Report (1st Day)
Clause 1: Small Business Commissioner
1: Clause 1, page 1, line 9, leave out from second “to” to end of line 11 and insert “matters in connection with the supply of goods and services to—
and make recommendations.”(i) larger businesses, and(ii) public authorities;and make recommendations.”
In Amendment 1 and this group of amendments, we see the Small Business Commissioner as a body that champions small businesses and seeks to protect them against imbalances of size and power.
We appreciate the amendments tabled by the Minister to give this body greater independence and its own staff, which we will deal with in the next group. We see those amendments as a great step forward in response to debate in Committee and thank her for them. We accept what the Minister said in Committee—that the commissioner will initially have to concentrate on late payments as it gets started—but payments are crucially related to other stages of the supply relationship, whether that is commissioning or operational experience, and the commissioner will need to delve, where necessary, into those areas to be effective. The commissioner should have the remit to do that when it is considered necessary.
Amendment 1 returns to the issue of providing for the widening of the remit so that the commissioner can be more effective and address issues which are not simply associated with late payment but are related. Imbalances of power lead to problems of commissioning and operational experience which become directly associated with payment problems.
The amendment seeks to include public sector organisations, whether national or local, as they are bodies that small businesses should be encouraged to deal with, where similar problems of size and power relationships will arise. Wherever there is an imbalance of power, there is an opportunity for exploitation, and that crosses public and private sectors. The Minister gave us reassurances in Committee that there was no need to involve the public sector because it is already being put in the right place by a whole series of measures, which she named: the mandatory period of 30 days for paying bills by public bodies, with interest owed afterwards; the mystery shopper scheme; the Public Contracts Regulations 2015; and the public policy commitment for central government to pay undisputed bills within five days. She accepted that the Small Business Commissioner would act as an important signpost to help small businesses with complaints with public bodies, but it would simply refer cases on. In most cases, this might be fine, but where it encounters delays and repeated bad practice in the public sector, are we saying that it should have no power to help the small business complaining?
If everything is rosy in the public sector, there will not be any problems, but will small businesses not benefit from a one-stop-shop approach? All they are interested in is getting their bills paid on time, and we want to see imbalances of power corrected. Either the Small Business Commissioner is all-embracing, across both the public and private sectors, or the new role will confuse small businesses and its reputation for effectiveness will be damaged. For these reasons, we believe that the remit should be capable of being widened beyond simply late payments, and the public sector should be included.
Amendment 10 returns to the issue of involving the Competition and Markets Authority where this is appropriate. The Minister reassured us in Committee that there is nothing to stop the commissioner referring a report or relevant information to the authority, but we would like this to be formally recognised in the legislation to counter abuse of market power and give the commissioner added authority to do this. I beg to move.
My Lords, these amendments principally deal with the core issues of the office of the Small Business Commissioner: what it does and who it deals with. We accept the argument presented by the Government about making sure that the Small Businesses Commissioner has a focused remit. Our criticism is not about the principle of having a focus; it is about whether we are providing the means for that focus to be delivered and whether the focus is too slight to have an impact.
Little seems to have been learnt from the Australian experience over the last 13 years—gained through the establishment of the state Small Business Commissioners and the federal one—about the importance of providing a very sensible focus on improving the business environment for small businesses. In fact, one thing that could have been learnt from the Australian experience is that the one thing that the commissioner does not do very well, and should not be its focus, is late payments, and that legislation ensuring compulsion is a much better approach.
I will broadly set out the concerns that we had at the time of Second Reading. First, we accepted that, while there is a need to address the late-payment information due to arise from the Small Business, Enterprise and Employment Act 2015, defining the late-payments role as being for the Small Business Commissioner was probably the incorrect focus and would short-change small businesses, considering the support that they could have had if the brief were wider. Secondly, we said that its scale was far too narrow, as the Government anticipated that it would deal with only 500 cases a year. We thought this was too small to be able to make a big impact on what it was trying to achieve.
We also believed that, at its very core, the definition of the role and purpose of the Small Business Commissioner was far too limited, and that using the experience of others—including Mark Brennan, the very impressive and successful first Small Business Commissioner in the state of Victoria, and subsequently the Australian Small Business Commissioner—could improve the quality of the business environment by reference to the two enduring core responsibilities of government: namely, the provision of information and justice. Access to information is a key component of a competitive marketplace, and the enduring responsibility of government when intervening to regulate business is to provide an appropriate system of justice, manifested through policy to ensure fair competition and fair dealings between commercial entities and between themselves and consumers.
There is probably a consensus that the distinctive characteristics and functions of the Small Business Commissioner would cover: access to information and education; advocacy to government; investigation of small business complaints and business behaviour; facilitating the resolution of disputes, including and especially through mediation; influencing small business-conscious government and other key stakeholders, including regulators, media and the business community; and ensuring that such a commissioner would operate with an attitude of being concerned with substance rather than technicality and a dedication to resolving disputes by encouraging commercially realistic attitudes. It is also the case that an effective Small Business Commissioner improves the environment for all businesses and is not just there to operate solely for the interests of small businesses, to the detriment of others.
Fourthly, we said that the legislative measures take no account of the importance of evolution in designing the role. Many people running small businesses represent those who have ambition, work hard and are the innovative, entrepreneurial backbone of employment and social responsibility in our country. They dedicate huge amounts of time to their businesses and perform a variety of functions. Small businesses can neither afford nor, in most cases, need professional managers with the skills, training and experience of those in larger organisations, nor should they be expected to have them. When we regulate, legislate, incentivise or disincentivise, we should be very conscious that policy is designed to work for those who manage small businesses. This means that such a role will continually adapt and develop, given the times and circumstances, to achieve its aims.
Fifthly, we suggested that the fact that the commissioner will not have any capacity to develop a mediation role is an omission that, in our view, will inhibit its ability to establish its place in the general business community. Universally, the Australian Small Business Commissioners say that this mediation role has led to the widespread support for the work of the commissioner across the business community, in large businesses as well as small ones, and established their credibility. The fact that this is underpinned by an important power—namely, that any company’s refusal to accept mediation with the Small Business Commissioner will have that taken into consideration over the question of who is responsible for costs during court action—acts as a very impressive and important incentive.
We have a variety of alternative dispute resolution mechanisms, and the commissioner should work with those. Providing the Small Business Commissioner with a role in mediation is not about addressing a lack of availability, and there is value in having a signposting role, which we do support. The Government have admitted in private that, inherently, the commissioner will have a mediating role. In a briefing to Conservative Back-Benchers in another place, the Minister said that the Small Business Commissioner would have a mediating function. The briefing said:
“Our intention is to assist parties in resolving disputes themselves. For the Commissioner to make sound recommendations, both parties must have meaningful input into an inquiry into a complaint”.
I am reminded of the argument I frequently had in Committee about “may” and “must”. The fact that the Small Business Commissioner “may” take a mediating role does not mean that it “must”. As the Government have said, the way to make that role work is to give it some form of mediation.
Fifthly, we said that the commissioner lacks the independence and long-term support to make it effective. That will be addressed in the second group of amendments.
We are very grateful that, throughout the consideration of the Bill in Grand Committee, we had a very useful debate on the issue of what the commissioner will do. We accept that the Government want to provide the commissioner with a particular focus in the first instance, and that is to deal with late payments to see whether it can improve the position there. We support that, but we suggest that the Government do not limit its role. Certainly, a number of the amendments in this group, particularly Amendments 10 and 16, address this question of what the commissioner does. In our view, and that of the noble Baroness, Lady Burt—whom I welcome to her role; with her first comments, she has shown that she will make a very impressive contribution to our deliberations—this is fundamentally important in making sure that the commissioner does something and has an ongoing role to support small businesses.
Secondly, there is the question about who the commissioner deals with and is able to work with to ensure benefit for small businesses. Clause 1, where it defines that the Small Business Commissioner will take complaints from small businesses against large businesses, is quite limiting. It is certainly true that large businesses account for some of the most egregious and problematic considerations. Actually, that gives me a good opportunity to praise someone in this place whom I was able to praise during the course of the small business Bill—the noble Lord, Lord Wolfson. His company is one of the most exemplary in paying suppliers on time and well known for it in industry. We have some excellent and first-class companies who do this. But the commissioner should not be limited to dealing just with large businesses. The noble Baroness, Lady Burt, made a very good case as to why public authorities should be embraced in this.
Our Amendment 8 would add small businesses, and it does that for a couple of reasons. It is not just the fact that small businesses comprise a large number of the companies with late-payment issues. We believe that, if the Small Business Commissioner had a role in this, given that very often the issue is one of access to finance, it would help in finding a way through that problem and be extremely helpful. However, some of the most serious problems lie in the fact that many small businesses are involved in a business-to-business relationship that depends on a larger company somewhere down the line. To exclude the possibility of a company being able to come forward to the Small Business Commissioner because the ultimate logjam in the cash-flow process is from a larger business significantly limits the number of businesses that can be assisted.
In those terms, we hope that the Minister has considered the utterly persuasive case that we hope we made in Grand Committee, has accepted that our shorter summary here is similarly compelling and will bring something forward either today or at Third Reading.
My Lords, I accept that the role of the Small Business Commissioner as drafted here is very limited, but that is not accidental. This is a move towards cultural change, and I agree with the Government that it needs to be taken in small steps. The Small Business Commissioner will have power—and it is the power, in the end, of publicity. Eventually, if large companies behave badly, the power to name and shame is in the legislation. We have seen that naming and shaming has an effect; equally, the power to be able to boast about doing the right thing is very effective. Noble Lords will have noticed how Lidl is making great play of the fact that it was the first business to pay the living wage without coming under any compulsion to do so. This is a first step. Should it fail, it will be open to the Government to extend the powers but, as a first step, it is right to have a complaints commissioner or Small Business Commissioner who will be able to offer advice to small business and, if necessary, mediate on its behalf with the large companies that tend to be the worst offenders.
As we all know, small businesses are the first to complain about bureaucracy. They do not want a massive bureaucracy to have to contend with; they want help and advice, which is available to them already in many different ways. The Small Business Commissioner would just be one more place where they can go for help, and it is right that it should be on a very specific thing, particularly payment. If we try to make this too broad, we will lose the impact and main aim of the Small Business Commissioner, which is to change the culture of those companies that will not play fair. It will take the right person in the role, but that person could be very effective in changing the culture.
My Lords, I, too, feel that it is right for the Small Business Commissioner to have this focus on late payment from large companies, as I have said before in debates on this Bill. As many of us know from experience, this is a problem that has been with us for many years—in fact, for many decades—and all sorts of attempts have been made from time to time to improve the situation, some of which have had some effect. This is a further attempt, because the problem is still with us. If you broaden the initial remit of the commissioner too far—and I am not talking about the eventual remit, although maybe it will be larger in due course, which I would welcome—you will just give an impossible job to whoever gets the appointment. It will be a difficult job in any case, but it would become an impossible job.
Under the terms of Amendment 16, the commissioner would be required to establish a complete framework and fair operating environment for all businesses over a whole string of different methods and aspects. That is an enormous job to place on this new commissioner and the staff. Let them concentrate on one of the most stubborn problems we have had over many years. If they succeed in that, then we can begin to see the remit widen and used in a much bigger spread, which I think we would all like to see, in due course.
My Lords, first, I welcome the noble Baroness, Lady Burt of Solihull, to the Front Bench and commend her for her brevity and clarity. I hope the House will not mind if I take a little time to highlight some of the issues arising in this important group of amendments. I shall begin, as one must, by reiterating the importance of tackling late payment and our commitment to doing so. The measures in this Bill establish a Small Business Commissioner, delivering on and developing our manifesto commitment.
I, too, pay tribute to my noble friend Lord Wolfson for his good payment practice at Next. We should try to encourage good practice as it helps with the cultural change we are seeking. Our aim is to build on the measures taken during the previous Parliament to drive down late payment. Some of these measures are still in the pipeline, notably the new requirement on the UK’s largest companies to publish performance data on payment which will bring the sunshine of transparency to the problem.
I am extremely grateful to noble Lords for their diligent scrutiny of the Small Business Commissioner measures in Committee. After careful consideration of the arguments, we have put forward concessionary amendments, as noble Lords opposite were kind enough to acknowledge. I hope they will bear them in mind in considering what to do today.
We all know how vital the UK’s small businesses are to our economic growth. This is something we must all reflect on as we approach Small Business Saturday. In Anna Soubry, we have a Small Business Minister who champions the cause. I am a former chairman of a Scottish SME, Dobbies, and as well as understanding the practices of much bigger companies I really believe in the need for reform. On late payment, with a good strong Small Business Commissioner becoming a vital part of the support system and with the support of this House and the other place, we can make things happen. Our assault on late payment must continue.
We are committed to making Britain the very best place to start and grow a business. The Government will play their part in assisting business where it needs it most by cutting red tape and opening up markets at home and abroad to new and innovative businesses. I should say briefly that today the Chancellor confirmed that we will extend small business rates relief for another year, and 600,000 businesses will benefit. We are funding new or extended enterprise zones, including, I was delighted to see, in Carlisle, Dorset and Ipswich. We will be providing £24 million for local growth hubs to continue to join up business support on the ground in each LEP area.
The Small Business Commissioner will build the confidence and capabilities of small businesses to assert themselves in contractual disputes with larger firms and to avoid them in the first place. He or she will work to encourage a culture change in how businesses deal with each other to promote a fair operating environment. The commissioner will handle complaints by small business suppliers about payment-related issues with larger businesses. He or she will also act as a hub of user-friendly information. He or she will provide general advice and information to assist small businesses with their supply relationships, which will be sensibly integrated with other sources of business advice. My officials will involve small business users in the design phase to ensure that the commissioner’s services are easy to use and navigate.
We arrived at this policy architecture following careful consideration of the issues and the evidence, including responses to our summer consultation and further evidence including data on late payment. Our aim has been to put forward a targeted and effective response to the most pertinent issues facing small business and to focus the commissioner on late payment so that rapid progress is made. That is the point that my noble friend Lady Wheatcroft made so well.
Amendments 1, 8 and 9 would allow the commissioner to handle a complaint from a small business against another small business, a medium-sized business or public authorities, and would widen the complaints-handing function to cover all matters relating to the supply of goods and services. We have carefully considered these issues and the arguments put forward by noble Lords today and in Committee, but I must hold firm on my position that focus is needed in the complaints-handling function. We have been very clear about our policy intention to help small firms where they suffer because of an imbalance in bargaining power when dealing with larger businesses. I reassure noble Lords that larger businesses are defined in the Bill to include medium-sized businesses. We have intentionally targeted the commissioner’s services at those businesses most in need of support. We recognise that individual firms’ circumstances will vary, and acknowledge that there is evidence to show that problems exist between firms of all sizes, but we consider that small businesses should be less likely to need external support when dealing with firms of a similar size.
We have designed the commissioner to complement, not duplicate, the work of other bodies. The Bill provides for him or her to address small business issues with public authorities by signposting them, as has been said, precisely because appropriate services exist. The mystery shopper service was mentioned. It is a government service providing small business with an easy route to raise concerns about procurement, including payment issues. We consider that these issues are best addressed by this existing service, and by the commissioner signposting small businesses to it. If the public sector is dragging its feet, then complain to the curiously named mystery shopper—that is what it is there for.
We are trying to drive a parallel revolution in public procurement, with a particular focus on actions that support small business. The Government have a commitment to pay 80% of undisputed and valid invoices in five days, with the remainder paid in 30 days. Departments are required to publish performance against these targets quarterly.
We know that the UK’s small businesses have significant and long-standing concerns about payment issues, particularly late payment. These issues cause great concern and difficulty and it is essential for the commissioner’s complaints-handling function to be focused on them. The commissioner will be required to report annually on the most significant matters raised, and this may include recommendations to address those matters. So, if substantial evidence of other issues comes to the commissioner’s attention, the Bill will enable the commissioner to report on them. We therefore have no evidence of a need for the extension of the remit in the ways proposed today.
Amendment 10 would permit the commissioner to send copies of his or her published reports to the CMA. I am happy to reassure noble Lords that the commissioner does not need a power to send the CMA published reports. We expect the commissioner’s reports to be useful to, and accessed by, many regulators. I am sure the CMA will subscribe to them, as I certainly will. The commissioner, who is independent, may also choose to bring his reports to the attention of any regulator.
I thank noble Lords for their careful consideration of the ways in which the commissioner could assist small business, as set out in Amendment 16. My noble friend Lord Cope made some germane comments, as did my noble friend Lady Wheatcroft. I have explained that the commissioner’s complaints-handling function has a deliberately targeted focus on payment issues. They are vital to the culture change that we need. That is why our proposals for a commissioner to sit alongside other measures on payments that were started under the coalition Government are important.
I reassure noble Lords that the Bill already allows for the commissioner to play an important role in building an understanding of issues, which of course may change over time. As I have said, the Bill requires the commissioner to produce annual reports, which may include recommendations to government in relation to the key emerging issues.
We recognise that it will be vital for the commissioner to work with both small and larger businesses and relevant organisations to promote a culture of fair business practice. The Bill enables the commissioner to make recommendations to government and to work with other organisations on their information provision about small businesses’ supply relationships. We will review the work of the commissioner’s office at least every three years to ensure that its actions benefit small business and that he or she becomes an effective champion.
