noble Lord, Lord Curry, have expressed their support for the Small Business Commissioner. The Government are committed to helping small businesses, which unlike larger businesses do not always have the resource or expertise to fight their corner. By establishing a Small Business Commissioner we want to drive a cultural change to address late payment.
The noble Lord, Lord Mendelsohn, argued that the Small Business Commissioner should have a wider remit, referring to its Australian counterpart. The Small Business Commissioner is inspired by, but not the same as, the Australian Small Business Commissioner. That is deliberate. We want to adapt the Australian experience to our own circumstances. Here, the commissioner will focus on the key issue of late payment, which is of real concern to small businesses in the UK. I should advise my noble friend Lord Eccles that the definition of “small business” in Clause 2 is, in substance, consistent with the EU definition and that which we discussed during the passage of the Small Business, Enterprise and Employment Act.
I recently met the Australian Small Business Commissioner, Mark Brennan, to learn from his success. I concluded that finding a very good candidate for this job will be extremely important, as has been said. He told me that, in the last two years, he has had to use his power to name and shame an organisation only once. He is able to resolve most complaints informally and the threat of reputational damage encourages firms to work constructively with him.
Our consultation showed that the commissioner should not provide mediation directly. The real issue is awareness of mediation and of other forms of dispute resolution, which the noble Lord, Lord Stevenson, mentioned. We do not believe that yet more legislation, as he suggested, is needed, beyond the proposals that I outlined in my opening speech. What is needed is a change in culture. That means good, early decisions by the Small Business Commissioner.
The commissioner will seek to improve, rather than undermine, our business environment. He or she will complement existing dispute resolution services and lead a culture change in how businesses resolve and ultimately avoid commercial disputes, particularly around payment issues. It was good to hear of the positive experience that some had had of the Groceries Code Adjudicator.
Previous consultations showed that additional penalties would not solve the problem of late payment—that is what was felt—but stakeholders have demonstrated strong support for increased transparency. So we are also implementing a new reporting requirement. Our intention is for the Small Business Commissioner to be the custodian of the new reporting requirement. We will bring together this package of measures to drive a real change on the ground.
The public sector, a concern of the noble Lord, Lord Mendelsohn, is an area where we have been busy trying to lead in our own backyard. The Government have restated their long-standing commitment to pay 80% of invoices in five days and are required to report quarterly against this performance target. Where public sector invoices are not paid within 30 days and are not disputed, interest becomes payable. There are new reporting requirements for public sector contracting authorities over the next two years. The Government set out in their manifesto a commitment to strengthen the prompt payment code and ensure that all major government suppliers sign up to it. Sixteen of the 33 major suppliers to government have already signed up.
It is not just legislation which imposes costs on business; the actions of regulators do so as well. That is why we are extending the business impact target to regulators and introducing new annual reporting requirements for them. I welcome the support of the noble Lord, Lord Mendelsohn, for the principle of including regulators in the target and note his scepticism about the savings made under “one in, two out” in the last Parliament. The policies of the previous Administration saved businesses £2.2 billion a year, a £10 billion cumulative net saving over the course of the last Parliament. As the noble Lord, Lord Curry, said, these figures are validated by the independent Regulatory Policy Committee, whose strength is its independence. It is probably the best innovation in public administration that I found when I returned to government, and I would like to see one in Brussels. I am grateful to my noble friend Lord Lindsay for bringing his experience in the regulatory world to our debate today. The business impact target will cover the economic impact of new regulatory activity on business, including voluntary and community bodies—which I think answers my noble friend’s question—but it cannot apply to the public sector.
I stress that this Government are committed to matching that saving: another £10 billion of savings over the course of the Parliament. To help achieve this, we have just launched our first five reviews, in the energy, waste, agriculture, care and mineral extraction sectors. I welcome the support of the noble Lord, Lord Mendelsohn, for the growth duty. I want to clarify that this will not override or cut across regulators’ existing obligations but will sit alongside and complement them.