The noble Lord, Lord Mendelsohn, rightly talked about alternative dispute resolution. Our stakeholders, including the FSB, have told us that the role of government here is not to provide alternative dispute resolution but to assist them in navigating the system. I can assure noble Lords that we will provide a pathway to dispute resolution—I think the noble Lord, Lord Mendelsohn, used the word “mediation”.
The noble Lord also referred to the Australian model, where failure to mediate may sometimes have cost consequences. I simply add that, within existing court rules, the courts can consider a refusal to participate in ADR to be unreasonable, which may be taken into account in court costs.
This is an important subject and this has been an important debate. The Bill establishes a framework for the commissioner to address key issues. It gives the commissioner an appropriate role and a range of vital functions. I know from my own experience that focus is key. I hope the noble Baroness will agree to withdraw her amendment.
My Lords, I am very grateful. I thank the noble Lord, Lord Mendelsohn, for his contribution on dispute resolution, which we support, and for his kind comments. I thank noble colleagues for their contributions throughout the House. I disagree with the noble Lord, Lord Cope, that widening the remit of the commissioner would make the job too hard. Small businesses have a hard time, and we should be supporting them on this.
I thank the noble Baroness, Lady Neville-Rolfe. I have listened very carefully to the points she made. However, the public sector is not innocent in this. If everything worked in a timely way and in accordance with the regulations that have been set out for it to meet, we would not need to extend the remit in this way. Small businesses are not less but possibly more in need of help from the commissioner. Therefore, we on this side feel strongly about involving the public sector and widening the remit of the commissioner, and I would be grateful if we could test the opinion of the House.
Schedule 1: The Small Business Commissioner
2: Schedule 1, page 51, line 3, at end insert—
“StatusA1 The Commissioner is a corporation sole.”
My Lords, I carefully considered the arguments made by noble Lords in Committee on the need for small businesses to have confidence in the commissioner and in particular for the commissioner to act independently of government. I am pleased to bring forward these amendments in response to a very constructive debate. These are to further enhance the independence from government of the commissioner and to strengthen the authority and permanence of the office. We agree that it is crucial that the commissioner should inspire confidence among all businesses and business organisations, and that he or she should work constructively with business. I hope that noble Lords will welcome the government amendments.
Amendments 2 to 7 and Amendments 75 and 76 will provide the commissioner with greater independence from government. They give the office a separate legal identity as a corporation sole and provide the commissioner with powers to appoint staff and receive public funding. The commissioner will have greater flexibility to ensure that the office can be responsive to demands but, as the office will be publicly funded, these powers will be subject to ministerial oversight. The Secretary of State can keep the commissioner’s resourcing under review and respond accordingly to make sure that the office has the resources that it needs. We wish to ensure that the commissioner’s staff have appropriate provision, and I may return to this at Third Reading.
Amendment 12 clarifies and strengthens a safeguard protecting the anonymity of small business complainants from third parties. It removes any uncertainty about whether a small supplier’s identity could be revealed by use of freedom of information requests and so avoids the potential deterrence of complaints. I hope that noble Lords will support this amendment, which strikes a balance between protecting complainants and building faith in the commissioner’s processes among both small and larger businesses.
Amendments 13 and 14 will implement recommendations of the Delegated Powers and Regulatory Reform Committee in relation to Clause 11. They will also enhance the authority and permanence of the office. We have decided not to follow the proposal that the power to abolish the commissioner should not be exercisable more than five years after the legislation comes into force. I think that noble Lords will agree that we cannot be sure that the commissioner will achieve the necessary culture change on late payment within five years, and do not want to provide for the sunsetting of the power to abolish within this time. As I have explained, the amendments are to engender greater confidence in the commissioner. I beg to move.
My Lords, we welcome these government amendments and we on this side of the House are very grateful to the Minister for the very constructive way in which she has dealt with this issue. These are matters about which we had a great deal of concern and we are extremely grateful for the adept way in which she has dealt with the department in navigating these issues in a short space of time.
We believe that these are very important measures to ensure that independence and confidence was available for the small business commissioner and that establishing the commissioner as a corporate sole has been an extremely important way in which independence from government, as an instrument from government, has been established. We are very pleased that the Government have decided to look at giving the Small Business Commissioner the power to appoint its own staff, build its own team and adapt it for the circumstances. We think that this is a very important variable power that such a post would have. I noted that the Minister said that in relation to some of these, other matters will come forward at Third Reading. I would be grateful if she would give some indication of what they are likely to cover.
We are also very pleased that the Government have adopted the recommendation of the Delegated Powers and Regulatory Reform Committee not to allow the Secretary of State by the stroke of a pen to abolish the role of the commissioner, but now to establish it on a firmer footing. We also had great concerns about confidentiality. We were always concerned that if small businesses complained about larger businesses, there would be likely consequences and retribution or otherwise would take place. These are very important matters and the evidence that we had from the Groceries Code Adjudicator of the problems in not providing for confidentiality showed that this would limit significantly the capacity of the Small Business Commissioner. So we are extremely grateful to the Government for their view on this.
In passing, while complimenting the Government, I would suggest that the Small Business Commissioner is not too wide a job; it is not that it can succeed on one thing. It is peculiarly British that we have a view that we have to start so modestly. If the small state of Victoria can establish with a very small staff an effective operation that can deal with a multitude of things with great success, we should consider very carefully whether we can do better and greater things. This series of government amendments is very welcome, and I hope that in reviews over years to come they will consider other areas as well.
I thank the noble Lord for his comments, and particularly for the points that he made about confidentiality, which obviously is a very important issue. In relation to possible further amendments, this is to some extent contingent, but we want to make sure that there are appropriate provisions on matters such as pensions. We may have to return to this and we may not—but we will obviously write to the noble Lord and explain what we are doing.
Amendment 2 agreed.
Amendments 3 to 7
3: Schedule 1, page 51, line 26, at end insert—
“Commissioner and Deputy Commissioners not civil servantsService as the Commissioner or a Deputy Commissioner is not service in the civil service of the state.”
4: Schedule 1, page 51, line 28, leave out paragraph 6
5: Schedule 1, page 52, line 9, leave out “staff provided under paragraph 6” and insert “the Commissioner’s staff appointed under paragraph 11A, or seconded under paragraph 11B,”
6: Schedule 1, page 52, line 31, leave out paragraphs 10 and 11
7: Schedule 1, page 52, line 33, at end insert—
“Staff11A (1) The Commissioner may appoint staff.
(2) Staff are to be appointed on terms and conditions determined by the Commissioner.
(3) The terms and conditions on which a member of staff is appointed may provide for the Commissioner to pay to or in respect of the member of staff—
(a) remuneration;(b) allowances;(c) sums by way of or in respect of pensions.(4) Service as a member of the Commissioner’s staff appointed under sub-paragraph (1) is not service in the civil service of the state.
11B (1) The Commissioner may make arrangements for persons to be seconded to the Commissioner to serve as members of the Commissioner’s staff.
(2) The arrangements may include provision for payments by the Commissioner to the person with whom the arrangements are made or directly to seconded staff (or both).
(3) A period of secondment to the Commissioner does not affect the continuity of a person’s employment with the employer from whose service he or she is seconded (and, in particular, nothing in paragraph 11A(4) affects such a person’s continuity of service in the civil service of the state).
11C Before appointing staff under paragraph 11A or making arrangements under paragraph 11B(1), the Commissioner must obtain the approval of the Secretary of State as to the Commissioner’s policies on—
(a) the number of staff to be appointed or seconded;(b) payments to be made to or in respect of staff;(c) the terms and conditions on which staff are to be appointed or seconded.Financial and other assistance from the Secretary of State11D (1) The Secretary of State may make payments and provide other financial assistance to the Commissioner.
(2) The Secretary of State may—
(a) provide staff in accordance with arrangements made by the Secretary of State and the Commissioner under paragraph 11B;(b) provide premises, facilities or other assistance to the Commissioner.Application of seal and proof of documents11E (1) The application of the Commissioner’s seal must be authenticated by the signature of—
(a) the Commissioner, or(b) a person who has been authorised by the Commissioner for that purpose (whether generally or specially).(2) A document purporting to be duly executed under the seal—
(a) is to be received in evidence, and(b) is to be treated as duly executed unless the contrary is shown.”
Amendments 3 to 7 agreed.
Clause 4: The SBC complaints scheme
Amendments 8 and 9 not moved.
Clause 6: Reports on complaints
Amendment 10 not moved.
11: After Clause 6, insert the following new Clause—
“Repeated complaints: late payments
(a) the Commissioner determines that a particular respondent has been the subject of repeated complaints relating to the late payment of invoices,(b) the respondent concerned is a large business,(c) the Commissioner has considered the complaints and made a determination which has included recommendations to the respondent, and(d) the respondent has repeatedly failed to make changes recommended by the Commissioner,the Commissioner may request that the Secretary of State propose a fine on the respondent.(2) Where a request is made by the Commissioner under subsection (1), the Secretary of State must issue a fine to the relevant respondent unless the Secretary of State considers such a fine would be damaging to the long-term viability of the respondent’s business.
(3) The Secretary of State may by regulation make further provisions to support the effective functioning of this section including, but not limited to—
(a) the definition of “repeated complaints” for the purpose of this section,(b) the definition of “large business”,(c) the maximum level of fine that may be levied,(d) whether a different maximum level should be prescribed based on the size of the respondent’s business, and(e) the test by which the Secretary of State should consider the long-term viability of the business.(4) Regulations under this section must be made by statutory instrument, and may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Amendment 11 would give additional power to the commissioner to recommend to the Secretary of State a fine when a large business has been subjected to repeated complaints and has refused to make changes recommended by the commissioner. We asked in Committee and I ask again: what will happen without some form of sanction for repeat offenders? We believe that this is necessary to give some power to the commissioner and provide a deterrent to those who refuse to co-operate with his work. We think that it could be set up by regulation and that it is important to give some authority to the body. I beg to move.
My Lords, there are two amendments in this group. As the noble Lord has just explained, the first is about a persistent offender or repeated complaints, and it proposes a fine. The way that the fine is introduced is very unusual in comparison with most times when we introduce a fine into statute. I do not so much complain about that—it is perhaps a drafting matter—but there it is.
Amendment 15 would give very wide powers to the Secretary of State, on the advice of the commissioner, to make an enormous number of very complicated regulations—also leading, incidentally, to a fine if they are not complied with. That is the wrong thing to do, certainly at this point in the development of the Small Business Commissioner role. As we said earlier, he or she should focus on the issue of late payment, and introducing all this machinery changes the nature of what is happening. I do not support Amendment 15 in particular.
My Lords, we support the thrust of the argument presented by the noble Lord, Lord Stoneham, that it is very important to put some significant measures behind the attempt to arrest late payments. We are supportive of the Small Business Commissioner trying to do something, but we are realistic that the evidence and pattern demonstrate that it will insufficient.
I will identify one particular aspect. I am grateful that the Minister wrote to me about late payment data—a matter that we discussed in Committee. Late payments are already defined in law, and that definition has been largely in force since the introduction of the Late Payment of Commercial Debts Regulations 2013, which amended the Late Payment of Commercial Debts (Interest) Act 1998. This establishes that, where a public authority purchases goods or services, statutory interest—the determination that there is a late payment—will start to run on an outstanding payment from 30 days after the supplier’s invoice is received. For other organisations and businesses where a payment period has not been agreed, statutory interest will start to run on outstanding payments from 30 days after the supplier’s invoice is received. Where a payment period is specified in the contract, statutory interest will start to run from that date. However, if the agreed payment period is more than 60 days after the events listed, the regulations state that statutory interest will begin to run from 60 days.
The important principle is that we have already established in law that, as far as we are concerned, late payment arises, at a maximum, at 60 days in relation to private sector organisations. I say that largely because we have had a variety of data problems regarding the extent of late payments. I am extremely sceptical about the data on which the department is relying—namely, the Bacs data on late payments. The reason I am sceptical is that that body makes it absolutely clear that it considers late payment to be 30 days after the agreed payment date between two parties. Even if you have a payment date of 90 days, Bacs will only consider a period of 30 days after that as being a late payment, so it purposely excludes all those other payments which are technically defined as late payments under the existing law. That is why the Bacs figures always come out as significantly lower than those of any other survey. In fact, over the last three months, the range of late payments is identified as being between £41 billion and £61 billion. Bacs identifies the sum owed to small businesses as £26 billion. I do not think that those figures are reliable. We should deal with the problem that we have defined in law—namely, that a late payment is a late payment after 60 days.
This is an important amendment as it tries to give a sense of the extent of late payments that we have to deal with and the measures that we and noble Lords throughout the House believe are required to arrest that situation. The velocity of the increase in the incidence of this problem continues to rise without any material abatement.
It may be useful to give a real-life example to illustrate whether soft or hard measures are required. In December 2013, Debenhams was roundly condemned when the chief financial officer, Simon Herrick, sent out a so-called “Santa tax” letter to suppliers just eight days before Christmas imposing a unilateral 2.5% cut on their prices. At the time, analysts saw that as a last-minute attempt to boost falling profit margins. In January 2014, the store chain issued a profit warning, following a disastrous Christmas trading period, and the CFO resigned. He had previously come under fire in October, when Debenhams’ half-year results revealed that it had spent an astonishing sum moving its headquarters to a very opulent site in Regent’s Place, Euston. Analysts and investors said that the scale of these costs had not been flagged and that the £25 million refurbishment of the Oxford Street store was completed just in time for Christmas but had caused considerable disruption to trading.
Over the intervening period there have been complaints about the continued extension of Debenhams’ payment terms. It was a real concern to read that the Federation of Small Businesses rightly criticised Debenhams after it emerged that the department store chain was asking for discounts in return for making earlier payments. In fact, Debenhams insists on a reduction of nearly 2% in suppliers’ prices in exchange for making payments 30 to 60 days earlier. That gives noble Lords some idea of the extent of its current policy on payment terms. This is the second time in three years that the retailer has unilaterally proposed changes to suppliers’ payments in the run-up to Christmas.
I was very interested to hear the noble Baroness, Lady Wheatcroft, say that PR and publicity drive culture change which changes behaviour. I do not think there has been a company more in the headlines for its poor practices on changing suppliers’ prices than Debenhams but that has not changed that company’s behaviour one bit. It has done exactly the same thing again. I am a student of some great public relations practitioners. Indeed, we have such a practitioner in this House in the person of the noble Lord, Lord Bell. He has always made the great point that good PR is always founded on substance. That has a strong part to play in the issue we are discussing. Clear adherence to regulation will determine whether or not change will happen. It will not be determined by whether or not companies can withstand a bit of poor publicity. The noble Baroness, Lady Wheatcroft, referred to the glare of warm publicity surrounding Lidl’s decision to pay its staff the living wage and said that that demonstrates that all is well. I would be interested to hear whether she knows the payment date terms that Lidl applies. They are extremely long. In fact, Lidl has been roundly criticised for them. Clearly, one bit of glaring positive publicity does not obviate or change the culture of the company.
It is important to note that the amendment contains a variety of significant powers. In fact, it is a few amendments pushed together into one, as those who attended any of the Grand Committee sessions will know. We have done this to make the point in a number of ways that we are failing to address some of the most serious principal issues, the first being that, despite there being a clear law that allows people to charge interest, they do not do it for fear of retribution. Despite having clear rules about payment terms, people still do not adhere to them because they can get away with it by unilaterally determining a payment term. Even when companies extend payment terms to, for example, 120 days, as many do, they will not be able to charge interest for fear of retribution.
We also have a huge concern about the variety of ways in which companies add terms, unilaterally change terms and create the sorts of commercial arrangements that penalise small businesses, because they can get away with it. Be it marketing charges or warehousing costs, a variety of methods are used to reduce the amount outstanding to a smaller business. All those sorts of matters act as a massive impediment to the growth and development of small businesses. Frankly, even if it is not about growth but about justice for someone trying to run a small business and having to make sure that they do not suffer the terrible consequences of trying to borrow on credit cards—as far too many do, and they suffer enormous costs for doing so—when a large supplier fails to live up to its side of the bargain and the small business has limited options with which to address it, these are the matters that we need to address. It is the sheer size of the problem that we have to address, and there are a number of ways in which this can be done.
Our amendment suggests that the Small Business Commissioner can play a useful role, although not the only role. We also support measures in their own right to try to ensure that it is the obligation of the larger company—or indeed anyone who owes money—to pay it and not to have to be chased. In our view, it is not going to be a question of whether, in dealing with 500 cases and having a very active press officer, the Small Business Commissioner will be able to make a dent in £40 billion, £50 billion or £60 billion-worth of late payments. He or she has to be able to make sure that we build a culture whereby if you are meant to pay, you pay.
My Lords, I thank the noble Lord, Lord Stoneham, for his explanation, and my noble friend Lord Cope for his helpful comments. Of course, we have already discussed the commissioner’s remit and functions, and the reasoning underpinning the policy ethos and architecture in the Bill.