The noble Lord and the noble Earl, Lord Lytton, expressed concerns about the inclusion of the Equality and Human Rights Commission within the scope of the target. I assure noble Lords that the intention is to require regulators to measure and to report on the economic impact on business of the regulatory changes they make. We are certainly not seeking to fetter the independence of regulators, nor will we do so. While I understand the concern to protect the EHRC’s accreditation as a national human rights institution, I do not believe that being in scope of the target puts that accreditation at risk. I look forward to a meeting with the commission in November and I hope that it will agree that this is different.
This is of such importance to the EHRC, but it is exactly the same argument as we had over the small business Bill. By implying any relationship to the governing authority, the list A status is jeopardised. If that turns out to be the case, does the Minister agree that it would be appropriate to put this on the front page of the Act?
I thank the noble Lord for his comment. As I have said, we will discuss this matter further. We will consult on the bodies that should be included, but I have stated the reasons why I see things differently in this case.
The noble Earl, Lord Kinnoull, asked whether the FCA would be in scope, and my noble friend Lord Leigh asked about the Financial Ombudsman Service. I intend to issue a Written Ministerial Statement before Committee in this House which will list the regulators that the Government currently intend to bring within the scope of the target. The necessary secondary legislation will also be subject to the affirmative procedure. I agree with the noble Earl on his point about historic gold-plating and would be delighted to find some rich pickings from 2005, as our ambitions are high. I would welcome any examples.
My noble friend Lord Flight talked about late payment of insurance, which I am sure we will return to in Committee, but Law Commission research suggests that late payment could occur in up to 10% of cases, which is not insignificant. Where late payment occurs, its impact on businesses can be devastating.
I am pleased to say that we all agree on the important role that apprenticeships play. I am most grateful to my noble friend Lord Baker of Dorking for sharing his compelling experience and to the right reverend Prelate the Bishop of London for sharing his experiences of apprenticeships in historic buildings—I speak as a Culture Minister and a lover of cathedrals. I especially liked his notion of the dignity of the makers, which I am sure we will return to.
On uptake, we are developing a comprehensive plan for growth including more work with large employers, more support for small business and a renewed emphasis on communications. On quality, I agree that it is crucial to improve the quality of apprenticeships. That is why we are pursuing reforms to content, assessment and funding. I also completely agree that higher levels of apprenticeships are important for both young people and employers. I look forward to the debate on apprenticeships in Committee and to talking about the various educational pathways that the noble Lord, Lord Stevenson, described, in different places.
On the question of the public sector target, we want the public sector to act as a model employer and lead by example by employing a significant proportion of apprentices. A number of noble Lords asked about the scope of the public sector duty. We will be consulting, but our current thinking is that public bodies with a workforce in England of more than 250 employees will be subject to the duty. This would be likely to include most local authorities, of course, and other organisations that are classified as public bodies. We do not believe that it is necessary to set targets for the private sector, but we are taking steps to promote apprenticeships and put employers at the heart of designing new apprenticeship standards, and of course the new levy. I also agree about the value of the growing number of university technical colleges, and as my noble friend Lady Harding said, in partnerships between employers and universities in offering sandwich courses and in work experience. These other areas are also very important.
The noble Lord, Lord Stoneham, suggested that we do more to increase the number of apprenticeships generated in businesses through public sector procurement. I am happy to say that all bids for government contracts worth more than £10 million and lasting more than 12 months must demonstrate a clear commitment to apprenticeships. Many public bodies in central and local government already build skill considerations into their procurement on a voluntary basis. We certainly want to see more. Heathrow, as the noble Lord, Lord O’Neill, said, and Crossrail have both played important roles in promoting apprenticeships, as have many others.
The noble Lord, Lord Mendelsohn, raised concerns about trading standards enforcing the measure to protect the term “apprenticeships” from misuse. We are in active discussion with the Department for Communities and Local Government and the Local Government Association about this issue to make sure that it works. As regards the level of business rates in the UK, a topic mentioned by the noble Earl, Lord Lytton, it is important to note that looking at one tax in isolation presents a skewed picture. We are cutting corporation tax further to 19% in 2017 and 18.5% in 2020, benefiting more than 1 million businesses, and the Chancellor has announced £1.4 billion-worth of support for business rates for the year 2015-16.