I can see the intention behind Amendment 11 but it is not in the spirit of these measures to fine businesses for failing to implement the commissioner’s recommendations. Rather, the Government believe it is vital that the commissioner builds a position of trust and influence with all parts of the business community. We strongly believe that powers to fine would undermine rather than enable this approach. Fines would not help solve the dispute or encourage a change in payment culture. Faced with potential fines, large companies would inevitably start to employ expensive legal teams and feel compelled to withhold information on payment practices on the basis of legal advice. All this would make it more intimidating for small suppliers to complain, especially if they want to maintain their commercial relationships. Our stakeholders, such as the Federation of Small Businesses, agree and are not calling for this approach.
The commissioner will have the discretion to report publicly on individual cases, providing the sunshine of transparency on payment issues, and to do so more often and in a more high-profile way than we have been able to do. I know from my own experience in several sectors that this will provide a strong incentive for businesses to engage constructively with the commissioner’s inquiries and seek to satisfy him or her. We have seen this approach work well in Australia and I am sure that it will work here, too.
The commissioner will make non-legally binding determinations, which may include recommendations about how the parties involved in a case could resolve the dispute or how to avoid such issues occurring in future. The commissioner will be considering whether an act or omission was fair and reasonable, in the given circumstances. To allow the commissioner to impose fines would effectively allow him or her to create rules on what is and is not good payment practice—quasi-legislating. This is not the role of the office.
On Amendment 15, as I have already said, this Government are wholeheartedly committed to tackling poor payment practice. That is why we are establishing a Small Business Commissioner and will use the new powers in the Small Business, Enterprise and Employment Act to introduce a parallel reporting requirement to shine a light on such practices in the private sector from next year. I was delighted to be able to further demonstrate our commitment to creating this fair payment culture by announcing in Committee a review of retention payments in the construction industry. This is not the subject of an amendment but the terms of reference have been sent to interested Peers and placed in the House Library. The review will report within nine months of the Enterprise Act coming into force.
The particular practices that Amendment 15 seeks to ban are, on the whole, examples of poor practice that we are seeking to end through the measures which I have already outlined. Any such legislation could be easy to sidestep and substitute with other examples of bad practice. For example, while we could seek to prohibit payments to be on supplier lists, other recent examples in the retail sector show that this is but one of several different ways in which large companies seek to squeeze unreasonable commercial advantage from smaller suppliers. This means that any ban could be easy for companies to sidestep through adopting a different practice.
Such legislation would also be wide-ranging, as my noble friend Lord Cope said—the noble Lord, Lord Mendelsohn, agreed—and in our view disproportionate. Such rules could also inadvertently prevent mutually beneficial arrangements that would be bad practice in some situations but work well in others. The noble Lord, Lord Mendelsohn, made some interesting comments about how to interpret “late payments”. He referred to BACS, which is of course one source of late payment data. However, I think he will agree that no one source is comprehensive. The new SBEE Act reporting requirement, which I have just mentioned, will help us to know which are the right figures to look at. I am very happy to discuss data issues further with the noble Lord. The implications are probably for the payment regulations and for guidance.
We are content with the approach that we have taken in the Bill, which is general. None of this is easy but, as we keep saying, we are striking a balance with an aim, agreed by us all, of achieving a long-lasting cultural change. I am really not convinced that additional detailed legislation of the kind proposed in Amendment 15 would be right.
I hope that noble Lords are reassured by the comprehensive nature of what we are doing. I know that it is not all in the same place, although I assure the House that we will seek to bring everything together in terms of communication from the Small Business Commissioner. We have the measures in the Bill, the measures in the SBEE Act and the regulations being made under it, and the huge initiatives being taken on public sector payment rates, which I think we all agree are important. We have insurance, which we will come on to discuss, and, as I have just explained, we have agreed to move ahead and do something much sooner than originally suggested on construction. We are committed to achieving a real change in culture on the ground. I welcome the House’s continued input to make this a reality but I hope that the noble Lord feels able this evening to withdraw his amendment.
I thank the noble Baroness for taking us through the arguments against these amendments. I remain somewhat unconvinced that this body will have real authority and clout without some additional powers, but in the light of what she has said, I am prepared to withdraw Amendment 11.
Amendment 11 withdrawn.
Clause 8: Confidentiality
12: Clause 8, page 8, line 35, leave out “legal” and insert “EU”
Amendment 12 agreed.
Clause 11: Power to abolish the Commissioner
13: Clause 11, page 10, line 22, leave out subsections (5) and (6) and insert—
“(5) Before making regulations under this section, the Secretary of State must consult—
(a) the Small Business Commissioner (unless that office is vacant),(b) such other persons as appear to the Secretary of State to be persons affected by the regulations, and(c) such other persons as the Secretary of State considers appropriate. (6) If, as a result of consultation under subsection (5), the Secretary of State considers it appropriate to change the whole or part of the proposed regulations, the Secretary of State must carry out such further consultation with respect to the changes as seems appropriate.”
Amendment 13 agreed.
14: After Clause 11, insert the following new Clause—
“Regulations under section 11: procedure
(1) In this section “regulations” means regulations under section 11.
(2) If after consultation under section 11, the Secretary of State considers it appropriate to proceed with the making of regulations, the Secretary of State may lay before Parliament—
(a) draft regulations, and(b) an explanatory document.(3) The explanatory document must—
(a) explain why the Secretary of State considers that one of the conditions in section 11(1) is met, and(b) contain a summary of representations received in the consultation.(4) The Secretary of State may not act under subsection (2) before the end of the period of 12 weeks beginning with the day on which the consultation began under section 11(5).
(5) Subject to subsections (6) to (13), if after the expiry of the 40-day period the draft regulations laid under subsection (2) are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the draft regulations.
(6) The procedure in subsections (7) to (10) applies to the draft regulations instead of the procedure in subsection (5) if—The Secretary of State must have regard to—
(a) either House of Parliament so resolves within the 30-day period, or(b) a committee of either House charged with reporting on the draft regulations so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within that period.(a) any representations,(b) any resolution of either House of Parliament, and(c) any recommendations of a committee of either House of Parliament charged with reporting on the draft regulations,made during the 60-day period with regard to the draft regulations.(8) If after the expiry of the 60-day period the draft regulations are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the draft regulations. If after the expiry of the 60-day period the Secretary of State wishes to proceed with the draft regulations but with material changes, the Secretary of State may lay before Parliament—
(a) revised draft regulations, and(b) a statement giving a summary of the changes proposed.(10) If the revised draft regulations are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the revised draft regulations.
(11) For the purposes of this section regulations are made in the terms of draft regulations or revised draft regulations if they contain no material changes to their provisions.
(12) In this section, references to the “30-day”, “40-day” and “60-day” periods in relation to any draft regulations are to the periods of 30, 40 and 60 days beginning with the day on which the draft regulations were laid before Parliament.
(13) For the purposes of subsection (12) no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.
(14) Regulations are to be made by statutory instrument.”
Amendment 14 agreed.
Amendments 15 and 16 not moved.
Clause 13: Extension of target to provisions made by regulators
17: Clause 13, page 11, line 6, at end insert—
“( ) In subsection (2), after “means” insert “—
(a) all regulatory provisions made under section 2(2) of the European Communities Act 1972;””
My Lords, in moving Amendment 17 in this group, I will also speak to Amendments 18 and 38. At this stage I will just say how wonderful it has been to have my noble friend Lord Stevenson in for the first part of Report. He is looking in rather fine form and I hope we will continue to see him here in such fine fettle over a long period.
In Committee, my noble friend immaculately moved a similar amendment to provide an opportunity to discuss a broader question about regulation and its important role in promoting enterprise, helping to balance risk in society and providing a framework for a stronger and more productive economy. Regulations protect the vulnerable from harm and uphold the rights of consumers and new businesses, as well as more generally promoting a level playing field for businesses. Done well, the process of regulation can be a spur to competition and growth; done badly, of course, it can become a stifling burden.
No Government contemplate introducing new regulation believing it will make life worse for their citizens, yet the public perception of regulation is of a relentless, negative story, with faceless bureaucrats imposing rules in an inflexible and often absurd manner. However, policymakers face challenges, including the fact that the costs and benefits of regulation are not shared equally across all parts of society. It is often only the direct impacts that are measured by Governments when they design new policies. Indirect impacts, particularly compliance and transaction costs, are often important but extremely difficult to pin down, and are rarely measured.
The ultimate impacts on GDP growth—or well-being, as it is more fashionable to talk about now—are rarely discussed at all. The imbalance between the costs and benefits of regulation is often felt most keenly by businesses, which in turn seek to pass on a proportion of any higher costs to consumers, leading to a sort of stealth taxation. My noble friend Lord Stevenson argued in Committee, in a very forthright and forensic way, that we on this side of your Lordships’ House are fans of intelligent regulation. We think it would be sensible for the Government to begin the argument for intelligent legislation by taking a long hard look at the composition of our current stock of regulation and how best to improve it.
I now turn to Amendment 17. I was astonished to find out recently that the Regulatory Policy Committee reported that,
“nearly half of the approximately 1,000 laws enacted during the previous parliament”—
under the coalition Government—
“were outside the scope of the Government’s One-in, One-out and One-in, Two-out rules”,
“Nearly 70% of these were of EU origin”.
That is nearly half of the approximately 1,000 laws that were introduced. The truism that what you measure gets reported applies here. Our amendment would require the Government, when they are assessing regulatory burdens, to count all regulations applying to businesses and not to exclude EU regulations en bloc as they do at present. What matters to businesses, in particular to small and medium-sized businesses, is which regulations they have to follow, not where they come from. Part of the traditional argument as to why we do not do these ones is that we have little influence over them. Again, that is a particularly unambitious way to look at it: we have a degree of influence and we should exercise it as much as possible. What is most important is the impact on businesses and we should make sure that we measure and look at that.
Our other amendments follow up the suggestion in Amendment 17. Amendment 18 would require Ministers to carry out a review and publish guidance every five years on what constitutes our stock of regulation. Without considering the whole stock, we have no way of assessing, for example, the claims made by the previous Government that something like £10.6 billion of savings were made during that Parliament because of reductions in red tape and regulation. The independent Regulatory Policy Committee suggests that not only is this a great overstatement but that more costs were incurred than were saved. If we are to get this right, we need to start with a proper definition of our regulatory stock. As someone who has a small business, I have made the point previously that I am still looking for the couple of thousand quid that I should be better off by if we had saved that amount of money.
Amendment 38 calls on the independent Regulatory Policy Committee to carry out an annual review of whether the duties placed on regulators under the Bill will affect their capabilities and capacity to conduct their regulatory role. In responding in Committee, the Minister spoke a lot about what was happening in Europe on regulatory reform—much of which is welcome—but she did not accept our argument that we need to consider the whole stock of regulation and not just overimplementation or gold-plating. Our amendment would require the target to include all EU-derived legislation. She felt that was too prescriptive, but we disagree. I beg to move.
My Lords, I have some sympathy for some of the issues these amendments explore, although I am not necessarily convinced that the exact proposals as captured in the amendments would be the right answer. None the less, with reference to Amendment 17, I fully accept that the regulatory target as measured by the Regulatory Policy Committee captures only part of the story. From a business’s point of view, the movement in the net burden of regulation goes beyond the quantum of regulation that the RPC is itself measuring. I fully respect the Government’s commitment to transparency in this area and believe that accessible information is available out there in terms of the additional regulations that are outside the scope of the RPC, but the fact that there is a regulatory burden sitting outside scope could be brought to people’s attention more energetically and more regularly than is currently the case.
The sentiment behind Amendment 18 is interesting. I would probably have approached this in a slightly different way and said that rather than there having to be a report every five years that sets out the methodology and the extent to which some regulations were or were not in scope, perhaps this would be better as an annual exercise. Given that the Regulatory Policy Committee reports annually on its work and the scope it presides over, that cycle might be the right one to link in some sort of wider dissemination or reminder of what exactly the methodology is and to report on the issues that are set out in Amendment 18.
Turning to Amendment 38, I am persuaded that the duties proposed in the Bill and related duties from recent Acts that we dealt with in the summer should not adversely affect the capabilities of regulators in discharging their responsibilities. In fact, I think that some of the new duties that we have been or will be imposing on regulators should make their job easier in terms of the more efficient relationships that are being sought between the regulator and the regulated.
However, if, hypothetically, anything about these or related duties could adversely affect the capabilities of a regulator, I hesitate to say that the Regulatory Policy Committee is the right body to conduct a review of the regulator and its duties. First, the RPC is heavily loaded with its current responsibilities, especially given the resources that are available to it. It is doing an extremely good job with its current remit. Its remit has been growing very logically in terms of the quality and quantum of regulation and in the way that departments assess policy options before bringing forward regulatory proposals. To ask the RPC to carry out an annual review of the capabilities and capacity of regulators to discharge their responsibilities would be a step in a very new direction and would require a considerable amount of work on its part.
If there were any concerns about a regulator’s capabilities, the body that would be much better suited to overseeing and reviewing that issue would be the Better Regulation Executive. The BRE already has a routine relationship with regulators in terms of the entirety of their duties. It already has initiatives such as Focus on Enforcement, which is, I think, a better platform from which to take a more rounded view of a regulator’s abilities and capabilities in terms of its statutory responsibilities.
So I do not share the scepticism which lies behind Amendment 38: the belief that the new duties might in any way undermine a regulator’s abilities. But even if one accepts that a review might from time to time be necessary, I do not think that the RPC is the right body to carry it out.
My Lords, I remind the House once again that I chair the Better Regulation Executive and clearly have an interest in this subject. I compliment the noble Lord, Lord Mendelsohn, on his eloquent speech, because we—the BRE—absolutely agree with the tenor of what he said. I shall comment on Amendment 17.
At the beginning of the coalition Parliament, when the BRE embarked on the one-in, one-out process, as your Lordships will be aware, we reported every six months on our progress. Initially, we did not include the impact of EU regulation in that six-monthly reporting process. It was precisely because we became very concerned that we were potentially misleading the business community by not highlighting the impact that EU regulation was having on it that we then, part-way through that process, declared through the RPC’s reporting mechanisms the cost as we understood it of EU regulation and its impact on the business community. Yes, the cost of EU regulation in the previous Parliament largely equated to the savings that we achieved through our domestic one-in, two-out process, but the reason for our declaring that through the RPC is precisely why the noble Lord raised the subject this evening: because we did not want to mislead the business community.
Our policy has been to work in Brussels to try to encourage the same transparency and to apply the same principles there of setting a regulatory budget. We encourage the Commission, the Parliament and the Council to adopt the same policies as we have adopted here, and to work with other member states, seeking their support through agreement to sign up to these principles. We have made significant progress there, although it has to be said that we have not quite achieved that budgetary process yet. But in our view, that is where we should now target our resources to address the cost of EU regulation.
My Lords, I start by associating myself with the comments of the noble Lord, Lord Mendelsohn, about the noble Lord, Lord Stevenson. I am so glad to see him back and on the road to recovery.
This part of the Bill is about transparency and accountability, and about asking regulators to assess the impact of their work for the business impact target and to report on the effect of the Regulators’ Code and the growth duty.
I was glad that my noble friend Lord Lindsay was able to bring his great knowledge of regulation and of being a regulator to this debate. Of course, the RPC assesses the impact of EU regulation, as we discussed in Committee, but this is not taken into account in checking against the business impact target. We agree that the cost to business of EU legislation should be transparent, but the SBEE Act already achieves that. I cannot agree that those costs should now automatically be added to the target.
As a Government, we are rightly held accountable for the impact of our regulation on business. We should therefore focus the target on the measures that we are wholly in control of, not on EU regulation. That needs to be dealt with at source. As the Prime Minister’s recent letter to Donald Tusk made clear, the Government will continue to press the Commission to introduce a target to cut the total burden on business. This could include stock as well. The European Council and Parliament have already made similar calls on the Commission for burden-reduction targets, so this is under active discussion.
Amendment 18 provides for publication of guidance regarding qualifying regulatory provisions—measures which will score in the business impact target—but Section 21 of the SBEE Act already requires the Government to publish their determination of qualifying regulatory provisions and the methodology for assessing their economic impact.
The noble Lord, Lord Mendelsohn, said that Amendment 18 required a review of the stock of regulation. That is not how we read it, but I do not think that that matters for today’s purpose. The Government agree that the stock of regulation should be reviewed regularly. In the previous Parliament, Red Tape Challenge reviewed thousands of regulations, and our new programme of Cutting Red Tape reviews is continuing that work.
We will publish information regarding the operation of the target soon. I think that we have to do it by May, but I am hopeful that we will do it a long time before that. These documents will be laid before Parliament, which can debate them if it chooses to do so. The SBEE Act already requires annual publication of a list of all provisions outside the target, and the Bill will add to that a summary of other regulatory activity outside the target.
Turning to Amendment 38, I note that the duties in this part are aimed at ensuring that regulators are open and transparent about the impact that they have on the businesses that they regulate. This enables them to be properly held to account. I understand the concern about the impact of these measures on regulators’ capability and capacity. We agree that these duties should operate proportionately; we do not, of course, want to overburden regulators or, indeed, the RPC. I agree with my noble friend Lord Lindsay that the RPC’s involvement could actually help to make the job easier because of the good systems that it has developed, the way that it approaches analysis and the way that that can be spread across the public sector.