My noble friend Lord Cope asked whether the information shared by the VOA with local authorities would go beyond that already on the VOA website. The answer is yes. The information will include detailed information such as plans. I am seeing the VOA shortly and will explore some of the points raised in today’s debate.
I reassure the noble Lords, Lord Stoneham of Droxford and Lord O’Neill, and the noble Baroness Lady Donaghy, that the Government greatly value public sector workers and the important services that they deliver. We agree that it is essential that the public sector recruits, retains and motivates the highest-quality staff. The Government also recognise that exit payments are a valuable tool for employers, particularly when restructuring and modernising, as has been said. However, exit payments have cost around £2 billion a year in recent years and it is important these payments are fair and proportionate and provide value for money for the taxpayer. I assure the noble Lord, Lord O’Neill, that individuals will continue to receive their index-linked pension in full from their normal pension age. These reforms are not an attack on retirement benefits. They are a sensible curb on six-figure redundancy payments.
I also reassure my noble friend Lord Borwick that employers cannot get around the 28-day limit by staggering payments. The 28-day limit applies to the date that a person leaves public sector employment, no matter when they are paid.
The Industrial Development Act 1982 is over 30 years old and this Bill updates it to reflect current economic realities such as the need to be able to fund broadband infrastructure. I do not have time to go into the details that the noble Lord, Lord Stevenson, asked for, but I would like to reply to the question asked by the noble Lord, Lord Stoneham, on superfast broadband. Superfast broadband is available to over 83% of homes and businesses in the UK, up from 45% in 2010. Broadband deployment is progressing at pace, with the Government’s programme making available an additional 5,000 premises a day. We remain on track to provide 90% superfast coverage by early 2016 and we are aiming for 95% of UK premises to have access to superfast speeds by December 2017.
The noble Baroness, Lady Donaghy, raised the issue of cash retention in the construction industry. There are problems with the system, but this is a deeply embedded feature of the industry and we must act on the basis of evidence. This is why we will commission analysis on the costs and benefits of such practices to inform future action. I am sure that we will return to this subject.
On Sunday trading, the Government are currently considering the responses to the consultation and will publish our own response in due course. The consultation was signed by both the Secretary of State for Business, Innovation and Skills, and the Minister of State for Housing and Planning. The Government consulted on devolving powers to local areas—for example, to metro mayors through devolution deals, and devolving powers to local authorities more generally across England and Wales.
Finally, the noble Lord, Lord Stoneham, raised the important topic of SSI in Redcar. The Government are absolutely committed to helping the workforce and local economy. That is why we have announced a package of £80 million, which will include support for workers to retrain and help for local firms to grow and create jobs.
The Government are committed to supporting small businesses and have a much better track record than the noble Lord, Lord Mendelsohn, gives us credit for. There are 760,000 more businesses now than in 2010. Many measures exist to help small firms grow and innovate, such as the enterprise investment scheme, through which small businesses raised £1.46 billion in 2013-14. Micro-businesses and start-ups remain exempt from new regulations. The British Business Bank schemes currently support £2.4 billion of finance to more than 40,000 smaller businesses. Through the bank we aim to facilitate up to £10 billion of finance to business by 2019.
In the last 18 months alone, UK Export Finance products aimed at smaller exporters have helped to secure nearly £1.7 billion of export orders. That replies to the final point of the noble Lord, Lord Stevenson.
I thank noble Lords for their contributions today, and look forward to further debate and scrutiny when the Bill comes to Committee. The Enterprise Bill will support small firms. It will make life easier for businesses by furthering our deregulation agenda, and by investing in apprenticeships. We believe that it will help to cement the UK’s position as the best place in Europe to start and grow a business. I commend it to the House.
Bill read a second time and committed to a Grand Committee.
House adjourned at 8.16 pm.