Our initial impact assessment suggests that the transparency obligations that we are introducing here will cost less than £1.5 million across all 65 regulators. That is less than 0.1% of their total budget for regulatory activity. Of course, if our implementation were to lead to disproportionate cost, we would look at the approach again. I am absolutely sure that the costs of transparency will be more than outweighed by the benefit. The discipline of assessing impact will encourage regulators to look at different options, including non-regulatory approaches and sharper targeting. They will be prompted to think harder about whether regulation is necessary.
Let me give an example. In 2013, the Environment Agency very sensibly voluntarily assessed the impact of a proposed measure on hydro power. When the agency board saw its own assessment, it concluded that the costs did not justify the benefits and withdrew the proposal, eventually bringing one forward that was much better. It was a benefit to both the businesses and the agency.
Reporting will encourage proper application of the Regulators’ Code. Section 2.2 of the code asks regulators to engage with business. Doing so could help regulators to find ways of regulating that are more effective and require less enforcement.
I understand concerns about costs; I always share them, but we are trying to keep those to a minimum and I am sure that the benefits will be considerable. I hope I have reassured the House that the transparency we seek is already provided for, and that the Government intend the duties to operate in a proportionate manner. The House has noted our plans for the business impact target and to publish more detail on that. I hope, in the circumstances, that the noble Lord will feel able to withdraw his amendment.
I thank the Minister for that reply. We share a view that regulators can act better; and we support the establishment of these targets, as we expressed in Grand Committee. We have also said on many occasions previously that two of the major flaws in the operation of the regulators are that they have taken insufficient care to ensure that they inform those that they are regulating—or consumers or small businesses—and that they do far too little to ensure that compliance is both widespread and as easy as possible. That is certainly something that we hope that the business impact target will help to achieve; but if they saw that mission as more central, we would regard that as useful.
I am sorry that the noble Earl, Lord Lindsay, thought that we were sceptical. We were just generally making the case that you can do two things at once. I am sorry if it came over as scepticism. In general, I was rather more convinced by the contributions from the noble Earl, Lord Lindsay, and the noble Lord, Lord Curry, than I was by that of the Minister in terms of the right approach, as we look at a deregulatory push as we move on. I am grateful to them both for their contributions. The noble Lord has made a very strong effort to ensure that better regulatory activity does something to try to address the problems that we have from Europe. He has been quite effective in that role, and I wish him continued success in it.
The Minister is acutely aware of my scepticism about the calculations that you net out with at the very end of calculating the reduction in regulation. In general, it would be much more convincing and I would be much more comfortable if the overall objective was to establish, including EU regulation, a net-negative target. I appreciate that that is not present in the amendments. Overall, we should establish that there is a saving of a figure once you have netted out both. We can make a greater difference on those things that we can control. It is a source of some regret that, in the last Parliament, the RPC figures suggested that the overall regulatory burden was somewhere close to half a billion pounds more. If we establish that our target is to be significantly under, then we have a way that marries both together. In many ways, I thank the noble Earl, Lord Lindsay, for some of his observations on all the amendments.
My Lords, I thought it would just be worth adding, in relation to the last Parliament, that a large chunk of the EU costs—nearly £2 billion—related to EU regulation introduced to address systemic financial risk following the crisis. I do not think that the noble Lord disagrees with that, but it is an important background point.
I thank the Minister for that. Indeed, it made the case for a very large part of the speech that I made earlier about the importance of regulation. I am not suggesting for one moment that there is no case for regulation: I hope that I was making quite the opposite case. I happen to think that establishing a regulation to deal with the consequences of the financial crisis is a particularly good form of regulation. Overall, however, if you can calculate the number—whatever its merits or demerits—the Government should be establishing themselves as promoting a net-negative figure rather than accepting that whatever they do in their own right is sufficient.
I thank the noble Earl, Lord Lindsay, for his support, and I tend to agree with him. An annual health check is a much better idea: we were trying to be reasonable, but that is the best idea. I also thank him for an even better idea—that, rather than the RPC, the Better Regulation Executive is a much better body to take on that role. When drafting the amendment, we were just trying to make sure that we did not add anything to the Small Business Commission in case the noble Lord, Lord Cope, got even more exercised at the breadth and range of activities that we were proposing to give it, but I think that the Better Regulation Executive is the right body. To the Minister, the noble Earl and the noble Lord, Lord Curry, I say that if we can make a modicum of progress on some of these matters—if there were some measures that would enhance our deregulatory shift—I would be very happy to support what the Government might bring forward at Third Reading. I beg leave to withdraw the amendment.
Amendment 17 withdrawn.
Amendment 18 not moved.
19: Clause 13, page 11, line 30, leave out “given to the Secretary of State” and insert “published”
My Lords, during Second Reading, noble Lords expressed concern at the Government’s intention to include the Equality and Human Rights Commission in the business impact target. They felt that it would put at risk EHRC’s international accreditation as an “A” status national human rights institution. In Committee, there was further debate regarding the EHRC’s international accreditation and the effect of its activities on business. Since then, I have had a very constructive meeting with the noble Baroness, Lady O’Neill, chair of the EHRC, and her officials. That meeting showed that the Government’s and EHRC’s objectives were closely aligned. The EHRC indicated a very welcome desire to assess, and be transparent about, the impact that changes to its regulatory activities had on business, and to have those assessments validated by the independent Regulatory Policy Committee.
The Government have no desire for the EHRC’s inclusion in the business impact target to pose a risk, whether real or perceived, to its “A” status as a national human rights institution. The business impact target does not fetter the independence of the EHRC, or indeed any regulator, to make its own decisions in relation to the changes it introduces, but the Government have listened to the EHRC’s concerns and recognise the value attached to its international standing.
The amendments to Clause 13 and Schedule 2 amend the reporting requirements of the target for all regulators that are in scope. They will require regulators to publish required documents relating to the regulatory activities that they have undertaken in an annual reporting period, rather than providing them to the Secretary of State. Cutting this direct reporting link to the Government will both mitigate any risk to the EHRC’s “A” status and offer some comfort to other regulators that their independence is not at risk either. Vitally, it will deliver the Government’s objectives of transparency around regulatory impacts to business.
In addition, Amendment 37 removes the EHRC in particular from the duty to provide a Minister with certain information relating to the effect of the regulators’ code on the performance of its functions. We accepted, as a result of our discussions with the EHRC, that there may also be a risk here to its international standing and this amendment will mitigate that risk. I beg to move.
I thank the Minister for introducing these amendments so clearly and for the discussions she had. As she made clear, the key issue is obviously the protection of the EHRC and excluding it from the requirement to report on the impact of the Regulators’ Code. As she said, we debated this at Third Reading of the small business Bill when she accepted its special case. I just ask the Minister to confirm that these proposals meet the aspirations that she set out at that point to eliminate all risk of the EHRC losing its “A” status.
We know that the EHRC has welcomed the amendments tabled today. It considers that they will deliver the Government’s intention of improving transparency while safeguarding its ability to carry out its statutory functions free from government control or direction. Also, the EHRC welcomes the Minister’s assurance that the commission will not be subject to the growth duty.
On Amendment 37, the commission seeks assurances that the new business engagement requirements will be proportionate, allowing for the existing engagement mechanisms such as its routine contact with business organisations and its two-yearly stakeholder survey to be used to fulfil these requirements wherever possible. Subject to those reassurances, which I anticipate that the Minister will be able to give, from our side we are happy to support these amendments.
My Lords, I am grateful to the noble Baroness for her comments. All risk in relation to the proposals in this Bill has obviously been dealt with; the accreditation or reaccreditation is a wider matter. We sought to take on board the will of the House and talked to the EHRC. We dealt with the provision we were worried about at Second Reading and tabled the first amendment, which, as I said, applies more broadly. As a result of the discussions, we also tabled Amendment 37 because we identified with the EHRC a further possible risk. Certainly, we plan to manage the arrangement in a proportionate fashion.
My understanding is that the EHRC has signalled that it is content, but if the noble Baroness has reason to think that that is not the case I am obviously very happy to try and sort things out with the noble Baroness, Lady O’Neill, again. My impression is that it is very pleased with the changes that we have made and the process that we have gone through.
Amendment 19 agreed.
Schedule 2: Business impact target: consequential and related amendments
Amendments 20 to 36
20: Schedule 2, page 54, line 22, leave out “give to the Secretary of State” and insert “publish”
21: Schedule 2, page 54, line 43, leave out “given to the Secretary of State” and insert “published”
22: Schedule 2, page 55, line 3, leave out “given to the Secretary of State” and insert “published”
23: Schedule 2, page 55, line 15, leave out “given to the Secretary of State or” and insert “published or given to”
24: Schedule 2, page 55, line 16, leave out from “of” to end of line 17 and insert “the publication of a required document;”
25: Schedule 2, page 55, line 18, leave out “given to the Secretary of State” and insert “published”
26: Schedule 2, page 55, line 21, leave out “given to the Secretary of State” and insert “published”
27: Schedule 2, page 55, line 28, leave out “given to the Secretary of State” and insert “published”
28: Schedule 2, page 55, line 39, leave out from “(c)” to end of line 40 and insert “publish anything amended and any back-dated assessment.”
29: Schedule 2, page 56, line 2, leave out “given to the Secretary of State” and insert “published”
30: Schedule 2, page 56, line 4, leave out from “(b)” to end of line 5 and insert “publish any amended assessment or back-dated assessment.”
31: Schedule 2, page 56, line 8, leave out “given to the Secretary of State” and insert “published”
32: Schedule 2, page 56, line 11, leave out “given to the Secretary of State” and insert “published”
33: Schedule 2, page 56, line 15, leave out “given to the Secretary of State or” and insert “published or given to”
34: Schedule 2, page 56, line 16, leave out from second “the” to end of line 17 and insert “publication of an updating document;”
35: Schedule 2, page 56, line 18, leave out “given to the Secretary of State” and insert “published”
36: Schedule 2, page 56, line 21, leave out “given to the Secretary of State” and insert “published”
Amendments 20 to 36 agreed.
Clause 14: Duty to report on effect of regulators’ code
37: Clause 14, page 12, line 38, after “regulator” insert “other than the Commission for Equality and Human Rights”
Amendment 37 agreed.
Amendment 38 not moved.
39: After Clause 16, insert the following new Clause—
“Secondary legislation: duty to review
In section 30 of the Small Business, Enterprise and Employment Act 2015 (meaning of “provision for review” in section 28(2)(a) of that Act), in subsection (3)—(a) after “must” insert “so far as is reasonable”, and(b) omit third “the”.”
My Lords, I am moving a small, technical amendment to correct a drafting error in the Small Business, Enterprise and Employment Act 2015. This came to light as departments included the statutory review clause for legislation being introduced in this Session.
An important and often overlooked part of the better regulation agenda is reviewing legislation that impacts on business on a regular basis to see if it is working, is cost effective and continues to be needed. That is a really important principle. The Small Business, Enterprise and Employment Act strengthened the previous system of reviews through a statutory duty requiring Ministers to include a provision in secondary legislation to review the legislation. Where this is not considered appropriate, Ministers need to publish a statement. Once the legislation is in force, the Minister must carry out a review of the legislation within five years. These reviews are published as a report. They look at the legislation to see if it has worked, continues to be needed and is cost effective. Recommendations will be made around keeping the legislation as it is, repealing it or amending it to make it more cost effective and less burdensome to business.
This duty applies both to domestic and EU-derived legislation. For EU-derived legislation there is a requirement to look at how other EU member states implemented the directive to ensure that how it is implemented in the UK does not put British business at a competitive disadvantage. As part of that exercise, it is clearly sensible for the comparative process to embrace other member states which are most relevant from a UK perspective, bearing in mind the nature of the activity subject to regulation. For example, in many cases there may be more to be learnt from member states that have a broadly similar institutional and regulatory structure to us in the UK, or where the scale of activity is comparable to that found here.
My amendment helps achieve that outcome by correcting a drafting error. The Act introduces a “the” in front of “other member states” in Section 30, where it says,
“have regard to how the obligation is implemented in the other Member States”.
This unfortunately implies that in their reviews, departments must look at all the other EU member states. Clearly, that would be very burdensome and was never the intention. I therefore propose to remove “the” and add “so far as is reasonable” to the requirement to ensure that departments are able to carry out their reviews in a proportionate way and are not open to judicial challenge. I thank noble Lords, hope the amendment will be supported and beg to move.
My Lords, I am glad to be able to take this opportunity to thank the noble Lord, Lord Curry, for his great work on deregulation. “Intelligent regulation” was the phrase used by the noble Lord, Lord Mendelsohn, and that applies here. I also associate myself with earlier comments that he made about the Better Regulation Executive, which is the dynamite behind the Red Tape Challenge.
I thank the noble Lord for proposing this amendment. It is supported by the Government. The principle that new regulation should be kept under regular review is widely supported, but I accept the noble Lord’s argument that it is important that these reviews are carried out in a proportionate manner. In the case of EU measures, that must mean focusing the comparison on those other member states most relevant from our perspective.
Amendment 39 agreed.
Clause 17: Extending the primary authority scheme under RESA 2008
40: Clause 17, page 24, line 16, leave out “other”
My Lords, Clause 17 sets out the framework for a new and improved Primary Authority to enable more businesses to participate. The scheme is already very popular, with more than 8,000 Primary Authority partnerships in operation. The changes that we are making to the Primary Authority scheme in this Bill will make it easier for more small businesses to access consistent, tailored and assured advice that they can rely on, giving businesses greater confidence to invest and grow. The government amendments, suggested by parliamentary counsel, are minor and technical, and correct minor drafting discrepancies, meaning that the drafting is consistent throughout the new clause. Making these changes will ensure that the legislation is clearer and easier to understand for users of the Primary Authority scheme, with whom we have been discussing the Bill. The underlying policy and effect of the clause is unchanged. I beg to move.
Amendment 40 agreed.
Amendments 41 and 42
41: Clause 17, page 24, line 29, leave out “other”
42: Clause 17, page 25, line 23, leave out “other”
Amendments 41 and 42 agreed.
Amendments 43 and 44 not moved.
Amendments 45 to 51
45: Clause 17, page 28, line 28, leave out “regulator” and insert “person”
46: Clause 17, page 29, line 6, leave out “the primary authority” and insert “a direct primary authority or a co-ordinated primary authority”
47: Clause 17, page 30, line 8, leave out “the primary authority” and insert “a direct primary authority or a co-ordinated primary authority”
48: Clause 17, page 30, line 19, leave out from “if” to “inconsistent” in line 24 and insert “—
(a) another qualifying regulator nominated as the primary authority (“PA2”) for the exercise of the function in relation to the person has previously given advice or guidance (generally or specifically), and (b) the person considers the proposed enforcement action to be”
49: Clause 17, page 30, line 26, leave out from “that” to “action” in line 28 and insert “such advice or guidance has previously been given and that the person considers the proposed enforcement action to be inconsistent with it, PA1 must—
(a) refer the”
50: Clause 17, page 30, leave out lines 30 to 36 and insert—
“(4) If subsection (3) applies—
(a) the reference of the proposed enforcement action by PA1 to PA2 under subsection (3)(a) is to be treated as a notification given by the enforcing authority to PA2 under section 25C(2)(a), and(b) accordingly, section 25C (but not this section) applies in relation to PA2 as the primary authority and ceases to apply in relation to PA1 as the primary authority.”
51: Clause 17, page 30, line 40, leave out “for a primary authority or another” and insert “in relation to an”
Amendments 45 to 51 agreed.
52: After Clause 17, insert the following new Clause—
“Report on the impact of cuts to public services on the functioning of enterprise
(1) Within 12 months of the passing of this Act, the Secretary of State must lay before Parliament a report on the impact of cuts to funding of public services on enterprise and economic growth in the UK.
(2) A report under subsection (1) must include, but is not limited to, an assessment of—
(a) the impact of reductions in Government spending on further education on the availability of skills in the UK;(b) the impact of cuts to skills funding, and of any levy on companies to provide for apprenticeships, on the quantity, quality and level of apprenticeships offered by companies;(c) the impact of reductions in the funding of the Department for Business, Innovation and Skills on advanced manufacturing;(d) the ability of Her Majesty’s Revenue and Customs to supply a comprehensive service to business customers; and(e) the impact of reductions to the Local Government Finance Settlement on the ability of local authorities to support small businesses and promote economic growth.”
Amendment 52 not moved.
Schedule 3: Primary authority scheme: new Schedule 4A to RESA 2008
53: Schedule 3, page 57, line 12, leave out “enforcing” and insert “primary”
Amendment 53 agreed.
Amendment 54 had been withdrawn from the Marshalled List.
Clause 18: Public sector apprenticeship targets
55: Clause 18, page 34, line 18, after “(“apprentices”)” insert “in high quality and high level skill apprenticeships”
My Lords, apprenticeship quality is an issue that we are revisiting, as it was debated in Grand Committee. The argument was made very strongly by my noble friend Lord Stevenson, the noble Baroness, Lady Sharp, and the noble Lord, Lord Stoneham, and the provisions in Clauses 18 and 19, which set a target for the public sector, remain a matter of significant interest for us. We accept the argument that the Government have made—that, if they are asking this of business, as a major employer the public sector should not be exempt. We further accept their argument that the public sector should not just be another employer but that it should be exemplary, leading the way in ensuring that it demonstrates the strongest possible adherence to the policy and implements it in a way to set a gold standard. We agree and, in keeping with that objective, this amendment seeks to ensure that the gold standard and the Government’s objective are properly reflected in the legislation.
Given the announcements today, I point out that local authorities should give careful attention to how they implement this commitment. It is not just the problem of having to deliver the level of restructuring required by the Chancellor, which might make it difficult in some areas to develop effective schemes, especially in places undergoing restructuring where management change might be present. Some schemes run by local authorities support those who cannot access apprenticeships due to weak literacy and other skills or learning difficulties. It would be tragic if such schemes that can never be delivered by business are cut as a result of the direct transfer of resource management away from these areas. I would be grateful if the Minister could say how existing schemes that provide skills and capabilities for people to access apprenticeships will be addressed in the implementation.
Amendment 55 amends the apprenticeship target so that it is no longer simply a numerical target but a target for high-quality and high-level skilled apprenticeships. The amendment suggests that there might be more return if the restrictions on statutory apprenticeships could focus on the higher-quality and the higher-skilled elements. In other words, they should be at levels 4 and 5 in the training schemes and not at levels 1 and 2.
Ofsted’s report on the state of apprenticeships, Apprenticeships: Developing Skills for Future Prosperity, which business agrees with, highlighted the value of quality apprenticeships as the route to the high-level skills that business and the economy need. The message in that report is the message that we are trying to drive home today—that there is a distinction to be made between the level of an apprenticeship and the quality of that apprenticeship. The report found that one-third of apprenticeships did not provide sufficient high-quality training to stretch apprentices and improve their capabilities. During inspections, apprentices were seen engaging in activities which had become so common as to be a deplorable cliché, such as making coffee, serving sandwiches or cleaning floors. These were accredited placements. That is exactly the kind of scenario that we predict will occur with the Government’s new target unless the quality threshold is strongly applied.
The noble Lord, Lord O’Neill, and the Minister, Anna Soubry, were challenged by the Business, Innovation and Skills Select Committee in another place earlier this month on how their work would ensure that apprenticeship starts counting towards the target were of sufficient high quality. Both said that focusing on the levels was not necessary; we do not agree. The committee from all sides challenged the duo as to why the Government had not set a target for high-level apprenticeships at level 4 and above. One of the committee members encapsulated the issue in suggesting that all evidence presented to the committee in its inquiry had been that the emphasis should be,
“on quality not quantity—the only target you have is for quantity not quality”.
The Minister responded by saying that apprenticeships should be,
“quality-assured by virtue of the Enterprise Bill”.
However, I cannot really see anything in the Bill that assures such quality. I would be very grateful if the Minister could provide some clarity regarding the comments made in that evidence session, explaining how quality is assured in the Enterprise Bill for apprenticeships in the public sector. If it is not present in the Bill, I would be very encouraged if the Minister would confirm that we have ensured that Anna Soubry’s commitment is properly reflected in our amendment.
In Committee, the Minister mentioned a few steps that the Government have taken to improve the quality of apprenticeships, and I would like some clarity on those. One measure that she cited was:
“Short-duration apprenticeships have been removed from the system; apprenticeships must … last a minimum of 12 months”.
How does extending the length of the apprenticeship improve the quality? It could offer employers the opportunity to abuse the system further by offering low- quality apprenticeships with little learning opportunities for young people over a longer period of time. Was that the scenario addressed in the Government’s consultation on these provisions, and are there any safeguards in place to prevent that happening?
The Minister said that the Government were,
“introducing more rigorous testing and grading at the end of the apprenticeship to ensure that apprentices are reaching full occupational competence”.—[Official Report, 2/11/15; col. GC 283-4.]
Do the Government have any intention of piloting the programme in a few public authorities? Perhaps the test would help to estimate whether the apprenticeships on offer were successful or not.
The main argument that we heard in relation to the proposals in the amendment was that the Government are wary of the potential bureaucracy in the new arrangements and that there must be a balance. I searched for a copy of “Yes Minister” to help me to understand what that meant. Judging by the importance that the Government have placed on apprenticeships, I believe that they anticipated some level of bureaucracy in the delivery of this policy and that they have thought about what the border and membrane is between an acceptable and unacceptable level. There are many economic and social gains to be made by promoting apprenticeships, but that can be done only if they are of a quality by which young people can learn and become skilled workers. By prioritising the quality of apprenticeships, the contributions made to the public sector would far outweigh any of the anticipated bureaucracy. Indeed, productivity improvements in the private sector have been very encouraging, and there is no reason why such improvements could not be reflected in the public sector.
That is why we have tabled this amendment and have such a strong feeling on this issue. Apprenticeships represent barrier-breaking entry into industries that young people would otherwise not have a chance to work in. By undertaking high-quality and high-skill apprenticeships, they will be spending time in worthwhile employment, not wasting a year stacking shelves. I am sure the Minister will agree that that is not what the Government intend but, by simply imposing a target with few checks on quality, that is what is going to happen. For us, delivering quality is an essential part of the Government leading and establishing a gold standard. I beg to move.
We on these Benches have considerable sympathy with this amendment. In Committee, we had a lot of discussion on quality and the number of apprentices who have completed only level 2 apprenticeships, which many people regard as being not really full apprenticeships. Indeed, the Government have a notion in a later part of the Bill of creating a statutory apprenticeship—the level 3 apprenticeship, which is normally a two-year or even a three-year apprenticeship.
Yesterday I had the benefit of visiting Rolls-Royce’s Apprenticeship Academy and saw precisely what a high-quality apprenticeship is really about. It is important to recognise that there are different levels of apprenticeship. The noble Lord, Lord Mendelsohn, talked about the need for us to aim at higher-level apprenticeships—levels 4 and 5—but it is important to recognise that there is a progression in apprenticeships from level 2, which is almost an entry-level apprenticeship, through to level 3, which is the standard apprenticeship, and on to levels 4 and 5, which are the more detailed apprenticeships for technicians. As the noble Lord, Lord Mendelsohn, mentioned, we as a country are extremely short of those who have completed apprenticeships at level 4 or 5, the technician level, and we need to put in considerable effort to increase the numbers. Equally, for some young people, a level 2 or level 3 apprenticeship is more appropriate than trying to push them into the very much higher-level apprenticeships.
I endorse the move by the Government to try to increase the quality of apprenticeships as well as the number of apprenticeships. There is some danger that in trying to reach the 3 million target, this may get pushed to one side again. For that reason, we on these Benches endorse the amendment.
My Lords, I shall speak also to Amendment 56, which is in my name. I endorse what my noble friend Lord Mendelsohn said about ensuring that we get high-quality as well as high-level skill. We are about to enter quite a complicated area in relation to apprenticeships. In the Autumn Statement today, the Chancellor talked about the apprenticeship levy. How it operates in relation not just to large companies but to SMEs will be vital. The Government have a doubled-edged, or perhaps even a triple-edged, challenge: increasing the number of apprenticeships to a large degree; ensuring that we sustain quality, which has already been mentioned by my noble friend Lord Mendelsohn and the noble Baroness, Lady Sharp; increasing the number of SMEs that employ apprentices; and attracting young people into apprenticeships with the guarantee that they will participate in a high-quality scheme.
My amendment addresses something that I have raised on a number of occasions. Although the Government have an impressive target, and I do not quarrel with the importance that they attach to apprenticeships, our experience to date is that somewhere between 60% and 70% of apprentices are adult apprentices and a significant number of them are people who were already in employment. In my view, the title is wrong. We are talking about retraining and reskilling, although it is important that we do that.
The Government talk about reporting back against this target in the public sector, in which that situation exists. The aim of my amendment is to ensure that we get an accurate assessment of exactly what is happening and of how many real, new apprenticeships are being created for those in the 16 to 24 age range and how many adult apprenticeships are apprenticeships—in other words, new jobs for people who have changed their occupation—or are just for people who are reskilling and retraining in existing employment. That information would be helpful in assessing what real progress is being made. I look forward to the Minister’s response.
My Lords, I take the opportunity of this amendment to say that I was most grateful to the Minister for her reassurance in Grand Committee about the measures that the Government will bring forward to allow housing associations to become private sector bodies again following the statement by the ONS. It is hoped that those measures will take housing associations out of the scope of this duty. Will the Minister say how she plans to take account of the Government’s commitment when preparing the consultation on those bodies that will fall within the scope of that duty, and will she clarify when the consultation will take place?
My Lords, I am grateful not only to the noble Lord, Lord Mendelsohn, but to the noble Baroness, Lady Sharp, and the noble Lord, Lord Young, for their comments and to the noble Baroness, Lady Warwick, for taking us back to Committee and the issue about housing associations. I am rather hoping that somebody from the Box will be able to let me answer her question about timing before we finish, but if not, I will write to her separately.
This group of amendments would require the public sector target to apply to high-quality and high-level apprenticeships and would differentiate between new and existing apprenticeships. I have spoken previously during the passage of the Bill about how the Government are committed to ensuring that all apprenticeships are of a high quality, and that is central to our reforms. So there is common ground here.
Having said that, we had a very good discussion in Committee, but, rather like Amendment 52, which the noble Lord, Lord Stoneham, sensibly did not move because of today’s events in the spending review, discussion on quality has, I think, been overtaken to some extent by today’s announcement in the other place by the Chancellor that the Government intend to establish the institute for apprenticeships. That will be central to the discussion of this area, and I hope that this independent new quality body will be welcomed once people understand in detail what is proposed.
It is against that background that I will try to respond to the debate this evening. First, in response to the noble Lord, Lord Mendelsohn, we are committed to an apprenticeship programme that is for all ages and all sectors. All apprenticeships should be quality apprenticeships. As the noble Baroness, Lady Sharp, made clear, all apprenticeships, whether they are level 2 or level 3, offer benefits and obviously should be of appropriate quality. We believe that they are an important step into the labour market and provide very valuable jobs in the economy. For example, recent research shows that adult apprenticeships at level 2 deliver £26 of economic benefit for each £1 of government investment. We must not lose that.
Employers are developing new standards to meet the skills of their sectors. The trailblazer quality statement sets out a range of measures to improve quality, including a minimum duration of one year, and must involve substantial on-the-job and off-the-job training. Training providers are also registered to ensure that they can provide good-quality services, and we are creating more degree apprenticeships.
The current employer-led apprenticeship trailblazer programme has rightly put employers in the driving seat, determining what constitutes quality. However, to deliver a genuinely world-class apprenticeship programme, it is widely agreed that we need a long-term arrangement that will support employers to uphold the high quality of apprenticeship standards and—I think this is an important point—to be able to respond to the changing needs of business, technology and society. We are therefore establishing a new employer-led institute for apprenticeships, as I have just explained. That will set the standards and ensure quality, and we anticipate that it will be active from 2017 onwards.
I would like to respond to the point that the noble Lord, Lord Mendelsohn, made about bureaucracy; as he knows, that is something against which I am as keen a campaigner as he is. That is something that we need to have regard to in this process. However, the good news is that the body will be independent. It will put employers at the heart of ensuring a sustainable governance arrangement to uphold high-quality apprenticeships and respond to the changing needs of business. We intend to introduce legislation to deliver the institute for apprenticeships, and further details will be made available in due course.
I turn to the amendment from the noble Lord, Lord Young. We do not think it necessary for the public sector target to differentiate between new and existing employees. The public sector duty and the apprentices levy will encourage the public sector to identify talent from diverse backgrounds across their organisations. It will help many people, new starts and existing staff, to learn new skills and achieve their potential. Apprenticeships are of course not just for young people entering the world of work. To my mind, there is value to both employer and apprentice when anyone takes up an apprenticeship as they change roles, get promoted or start a new, demanding role within their organisation.
The noble Lord, Lord Mendelsohn, asked about the impact on local authority schemes, which are a good entry route. Our approach to the apprenticeship programme will be not to undermine local authority-supported schemes that help to create entry routes into apprenticeships. Indeed, we believe that such schemes—for example, traineeships and the Prince’s Trust—are also important. With regard to the end-point assessment in local authorities, we do not currently plan this but we welcome input on the role of the new institute from all stakeholders, and I will pick up the noble Lord’s point about bureaucracy.
The noble Baroness, Lady Warwick, asked about the timing of the housing association consultation. We plan to bring forward the consultation by the end of the year.
Finally, in response to the noble Lord, Lord Young, I think that I have already explained and engaged on the question of whether apprenticeships should be new jobs. I think we agree that apprenticeships are paid jobs for people of all ages and are dependent on employers offering opportunities. They offer a substantial way of building a workforce with the skills that people need to succeed, and offer substantial training to ensure that apprentices gain significant new skills. I am conscious that the noble Lord is a great expert on apprenticeships and I look forward to his input.
Frankly, given the large number of what are described as adult apprenticeships, I think that we should distinguish, but I can see that I have not won that particular argument.
I could not help reflecting on the point that the Minister made about the institute and apprenticeship standards. It will guarantee the quality of standard but not the quality of delivery, and that is the challenge—that is where things can sometimes go badly wrong. I am not opposed to the new institute. I merely say to the Minister that if the Government are going to increase the numbers and the volume that they are talking about and they are successful in doing so, the challenge will still be to ensure that every single employer is delivering a quality apprenticeship.
We know we have had experience in the past where that has not been the case. The Government have changed the definition of what constitutes an apprenticeship, the timescales have been altered and so on, but that does not mean that there is no element of risk there. I say that in a constructive way. The Government need to think through very carefully how they are going to ensure that the quality of the training provider and of employer delivery will match what they believe defines a quality apprenticeship. If they do not, they will not attract into apprenticeships the kind of people that we need to attract. We need engineers and people working in construction, and we need more young women going into those areas. To do that, you need to create an environment where people feel that they are entering a quality area of employment.
I thank the noble Lord, Lord Young, for his constructive comments. He is right to explain that there could be difficulties and that it is important that we ensure quality as well as set quality standards. I apologise to the House that, as it were, an announcement tumbled into our Report stage today, but that is the way of the world. I emphasise that the issue of the institute and how we ensure quality is work in progress, as is the question of the levy. There will of course be further discussions on all this, and appropriate consultation processes are continuing. However, I hope that the provisions in the Bill on apprenticeships, limited though they are, will prove fruitful and helpful. I hope that the noble Lords have found my explanation helpful and, on that basis, will feel able to withdraw their amendment.
I thank my noble friend Lord Young for his excellent contribution to this debate. He always makes extremely important points on apprenticeships. My noble friend Lady Warwick also made an important contribution on housing associations.
I congratulate the noble Baroness, Lady Sharp, on her extremely impressive summation of the core issues here. She made the point that in many ways we have apprenticeships that are a progression, and it is important to take skills all the way through. It is important to emphasise again that in relation to these measures we are looking not to deride or exclude but for a balance. We made comments earlier about programmes to move people on to apprenticeships, so we can see the value in all this. But the noble Baroness made the point that in this country, on the schemes that we currently have, we have a massive deficiency at levels 4 and 5, and that is our core problem. Now that we have the opportunity of using the public sector to be able to increase the number of apprentices, it is for exactly those reasons that the public sector should lead and demonstrate its capacity to have a disproportionately high number of higher-level apprenticeships.
I am bound to say that I heard the announcement of the establishment of an institute for apprenticeships, but I am not compelled that it has much relevance to this debate—it is more targeted towards the private sector. Who knows—given the many announcements that the current Chancellor tends to make, some officials may be working busily away on what was merely a couple of lines of notes, and perhaps in due course sufficient expertise and brilliance on the part of the officials will be brought to bear and it will become relevant. However, as it currently stands it has no relevance to where this is.
I emphasise that we think this is significant because the Bill is in front of us now. We support the move towards increasing the number of apprentices and using them as a method to deliver growth, fulfilling lives and well-being to our citizens. It is absolutely core to our being that we provide them with the necessary skills. The public sector can and should take the burden of ensuring that we have the right blend of apprenticeships, and we can do that now by amending the Bill. It is important that we take that chance. I beg leave to test the opinion of the House.
Amendment 56 not moved.
57: Clause 18, page 34, line 19, at end insert—
“( ) A prescribed public body may set apprenticeship targets for its subcontractors.”
My Lords, this amendment is slightly different from the one that we discussed in Committee, and suggests that prescribed public bodies should be able to set a target for their subcontractors. In Committee, the Minister reminded us that on 1 September this year all central government contracts over £10 million were required to commit to including a certain number of apprentices within the contract. At that time, there were discussions with the Department for Communities and Local Government and the Local Government Association about extending to local authorities the notion of contracts over £10 million having an apprenticeship target attached to them. It would still exist—it would be a matter of all large contracts of one sort or another, over £10 million.
Although we very much welcome this initiative and feel that it is a right use of public procurement to help promote what is such a central aim of government—indeed, it is a cross-government aim, given that all of us back it—we feel that many local authority contracts fall well below the £10 million mark and yet could very usefully be used to help promote the apprenticeship programme. For that reason, we have put down the amendment again, though we have made it somewhat less prescriptive. It is very much a “may” amendment: that is, prescribed public bodies “may”, if they wish, include a target for their subcontractors. It picks up the notion that I spoke of in Committee, of nudging contractors to move in this direction.
We are very concerned about the relatively small number of employers in this country who take on apprentices of one sort or another. Only 15% of employers do so, and many small and medium-sized businesses do not. It would be good if we had some means of encouraging them to do so. It seems to me that, if it is felt appropriate to set such a target, it would help to nudge such employers into taking on apprenticeships. I beg to move.
My Lords, I declare an interest as the co-president of Norwood, a very large charity that deals with children with special educational needs and people with learning disabilities. I thank the noble Baroness, Lady Sharp, for proposing this amendment. I apologise—I am speaking about the wrong amendment. I will return to that in due course.
I speak to Amendment 60, which raises a matter that we discussed in detail in Grand Committee—that is, the duty on trading standards to enforce apprenticeship quality. I thank the Minister for her excellent work on that and for the work she and her officials have done in talking to the Trading Standards Institute to make sure that this is addressed. I am very pleased that she has been able to report that trading standards have suggested a model using one lead standards institute to try to ensure that this is delivered—I believe that that is Birmingham City Council. In my view, they have made quite a small resource suggestion, and I hope that in due course that would be reviewed to see whether it is sufficient to undertake the duty. I am very pleased, too, that the Department for Business, Innovation and Skills has agreed to fund this additional post, which I think is essential.
I was very encouraged that the Minister has taken extra care to propose that the Skills Funding Agency acts as the first point of contact on compliance, which is a very good idea and bridged what was, in our view, a large hole. I think the Minister will understand that I would be more than tempted not to move this amendment, but I am taking the opportunity to say thank you for addressing this concern and coming up with an even better suggestion than we had in Grand Committee.
My Lords, I, too, rise briefly to speak to Amendment 60. I appreciate that there has been very substantial progress on this. It does highlight, though, the automatic tendency of government, when something needs to be enforced, to say, “Why don’t we ask trading standards to do it?”, without any thought about who in practice is going to be able to do so. I declare my interest, in being chair of National Trading Standards, although this is about local trading standards. Local authority trading standards departments have on average already faced reductions of 40% to 50%, and they may well be—we all wait to see what the implications of today’s figures are in practice—facing substantially more. They already have had a very large number of duties placed on them, couched in similar terms to this, and the Government keep adding to the total.
Perhaps when she responds to this group of amendments and explains the solution that has been found in terms of this particular additional requirement, the Minister might tell us what arrangements the Government are going to put in place for all the other duties that are placed on trading standards departments to make sure that they can be effectively delivered. Indeed, perhaps in passing, she might want to tell us the precise number of duties and pieces of legislation that trading standards departments are expected to enforce.
My Lords, I thank the noble Baroness, Lady Sharp, for her support for the Government’s new procurement rules under which, on big projects—a £10 million project lasting for more than 12 months—an apprenticeship commitment is now required in the contract.
Amendment 57 seeks to allow for the employment of apprentices by subcontractors of a public body to be included in targets set for the public body, and for a public body to be able to set apprenticeship targets for its subcontractors, as defined in Amendment 59.
Amendment 60 removes the enforcement duty on local weights and measures authorities for protecting the term “apprenticeship” from misuse. In order to meet the 3 million starts commitment, I agree that the public sector needs to do its fair share by employing more apprentices. As I said before, my own Bill team is leading by example, with an excellent apprenticeship, and I take the point made earlier by the noble Lord, Lord Mendelsohn, about levels.
It is important that the public sector seizes the real value and benefits that apprentices of all levels can bring to their organisations. This modern approach will allow it to develop internal talent, answer ongoing business needs and develop existing staff. However, I fear that Amendment 57 could put this ambition at risk. It would enable public sector bodies that are captured by the duty to meet their targets via persons who supply goods and services to them.
I reassure noble Lords that the Government recognise that certain public procurement contracts can be a key means of upskilling workforces, but we do not believe that this is the right way to do it. Although the policy is currently mandatory only for central government, its agencies and non-departmental public bodies, all other contracting authorities are strongly encouraged to adopt the new approach. Many public bodies and local government already build skills considerations into their procurement on a voluntary basis. A decision was therefore taken not to introduce this in the wider public sector initially but, in the first instance, to take a voluntary and collaborative approach, learning from the sort of good practice that we discussed in Committee —we talked about Crossrail, and of course other big infrastructure projects are on their way.
Officials in the Department for Business, Innovation and Skills and the Crown Commercial Service will work together with officials in the Department for Communities and Local Government, the Local Government Association and local authorities to identify existing best practice and experience and bring forward further proposals for wider action in local government in 2016.
I now turn to Amendment 60. I am very grateful to the noble Lord, Lord Mendelsohn, for returning, after a bit of a bump, to happy collaboration on this Bill. I would also like to thank the noble Lord, Lord Harris of Haringey, for what he said. I go back with trading standards; as an official, I was responsible for the Food Safety Act, where we also managed to find some money for trading standards. I thank the noble Lord for the great work that he has done and that is done by trading standards right across the country. As he says, they are multitaskers with a vengeance and cover an enormous area. I understand the noble Lord’s point and, as I am sure he knows, government officials have been reviewing the burdens on trading standards. In due course, we will return to that subject.
In the mean time, I reassure the House, as has been said, that we intend to appoint and fund a lead local authority to carry out the enforcement of the measure on behalf of the Department for Business, Innovation and Skills. That has been discussed with the Trading Standards Institute, which agrees that this is the most sensible approach. We already know that this model works successfully for some functions, such as the illegal moneylending team which is based in Birmingham City Council.
I hope that the noble Lords feel that we have made progress in these areas, have found my explanation reassuring and, on this basis, will feel able to withdraw their amendments.
I thank the Minister for her reply. I rather expected it, but had hoped that perhaps in discussing the issue further with the DCLG and the Local Government Association they might have discussed this all-embracing amendment.
I did not see, if I may say so, my amendment as necessarily meaning that a public body could transfer some of its target to its subcontractors, which was a point the Minister made. In the amendment I moved in Committee, one of the points I made was that the target could be transferred. However, I do not see this amendment as providing for a transfer of targets. I see it very much as an additional target that could be set using the power of public procurement for some of these smaller contracts, which the public bodies concerned might find quite useful.
I recognise that there is a push on the part of the Government to get all public bodies to take on apprentices, and this is one that we very much welcome. As I said, the idea was really to do nothing but provide an extra nudge. I am sorry that the Government are rejecting this idea of the extra nudge. With that, I beg leave to withdraw the amendment.
Amendment 57 withdrawn.
58: Clause 18, page 34, line 36, at end insert—
“( ) The regulations may specify that a proportion of the apprenticeship targets referred to in subsection (5) shall be reserved for—
(a) young people leaving care, and(b) young people with physical and learning disabilities.”
My Lords, Amendment 58 is again similar to an amendment that we moved in Committee. We have brought it back because we would like to discuss it just a little more.
I thank the Minister very much for her letter. There was considerable detail in it and it was extremely useful.
As the Minister said in reply to me in Committee, the Government are already doing a great deal to ensure that these vulnerable young people are given the opportunity to train through apprenticeships.
This amendment is much less prescriptive than the one we moved in Committee, which required the Government to set a specified proportion of the target for care leavers and those with special educational needs. This amendment suggests just that any such proportion is set out by regulations. Again, it is a “may” rather than a “must”; it states that “regulations may specify”. To some extent, given the discretion that can be used in regulations, it might be more appropriate for the Government to suggest that some sets of public bodies should aim for a proportion of the apprenticeship target to be taken from care leavers and those with special educational needs.
I return to the point I made in Committee: these are two groups of vulnerable young people in society that often find it very difficult to get on to the job ladder. The opportunity to get an apprenticeship—admittedly, often a fairly low-level apprenticeship—and get on the ladder to show that they can achieve and be trained properly for a job is of great advantage. Sometimes, the period of training needs to be extended more than with other apprenticeships, but they are a very useful vehicle for helping these young people get into employment and on to some sort of career path.
We spoke in Committee about the good example of some local authorities and I drew particular attention to Birmingham as an exemplar in what it does for these young people. We thought it was worth bringing back a somewhat amended version of the amendment that recognised the points made by the Minister in Committee. We hoped she might look on this one somewhat more favourably. I beg to move.
My Lords, I declare an interest as the joint president of a large charity that works with children with special educational needs, people with learning disabilities and a large number of vulnerable children and young people. I want to thank the noble Baroness, Lady Sharp of Guildford, for introducing this amendment, which we discussed in Grand Committee and which this side supports.
My personal experience is that we are finding it increasingly hard, especially with the funds available for the care sector, to move people with an opportunity to adopt skills into areas where they can lead more fulfilling lives. The burden on those charities is ever-increasing. If some of the apprenticeships available in the public sector could be targeted towards helping those people, it would be very helpful. The public sector is one of the few institutions that has the means, capacity and expertise to deal with this difficult, challenging role. I wanted to express our strong support for this proposal and thank the noble Baroness, Lady Sharp of Guildford, for raising it.
My Lords, as the noble Baroness, Lady Sharp, said, Amendment 58 is less specific than the amendment we debated in Committee, but its purpose is to impose targets on public sector bodies to specify a proportion of apprenticeships for young persons leaving care and young persons with learning difficulties or disabilities. Those are laudable aims, and I appreciate the way that the noble Lord, Lord Mendelsohn, shared his own charitable experience. But it is crucial that we ensure focus and simplicity for employers and do not deter them from hiring apprentices. It is a matter of principle for the Government that we should not mandate what type of person employers, whatever the sector, should be recruiting as apprentices. Apprenticeships are real jobs with training. Employers make the final decision about who they hire for any apprenticeships that they have advertised, and ring-fencing apprenticeships for particular groups would mean requiring employers to hire particular people for their vacancies.
Alongside the Department for Education, we will continue to promote opportunities for care leavers to receive extra support through traineeships and other study programmes. Among other things, we have introduced a personal adviser for every care leaver to support them until they are at least 21. In addition, full funding for apprenticeship training is available under existing frameworks for eligible 19 to 23 year-old care leavers. We are now extending this to cover the new apprenticeship standards and to care leavers up to the age of 24 from September 2016.
The Government will also publish, in spring 2016, a refreshed strategy to improve the lives and life chances of young care leavers. We anticipate that this will include the Government’s proposals to support care leavers entering the world of work in the coming years. We are committed to ensuring that apprenticeships are accessible to young people with learning difficulties or disabilities. We continue to look at how we can improve accessibility by working with key stakeholders, and have already taken steps to ensure that barriers preventing access to apprenticeships for those with learning difficulties or disabilities are removed.
To respond to the noble Lord, Lord Mendelsohn, as an incentive to employers, the Government fully fund apprenticeship training for all young people aged 16 to 18. This fully funded apprenticeship training is extended to eligible care leavers aged 19 to 23. A number of local authorities already prioritise support with apprenticeships for care leavers, which of course we encourage, and, where eligible, care leavers can also access programmes such as traineeships to get the support they need to get ready for an apprenticeship. They are flexible, so providers can adapt them to the needs of the trainee by including additional support such as mentoring.
There are examples of good practice and they have grown in recent years, to respond to wider needs. I believe that this amendment would take us down the wrong path. I hope noble Lords will understand how the Government have approached this and the things we are doing outside the framework of the Bill, and that the noble Baroness will feel able to withdraw her amendment.
I am grateful to the Minister for her reply. It is rather as I had expected. I acknowledge the amount of work that the Government are doing outside the Bill by promoting apprenticeships, particularly for these vulnerable young people. I hope they will continue to press public authorities to take their share of helping to train young people and give them opportunities. With that, I beg leave to withdraw the amendment.
Amendment 58 withdrawn.
Amendment 59 not moved.
Clause 19: Only statutory apprenticeships to be described as apprenticeships
Amendment 60 not moved.
Clause 20: Insurance contracts: implied term about payment of claims
61: Clause 20, page 38, line 34, at end insert—
“( ) It shall be open to the insurer to adduce evidence of the fact that it sought and obtained legal advice to the effect that it had reasonable grounds for disputing the claim without thereby generally waiving privilege in the substance or content of the legal advice it received.”
My Lords, I have no interest to declare. I do not work for the insurance industry, never have done and have never been remunerated by it. Noble Lords may wonder why I am speaking on these issues. Over 45 years of my career, I have tried to keep an eye on things in the City that have been good for business and bad for business. Interestingly, it was the Wilson Government who took the key measures in relation to the payment of interest to foreigners that led to the Eurodollar and Eurobond markets and the dramatic recovery of London over the past 50 years to again being the financial capital of the world. I tried to persuade the Conservative Government of the 1980s to change the rules for funds so that they were competitive, particularly for European investors. That did not happen and Luxembourg has all this business, now running to many billions, which the UK could have had. Interestingly, the Government subsequently changed the rules, but it was too late.
I am concerned that the issues that I raised in Committee and now raise again put at risk a £60 billion international insurance business because there are some subtleties that would make London cease to be an attractive place to handle such business. These two amendments, however, are much narrower than the ones raised last time and neither undermines the aim of the Bill. I apologise for the absence of my noble friend Lord Kinnoull, who has been called overseas urgently. As I jointly tabled the amendment with him, it falls on me to move the amendment.
I will address Amendment 62 first, which has become known as the limitation period amendment. It is of great practical importance for the London insurance market. It draws in the limitation period for late payment claims under Clause 20 and creates more certainty for reserving purposes. Without the limitation amendment, insurers may not be able to assess accurately when they are able to close off the books in terms of reserving for the underlying insurance claim. The baseline for the limitation period under Clause 20 is the reasonable time for payment. Who knows when this is, unless a court is to rule on it? In the case of a disputed claim, insurers may not be able to close the books for years after the settlement of the underlying claim.
Amendment 62 would make the limitation period for bringing a claim under Clause 20 much more certain because it is referenced to the payment of that underlying claim. With a more certain limitation period, insurers would be able to reserve and close books more readily. This ultimately goes to capital and premium levels where more certainty means less capital. It is reasonable that the basic limitation period is one year from the date of payment of the underlying claim. The insured will have received payment of the underlying claim which it already thinks is late. It has a basic six years to bring the underlying claim, so a further one year is ample for it to decide to bring a late payment case under Clause 20.
The amendment is supported by buyers, intermediaries and insurers across the insurance market and it is not just a Lloyd’s proposition. It is also supported by the independent senior counsel Colin Edelman, who drafted the amendment. I understand that HM Treasury and the Law Commission both advised that there is a legitimate concern and the suggested amendment deals with this. Indeed the Law Commission sent a helpful email supporting the limitation amendment yesterday. I trust that the Government might either accept Amendment 62 or kindly offer to introduce a similar amendment in the other place.
I also ask the Minister to support Amendment 61. I do not know whether she will have had the time to consider the very serious and detailed independent legal opinion by Colin Edelman QC and Richard Harrison on the issue of privilege, which was sent to her this morning. Colin Edelman’s independent advice details the seriousness of the precise issue. The instruction to Colin Edelman was for an independent review of all the objections that have been raised by, in this case, the Government rather than the London market. This further opinion from him is too long for it to be practical for me to read out, but I will endeavour to highlight some of the key points.
The Bill, as it stands, places on the insurer the burden of proving that there were reasonable grounds for defending the claim. In the context of placing such a burden on the insurer the use of “were” is in our view capable of being construed as requiring not only that the grounds for disputing the claim were objectively reasonable, but that the insured subjectively believed that there were reasonable grounds for disputing the claim. The provision also stipulates that even if there were reasonable grounds for disputing the claim, the conduct of the insurer in handling the claim could still give rise to a breach of the implied terms. This introduces a clear element of subjectivity—the way in which the insurer behaved and the reasons for its behaviour.
Insurers rely heavily on legal advice in contentious commercial claims, so it seems to us—that is, to Colin Edelman—that if an insurer’s conduct is to be judged, the balance of fairness requires it to be able to explain to a court the real reason for its conduct, including its reliance on legal advice.
On our analysis of the operation of new subsection (4), the new cause of action could be open to abuse if the insurer were unable to assert the fact that it sought, obtained and relied on legal advice, without risking waiver of privilege. It could create a serious imbalance if the mere raising of a breach of the implied term were to place tactical pressure on the insurer to waive privilege in circumstances where there could be no such pressure on the insured. The allegation of breach could be used to try to flush out the insurer’s confidential advice, which could then be deployed to the insurer’s disadvantage in settlement negotiations.
In summary—this again is from the opinion—it is obvious that determining a claim for late payment should take place at the same time as the termination of the claim for the indemnity itself. The current provision risks routine—and possibly tactical—deferral claims for late payment which would quickly bring the law into disrepute.
Amendment 61 makes a rule so that insurers would not lose legal privilege in respect of advice on the underlying claim when trying to defend themselves against a claim. It would also serve to discourage vexatious litigation. It is intended to address the problems in a way that creates a balanced and fair playing field, and allows claims for late payment to be determined without delay. It has market-wide consensus support, including buyers, and reduces the risk of satellite litigation under Clause 20. Objection has been raised to the proposal on the grounds that it would enable the insurer to conceal the fact that the advice was cautious or caveated, but given that the section requires the insurer to have only,
“reasonable grounds for disputing the claim”,
the fact that the advice may have been cautious or caveated seems irrelevant.
In the light of Colin Edelman and Richard Harrison’s independent further opinion—provided, I regret, only this morning—I hope that the Minister may be willing to at least consider Amendment 61 or to offer something similar to be raised in the other place.
We have also heard from the Law Commission on these matters and, interestingly, the key things it has to say is that the proposed amendments are related to the legal process and do not undermine the main policy aims in the way in which it felt the previous amendments did. It says that the Law Commission prefers to work on a consensus basis and will be pleased if a compromise could be reached if there were something that could align the concerns of the market without unduly prejudicing policyholders.
I am sorry to have gone on, but I wanted to put those points on the record because they are complex and obscure. Unless we get them right, the international insurance business in London is potentially at serious risk of moving elsewhere. Again, in my lifetime I have seen business en masse move elsewhere when this country has got things wrong in either regulatory or fiscal terms. I beg to move.
My Lords, these amendments raise difficult issues. My noble friend Lord Flight overstates his case when he says that the whole of the £60 billion insurance market is at risk of moving abroad because of a late-payment provision in the Bill.
We need to go back to basics. Clauses 20 and 21 are about providing protection for policyholders. They would have been included in the Insurance Act—a Law Commission Bill—which was processed through your Lordships’ House through the special procedure for Law Commission Bills, in which I had the honour to take part. This provision was excluded only at the last minute because of the objections of traders in the London market, who have continued to maintain their objections to these clauses. The most important thing is to have Clauses 20 and 21 in the Bill when it is finally enacted.
I have been looking very carefully at the arguments that have been put forward by those who have been promoting the amendments to which my noble friend Lord Flight attached his name. I certainly did not support the amendments which we debated in Committee —which I said at the time of the debate in Grand Committee. I have looked carefully at the paperwork that has emerged subsequently, including the opinions of Colin Edelman—both the one that came out today and the one that came out recently. It is, of course, not our custom to make the law on the basis of counsel’s opinion, however eminent the lawyers happen to be. At the end of the day, it is a matter for the Government and parliamentary counsel to determine the correct way to express the law.
Having said that, I have some sympathy with the limitation amendment. It replaces a somewhat uncertain provision, which is effectively six years from the date when reasonable payment should be made, to a very clear one of one year. It is fair to say that the Law Commission has said that at the very least it arguably provides more certainty to insurers without materially undermining policyholders’ rights. If that analysis is correct, it seems to me to do no harm to the basic provisions but provides more certainty to the insurance world.
However, I am less convinced by the privilege amendment. I understand what the arguments are based on, but this is a funny Bill in which to be messing about with legal privilege—to single out one particular clause to exempt from the normal provision that when you claim legal privilege you disclose the legal advice on which you are basing your use of bringing that legal advice into play. I am far less convinced that that is the case. The Law Commission is of the view that a reasonable grounds test is an objective test and not a subjective test, as counsel’s opinion asserts. We may have different legal opinions on this; I am just not sure that the case is made.
I suspect that it is unlikely that my noble friend the Minister could accept the amendments at this late stage, given that they were tabled quite late, but I hope that my noble friend might at least be able to take away the limitation clauses for consideration, without commitment, between here and Third Reading. I underline that the most important thing is that Clauses 20 and 21 are retained.
My Lords, I congratulate the noble Lord, Lord Flight, on this further rear-guard action in his retreat towards Dunkirk with Amendments 61 and 62. He has now reached the sand dunes and is within sight of Dover, so I hope he can find a small boat on which to embark.
It is worth reminding noble Lords how many stages it has taken us to get to where we are with this whole question. The noble Baroness, Lady Noakes, and I were on the Special Bill Committee that followed the Law Commission’s report in the summer of last year. We did not report unanimously on the final outcome of the committee because she and I were in a minority—although not registered by votes—in saying that the Law Commission procedure, which means that if a matter is “controversial” it would not be taken forward in Parliament by a Special Bill Committee, translated into the fact that Lloyd’s of London had a veto over what Parliament could do in this case. I found that quite extraordinary. It is the first time that I have encountered such a procedure in a democracy and I hope that it is the last.
Happily, a year on, we are doing, in broad terms, what the Law Commission recommended in the first place. We should be dealing with the unadorned principle and with nothing else. I am not sure how far emails, which I have not seen, from the Law Commission saying what someone in the Law Commission thinks is part of parliamentary procedure. As far as I am concerned, the Law Commission procedure concluded a year ago. So I do not see how Law Commission emails are evidence, any more than a QC’s opinion. I echo the noble Baroness, Lady Noakes, on that matter.
Amendment 61 bears all the hallmarks of an attempt to introduce what the noble Earl, Lord Kinnoull, called “grit” into the system. This bit of grit is being introduced by the same constituency in the suggested provision, opening up a sort of litigation. I quote what the noble Earl said on 2 November. He said that a particular clause that he objected to could lead to more,
“disputed claims, leading in turn to … a lot of aggravation for the insurers concerned—in other words, grit in the machinery. That would naturally be less attractive to capital. Many factors decide where you want to deploy your capital as an insurance group, but I put it to the Minister that one wants to try to ensure that we do not have grit in the London machine, because any redirection of capital elsewhere would be damaging to the London markets”.—[Official Report, 2/11/15; col. GC 305.]
This has been the leitmotif of one particular part of the insurance market, of which Lloyd’s is, I think, 20%. It is the tail wagging the dog, as we all know. I was very sceptical when I saw the suggestion that we need to further accommodate the special pleading of Lloyd’s of London in its campaign against having late payments covered by the law of the United Kingdom, as they are elsewhere in the world.
On this point about the collapse of London, far from being against the interests of our competitiveness, the truth is totally to the contrary. I will also quote what I think everyone in the House will think is a reasonably pertinent piece of evidence given by the Law Commission—by Mr Hertzell—a year ago. He quoted from a publication called Commercial Risk Europe, which quoted,
“a risk manager of a global company operating in 28 countries and employing 9,000 people”.
“said of insurance generally, bearing in mind that his purchasing programmes are all around the world: ‘I agree that most claims are paid on time. The London market is a different story’”.
This person had a global perspective. He continued:
“‘Claims can be harder to deal with in London as you come up against 20 lawyers’”.
We have not had 20 tonight, but we have had one or two.
“‘The system is not working and a lot of European companies will not go to London any more because if there is a claim you are in deep trouble’”.
That is straight from the horse’s mouth on this preposterous supposition that following what is the normal legal process around the world of dealing with late payment will destroy the competitiveness of the London market. That special pleading patently must be rejected by any independent observer.
Amendment 62 seems to shift the balance in favour of an insurer, against the background that we have read in many pieces of evidence given to the Bill Committee that one year is a short period before the claim is settled. Three years is given as an average for some large claims. Perhaps the Minister has more research to bring to bear on this subject. However, I wonder why this issue is being put forward by Lloyd’s of London. That is a gift horse one might certainly look in the mouth. I think that—
The noble Lord may not be aware that the measure we are discussing has the support of the Association of British Insurers, the London and International Insurance Brokers’ Association as well as Lloyd’s and, indeed, the International Underwriting Association, so it is not just Lloyd’s but the whole insurance industry that agrees with these points.
I spoke to some of those people yesterday and the general tone of their remarks was that they did not feel as strongly about this issue as they did about some of the other comments that Lloyd’s has made. They did not want to be quoted as being on the opposite side. That was the message I got from them.
My Lords, like the noble Baroness, Lady Noakes, we cannot support Amendment 61 as it would enable an insurer to rely on the fact that it is had received legal advice to bolster the reasonableness of its position where a consumer had sued for an unfairly refused or delayed claim. However, it would not have to disclose the contents of the advice to the court, as the noble Baroness said. We consider that this would be an unbalanced tussle between the insurer and the insured.
Surely, if insurers refuse to make the content of their legal advice public, they must set out their other grounds for any delay without relying on their legal opinion. That should be sufficient for courts to assess, objectively, whether the grounds for delay were reasonable in the circumstances. It would be slightly absurd to allow an insurer simply to say that it had received legal advice saying that its grounds for dispute were reasonable, without requiring it to disclose the substance of that advice. Indeed, it would put insurers with deep pockets to obtain expensive legal advice in an unfairly strong position compared with the policyholder.
The House will be aware that the Law Commission takes a similar line to ours on whether an insurer’s defence to a late payment being that it had “reasonable grounds” for disputing the original insurance claim could be bolstered by the assertion that a lawyer told it that it had such grounds. In the Law Commission’s view, whether the insurer had reasonable grounds is an objective question based on the grounds themselves, not on a lawyer’s letter. Indeed, the mere fact that it had received legal advice would have no evidential value. Surely, an insurer should not need to rely on its legal advice to prove the reasonableness of its position. Furthermore, it seems only fair for any such legal advice to become disclosable where a party wants to rely on the fact that it has received it to bolster the reasonableness of its position.
On Amendment 62, as has already been made clear, the Law Commission has written extensively on limitation periods. I have to confess that two colleagues present tonight have read all that in more depth than I have. During the insurance law project, the Law Commission considered recommending a special limitation rule in respect of late payment of insurance claims when it accepted that insurers with many claims would need certainty about when they could close their books on a claim. At that point, the commission decided that that was not the right way forward and that it was more consistent to recommend the application of general limitation laws. It said at the time that special limitation periods in particular circumstances add unnecessary complexity which can lead to further confusion and can disadvantage claimants.
Despite this, the commission, perhaps along with the noble Baroness, Lady Noakes, has some sympathy—the emphasis being on “some”—with Amendment 62, which sets out a measured change to the limitation period to give insurers more certainty about when they might close their books, knowing that their liability had been fully satisfied in relation to a particular claim. Although this could have the effect of shortening the limitation period for policyholders, possibly to their disadvantage, the commission also acknowledges that it is not an unreasonably short period and might even give insurers an incentive to make payments more quickly to start the one-year period rolling and we hopefully close that file.
We hear those arguments but remain to be convinced that this amendment is necessary, as we have seen no evidence of likely detriment, only assertion of it. We were particularly concerned that the Law Commission concluded that Amendment 62 would not “materially undermine” policyholder rights. That sounds a bit like some undermining of policyholder rights. Therefore, we look to the Minister to provide assurances on this point, should the Government be minded to consider this amendment further.
I am aware from what the noble Lord, Lord Flight, said that the insurers very much support this measure. Well, they would, wouldn’t they? I have not heard the same from policyholders. We agree that there is some sense attached to Amendment 62—although not to Amendment 61—although I think a little more evidence still needs to be produced before the Government take that fully on board.
My Lords, I am grateful to my noble friend Lord Flight for his comments and for the work done by the absent noble Earl, Lord Kinnoull. I am very grateful to my noble friend Lady Noakes for injecting realism into our discussion this evening. I agree that Clauses 20 and 21 are very important and overdue, and should improve London’s reputation, as the noble Lord, Lord Lea of Crondall, said.
The Government and the Law Commissions that first developed the clauses have been keen to find a solution which would satisfy all stakeholders, allowing the London market to support the provisions. I am grateful to the market for its continued efforts. The latest amendments proposed by industry stakeholders relate to the complex legal areas of limitation periods and legal privilege.
I will deal first with Amendment 61, but I should say at this point that the Government have more sympathy for Amendment 62, which I will come to. The starting position in both areas is that the default rules should apply unless there is a very strong justification for making special exceptions for particular circumstances.
Amendment 61 seeks to answer some insurers’ concerns that they will be forced to disclose legal advice they received in relation to the underlying insurance claim if they seek to show they had reasonable grounds for disputing that claim. Whether an insurer has reasonable grounds to dispute an insurance claim is an objective question, based on the substance of the grounds themselves rather than whether the insurer has received legal advice in relation to them. The insurer can establish these grounds without waiving privilege by setting out the grounds for dispute in its pleadings or by relying on the content of its correspondence with the policyholder.
Legal privilege is an important protection for parties, particularly during ongoing litigation. But the existing rules concerning waiver of legal privilege already balance the competing interests in the question of when legal advice should become disclosable. This amendment threatens to put policyholders at a disadvantage, which is not justified by a corresponding need on the part of insurers.
We have read the further legal opinion, which my noble friend Lord Flight kindly sent to me today. However, legal privilege is a complex topic which has been developed over the years by the courts and should not be changed in a specific context without very good reason. While I note all the work that has been done, the Government, like my noble friend Lady Noakes and the noble Baroness, Lady Hayter, are not convinced that such good reasons exist here. I therefore ask my noble friend to withdraw Amendment 61.
The Government have “some sympathy”, to pick up the wording quoted by the noble Baroness, Lady Hayter, with Amendment 62, which relates to limitation. Some insurers have argued that the vast number of claims they deal with on a daily basis means that they need to know when they have satisfied all their liabilities in respect of a certain claim. I agree that it does not seem unreasonable to expect a policyholder to bring a late payment claim within a year of being paid the substantive insurance claim or the final payment under it.
It appears that Amendment 62 would increase certainty for insurers without materially prejudicing policyholders. It might even have the effect of encouraging insurers to make that final payment, to commence the one-year period for any subsequent late payment claim and bring the matter to a close. If that were the case, it would, of course, be a benefit to policyholders.
To that end, I believe that the amendment at least deserves further consideration. I agree that the policy intention behind it might represent an improvement to the late payment clause, which could be in the interests of both policyholder and insurer. In the light of this debate, I would like to explore the details of this possibility further and to discuss it with all interested parties. In the circumstances, I hope my noble friend will not move Amendment 62.
My Lords, I thank the Minister for her professional and courteous reply. I am grateful that the Government are willing to further consider the issues raised in Amendment 62. With regard to Amendment 61, I say simply that I hope the relevant individuals will read the Edelman opinion. The bottom line is that if Clause 20 goes through as it is, it opens the door to vexatious litigation. But I thank the Government for their response and beg leave to withdraw the amendment.
Amendment 61 withdrawn.
Amendment 62 not moved.
Amendment 63 had been withdrawn from the Marshalled List.
Clause 22: Disclosure of HMRC information in connection with non-domestic rating
64: Clause 22, page 40, leave out lines 3 to 5 and insert—
“(1) An officer of the Valuation Office of Her Majesty’s Revenue and Customs may disclose Revenue and Customs information to—
(a) a qualifying person for a qualifying purpose;(b) a ratepayer for a hereditament.(1A) Information disclosed under subsection (1)(b) may—
(a) be disclosed for the purpose of providing the ratepayer with all information used to assist determination of the valuation of any hereditament for which the ratepayer is responsible for the non-domestic rating liability and may be retained and used for that purpose, and(b) include information relating to hereditaments not owned by that ratepayer.”
My Lords, I declare my relevant interests: as a business rate payer; as a one-time employee of the Inland Revenue Valuation Office, the antecedent body of the present Valuation Office Agency; my membership of several professional bodies concerned with business rates; and as a landlord of let premises. Since this matter relates to local government finance, I further declare my vice-presidency of the LGA.
I thank the Minister for her forbearance, her communications with me and the facility of meeting her officials some days ago. I also thank the many noble Lords who have expressed an interest and listened to my sometimes convoluted explanations. I am particularly grateful to the noble Lords who have added their names to this amendment, and for the fact that they raised the matter in Committee when I was not able to attend.
In explaining the background, I start by noting that the valuation of business premises for rating purposes is a specialist field. Indeed, one feels that one is dealing with a rather narrow and slightly nerdy area of activity. It is true that it relates fundamentally to the rent that a hereditament, as it is called, would let for at a specified antecedent valuation date on a series of statutory assumptions, but the manner in which this calculation is made is obscure, may not bear any relationship to the actual rent and may be valued according to a pattern of rental evidence, precedent or a formula that is not immediately obvious, even to experts. There is an assumed state of repair. Some tenants’ improvements and production plant will increase the assessment; others will not. That opacity defies most ratepayers’ comprehension and is in itself offensive to the principle of transparency.
Currently, entries in the present rating list are by reference to an antecedent valuation date of 1 April 2008 —the peak of the property market. The national non-domestic multiplier—the number of pence in the pound which the rateable value is factored by to give the amount of rates payable—has been going up year on year by a percentage above inflation and now amounts to nearly 50% of the assessed rental value. In real terms, that is probably about 30% to 35% of the amount payable to the landlord in rent in most of the south-east of England; it is more in the north-east and north-west, and I have heard of some instances where ratepayers are paying more to their landlord in rates than in rent.
For decades it was customary for the Valuation Office Agency to share freely evidence underlying a rating assessment, but since 2010 it has pleaded confidentiality of information outside the arena of formal appeal processes due to its interpretation, after a pause of five years, of the Commissioners for Revenue and Customs Act 2005—the CRCA. Roughly speaking, this was to prevent the disclosure of private tax affairs. I never understood why it was appropriate to take the extraordinary step of extending this to the realms of business rating.
Faced with some 250,000 outstanding rating appeals, the agency has blamed the rise of slick but often unprofessional operators offering cut-price rating appeals for this state of affairs. It points out that some 50% of the appeals are eventually withdrawn and a further 25% are dismissed by the valuation tribunal in the appeals process. This has coincided with increased pressure on departmental budgets, reductions in the number of skilled staff and a legacy of failure going back much further to keep the rating system in a proper state of care and maintenance. This has been exacerbated by the fact that rates are being levied on the historically high 2008 antecedent valuation level and at absolute levels that ratepayers consider unfair and inequitable, coupled with the deferral to 2017 of the revaluation that would have taken place this year, leaving them paying rates on historically high tax bases.
I note with considerable regret that standards in the VOA seem to have slipped. I have been presented with some disturbing evidence of several high-profile cases in which valuation officers have been a great deal less than candid about the interpretation that can reasonably be placed on the evidence available or have attempted to conceal relevant facts in the context of rating appeals. This has reached the point where the confidence of ratepayers and professionals in the VOA has reached rock bottom. It is commonly believed that the agency has moved from being the dispassionate and objective government valuer to a partisan tax-gatherer as a proxy of Her Majesty’s Revenue & Customs—HMRC. That matters. It matters professionally and in terms of the fair administration of this tax.
I do not blame individuals, who I suspect have been forced into a straitjacket caused by insufficient resources, coupled with demands to maintain the tax base at all costs. The problem is the system, which even the immediate past president of the Valuation Tribunal for England said in a recent interview in the Estates Gazette is broken and no longer fit for purpose. Seen in that context, the refusal to disclose information to ratepayers at the very earliest stage is identifiable as a deliberate blocking measure designed to frustrate access to essential information which otherwise the ratepayer cannot be expected to divine for himself or herself. It effectively ensures that a formal appeal is the only route to obtaining the full facts. This is to keep the hapless payer on the hook for continued payment of escalated rates bills for as long as humanly possible.
Despite attempts by the Minister’s officials to reassure me, I remain utterly unconvinced by what is in Part 6, so my amendment is designed to cut through all that: to prevent the Valuation Office Agency citing CRCA and to free up the entire system by a process of transparency. It is the antithesis of what I see as the Government’s retreat behind a further wall of regulatory barriers in Part 6. The Minister mentioned earlier today the intention to remove red tape and simplify things for business, so it is instructive to note what is actually in the draft regulations recently published under the Bill, under the Check, Challenge, Appeal consultation, and to contrast and compare this with the express thrust of government policy and the ostensible purposes of the Bill.
First, Part 6 will enshrine what I might call the confidentiality embargo in law. There is an obvious question as to whether it will thereafter seep into an extended embargo at appeal stage, so as to become like the public immunity certificates which apply in other areas of the law. I would like the Minister, if she would be so kind, to clarify what is intended there. That would be very helpful. Secondly, Part 6 would pave the way for fees to be charged for making an appeal. This was an additional item put in following the earlier consultation in 2013. Thirdly, it may require a full statement of case and supporting evidence to be supplied ab initio by the ratepayer, failing which the valuation officer may declare the proposal to alter an assessment invalid—due, it might be added, to the absence of the sort of information that I am trying to ensure would be disclosed but which would, under the Bill, continue to be denied to ratepayers. All these measures are to be operated by the Valuation Office Agency as judge, jury and executioner without any apparent rights of challenge as to the fairness or appropriateness of what is imposed.
It seems to me that this is aimed at protecting the operation of the Valuation Office Agency and, perhaps, the tax base, but it is specifically to the unreasonable prejudice of ratepayers, the huge preponderance of whom are small businesses. It is clear to me that no additional funds for administration are to be available. Such reform as the Government have committed to is on the premise of fiscal neutrality. The Minister referred to small business relief; I would cite that in connection with fiscal neutrality because I remind your Lordships that small business relief is paid for by an additional amount levied on the ratepayers of larger properties. To say that all this is a manifestly disgraceful state of affairs is an understatement. It really looks more like the stuff of a police state and goes to the heart of confidence in fair taxation, impartial administration and the rule of law.
I turn briefly to the matter of confidentiality. This was looked at very closely in an opinion given by David Holgate QC, now the honourable Mr Justice Holgate, in which he debunked the fine distinction made by the Valuation Office Agency as between the CRCA and the Local Government Finance Act 1988. He points to the mismatch between this and the overriding duty under Section 41 of the 1988 Act, which requires valuation officers to maintain correct levels of value. In one Docklands offices case in 2014, the vice-president of the valuation tribunal made some unusually critical comments about the VOA straying from its assessment and valuation duty into revenue protection mode. As I have said, the principles of justice, honesty and fairness are at the core of any taxation code in a western democratic society, so there is an important principle at stake here.
My amendment has pan-industry support from such bodies as the Association of Convenience Stores, the British Council of Shopping Centres, the British Property Federation, the British Retail Consortium, the Federation of Small Businesses, the major rating surveying practices, relevant professional bodies and so on. I have seen the trade industry’s most recent letter to a government Minister about this. In other words, all the arguments against the consultation that was commenced in 2013 and then not proceeded with in 2014 remain unresolved and unallayed.
In every other walk of life, the direction of travel is to reduce conflict and speed up process, ensure disclosure at the earliest stage in pursuit of those and reduce thereby costs, risks and delay. What is it about the Government’s stance in the Bill so that, of all the measures that they might have chosen, this flies in the face of those admirable aims? What do the Government not understand about businesses that they choose what appears to be a deliberate racking-up of bureaucracy, a restriction of access to justice and a perpetuation of creeping malpractice? Concealing evidence is manifestly and objectively wrong. This is the only area of taxation I know of where what will have become statutory concealment applies.
Assuming that the measure gets through this House and the other place—although I hope that this debate will be noted and acted upon—I predict that it will foster dismay and a further cultural shift among ratepayers of equal and opposite magnitude to what I regard as this outrageous part of what is otherwise a good Bill. Part 6 is, ultimately, a temporary prop which will eventually fail. In any event, it will not work. People talk to each other—and in the property world, they talk to each other a lot. That is what makes our property industry so transparent and fluid. The common enemy will be seen as the system and its administrators. In a culture of growing scepticism and disregard, the provisions of Part 6 will simply provide further fuel to the flames. I hope that, even at this stage, the Minister will reconsider.
Perhaps I may say a brief word about government Amendment 65 while I am on my feet. This amendment, too, consolidates a principle of non-disclosure. In any event, I do not see how the disclosure of facts relating to a property transaction, the vast majority of such evidence being held by the Valuation Office Agency, equates to disclosure of personal or corporate tax affairs. The Government’s stance on this is narrowly founded, oblique and, I suggest, flawed. That said, I beg to move.
My Lords, I somewhat regret that we are down to the last 10 people standing in the Chamber on what I regard as probably the most important issue to involve small businesses that we have looked at tonight. This amendment deserves some consideration because it is important. I think that the Government are going off in completely the wrong direction.
Clause 22 opens up information for local authorities and the Valuation Office Agency, but it does not go back to the legislation of 2005 and open up that information for ratepayers. That is the simple issue. The problem is that the Government are trying to overcome a large number of appeals made against rate assessments. There have so far been more than 850,000 challenging the 2010 rateable values. It is no wonder that the Government want to do something about it. We know that this ties up resources dealing with what the Government consider to be some unnecessary and frivolous claims, given that 70% of appeals lead to no change, but why is this happening? All the experts tell us that it is mainly because the only method to extract information from the Valuation Office Agency is to appeal. We ought to listen to them. I think the assertion—which I agree with—is that if the Valuation Office Agency shared more of this information up front, it would deal with much of this problem, and the ratepayers and small businesses would be much more satisfied with their clarifications.
We have a consultation at the moment, with the Government looking to set up a three-stage appeal procedure: check, challenge and appeal. The check stage ought to be where businesses can check the evidence that the Valuation Office Agency is using, but all they are allowed to validate is information that they already have about their property and the current occupier’s rent. They will know that themselves, so that is hardly very helpful. This stage can take up to 12 months, and it then takes three years to complete the process for making an appeal. There are even more requirements on ratepayers to provide even more information and more grounds for appeal. It is very bureaucratic.
The Minister told us in Committee that the information that the ratepayer wants is confidential and therefore difficult to provide. But this information is known to landlords and their agents; it is simply information that is not available to the small businesses and the ratepayers, who do not have the resources to get it. We heard the quote from Graham Zellick, the recently retired president of the Valuation Tribunal for England, but it is worth quoting him again in this debate on this very important issue, because we think the Government are heading off in the wrong direction. According to the Estates Gazette, to which he gave an interview recently:
“The problem, he explains, is that the ratepayer is never given the full explanation for the valuation. As a result, every time there is a new rating list, ratepayers initiate a challenge … partly to protect their position but chiefly to ‘flush out’ more information”.
He says in that interview:
“Unless information is given up front, the system will remain defective and unsatisfactory and unjust. I don’t know any other tax that can be levied where the taxpayer doesn’t understand in full down to the last detail the basis on which the taxman has calculated the tax due. It’s unprecedented, it’s unique and it’s wrong.”
What are the Government doing? They are doggedly refusing to require the Valuation Office Agency to help businesses by making this information available. Instead, the entire burden of proof is being shifted back on to businesses. We have a cumbersome series of administrative steps, with targets and timescales in the way, failure to meet any of which can invalidate the whole appeal. This is not the direction in which the Government should be going. They need to have a good look at the direction they are taking: they are not helping small business and they need to change course. It may be too late now to do it in this House, but by goodness, if anybody is interested in small businesses, they ought to address this in the Commons.
My Lords, I express our side’s strong support for Amendment 64 and will also speak to Amendments 66 and 67. This is one of those issues which seems small when it is first presented but then grows and grows as the significance of it becomes ever more apparent and as the voice of the people whom it impacts starts to find its full volume. I strongly associate myself with the speech of the noble Earl, Lord Lytton, which I thought was absolutely outstanding. It set out all these issues extremely clearly and demonstrated the quite extraordinary consensus that there is on this subject in every quarter—except in the Valuation Office Agency and, it would seem, in the Government. I also congratulate the noble Lord, Lord Stoneham, on an extremely impressive speech and a great summation of the issues, including a view on how check, challenge and appeal could actually work more sensibly.
I also declare an interest and an experience. Recently, at the business that I set up and where I spend a lot of time, surprised that our rates were significantly in excess of our rent, we decided that we would try to see why that was and what the situation was. I had never really dealt with this issue in any of my other businesses, and I did not know the answer. So we tried to find out what it was. We were given short shrift by pretty much everybody and were set the challenge that we would not find anything until we appealed. So we were invited to appeal by the very agency that is not happy about the level of appeals, because that was the only way we could find out information. We thought about whether we should do it. The hurdles were considerable—I do not think anyone does it particularly lightly in the first place—and we took the view that we had better things to do and that a full calculation of time and value would probably show that it was not worth it. So we left it.
Along came a chap knocking door to door in our building who said to us, “We do rating appeals. In fact, we have done most of the area and you, I am sure, are eligible to pay less”. We asked how he could be so sure. He said, “I will tell you what everyone else is paying”—and he did. He said, “I have done most of their appeals and I have won. I think that you and others in this block should appeal. I’ll tell you what: I am so confident, I’m not going to charge you anything; I will just take part of the upside”. We thought that sounded fantastic. So I am one of those people currently in the queue waiting for an appeal. I am coming up to my one-year anniversary of absolutely nothing happening, except that I have now found out that there is a whole group of us who have either been through or are going through the experience in a particular geography.
In fact, I met someone who is in a block that I consider to be considerably plusher than mine—underground car park, very fancy and much, much newer—and who is paying less than I am, in what I consider to be a somewhat rum building but we call it our office. They said to me that they appealed because someone else in another building who was paying more thought that they were due to pay less. It seems that a lot of people have a certain level of knowledge and a lot of appeals are generated as a result.
I have experienced that myself. I know that a huge number of people—the noble Earl, Lord Lytton, said that it is 250,000—are waiting for an appeal. That is a considerable number given the overall number of business premises. I would be very interested if the noble Baroness could give us more detail about the people waiting for an appeal, particularly the ageing profile—that is, how long they have been waiting for their appeal to come through.
There is a complete misapprehension that 70% of cases lead to no change and that therefore there is a problem with vexatious appeals. You do not find out any information until you appeal and then you make a judgment as to whether it is worth pursuing. The system has created the wrong question, which has then been given the wrong answer. That is where we stand.
Non-domestic rating is a highly significant form of revenue for the public sector, as well as having a high impact on business. Naturally, in the new digital economy it is easier to tax anything with a physical presence. Retailers alone are paying £2.40 in business rates for every £1 in corporation tax.
However, our question is about who benefits at what level and whether it is the right system; it is also about the operation of the current system. Some experts have concisely highlighted the problem facing non-domestic ratepayers. Individual valuation officers are the sole judge of what is proportionate. Ratepayers are still denied the details of how their valuations are calculated for classes of property, and they lack the capacity to make a proper, sensible judgment through a denial of information.
I am very tempted to add to those noble Lords who have quoted the distinguished professor and Queen’s Counsel, Graham Zellick, who, as the former president of the Valuation Tribunal for England, provided the best possible quote to summarise the situation. I have such a high regard for Professor Zellick that I agree with it without much hesitation, but the evidence of my personal experience is also strong.
Not only is the existing system unfair but it is hugely counterproductive. The lack of transparency has only resulted in more appeals, further burdening an overstretched process and creating a backlog which delays appeal results. In its current form, the Bill does not address the information deficiency between the ratepayer and the Valuation Office Agency.
The noble Baroness has previously stated that information cannot be shared with the ratepayer because assessments of other ratepayers are confidential commercial information. Let me be clear that we do not advocate the Valuation Office Agency sharing commercially sensitive information which may create some competitive or other advantage—or lead to the collapse of Western civilisation. We are not calling for the disclosure of individual commercial assessments which will never see the light of day in any other circumstances, but the information to contextualise a decision about the rate paid is important for the tenant.
As it happens, I do not agree with the assessment that there is such a thing as confidential information in this situation. The person who is deficient in information is usually the small business, the tenant, because larger companies and landlords can be provided with details of almost all the other deals in the area—a fact that I did not know until recently. I now declare another interest: I chair an advisory board of a property investment business. It specialises in residential property. I was shown a building needing refurbishment and we were able to get from all the agents—the estate agents and the large valuation agents—every detail of every deal in the surrounding area to make our commercial calculations. If it is good enough for other interests—particularly the landlords—why is it not good enough for the tenants? I really do not understand.
The inclusion of Amendment 65 is a matter for concern. I am grateful to the Minister for giving me an indication of why it is there, but I am rather more persuaded by the assessment that it prevents a sensible flow of information. It creates a new statutory bar to apply to identifiable taxpayer information that has been shared by the Valuation Office Agency under Clause 22, so the protection from disclosure under FoI is not lost with transmission. I am very concerned that we are just adding hurdles for the individual ratepayer.
I am inclined to believe that the check-stage process has some positive features—such as offering opportunities for more dialogue between stakeholders—but it does nothing to resolve the underlying issue that ratepayers enter into discussions with the deck stacked against them. They are expected to enter into a time-consuming and potentially costly endeavour with little knowledge of where they stand—unless they are fortunate enough to meet someone so confident and with such a strong record that they will do it for free. The amendment resolves the information asymmetry, enhancing considerably the check stage while protecting commercially sensitive ratepayer information.
Amendment 66 is designed to establish performance targets for the Valuation Office Agency. The timescales for the check, challenge and appeal process are unclear, and this ongoing lack of precision will further entrench a climate of uncertainty into the rate review and appeal process.
In Amendment 67, we are firmly against the imposition of any upfront fee for appeals. If the rationale for that is to discourage ratepayers from making appeals, penalising businesses and diminishing their access to justice is surely the wrong way to go about it; providing information seems much more sensible.
At its very core, in business rates, your liability depends not on your property but what is being paid by lots of other people, and you have no right to obtain that information or the context of their deals, while others have ready access to it. It is clear that there is a beneficiary from the measures—and we should play “hunt the beneficiary”. The Local Government Association and the treasurers in local government see benefits neither for themselves nor for business. Experts and commentators suggest that these measures achieve little and do nothing to help enterprise or business, so who do they help? They help the Valuation Office Agency by making its exchange of information easier within government and by raising the bar on appeals. Surely this is not right. If the Bill was called, “Making the Valuation Office Agency’s Life Easier at the Expense of Enterprise” then I would understand it. But this is the Enterprise Bill and it is meant to help businesses.
What is the calculable benefit to enterprise of any of these measures? If it is filling in one form, which has previously been suggested, then what we now have is a procedure that will require much more work, time, effort and resource—including cost—for businesses to pursue. Given that we have strong support for Amendments 66 and 67 from the Federation of Small Businesses—from the experience of small businesses— I hope that the Government will take these matters seriously.
I am inclined to believe that there is a problem with the efficient running of the Valuation Office Agency, as there is in a variety of areas of government. I was recently informed that the DVLA chooses to suggest that it is unable to search on its computer by any means other than a number plate. I hope that some of these agencies have much more complex computer systems than my children have. It is probably better to review the operation of agencies rather than provide legislative cover for their failings and for the failings of the system.
There are 250,000 cases. Agents find it especially easy to establish astonishing success rates for the appeals that they apply, and some of them do this for free. I also understand that the Valuation Office Agency is now saying that the case officer dealing with an individual matter will no longer be the person who will necessarily appear at a hearing. This is extraordinary. I was rather inclined to doubt that this was something that I would find so extraordinary. How is it possible for such a person who just arrives with such a case to claim any expertise? I was comforted to know that even the Valuation Tribunal has warned that such a person might be disbarred from giving expert advice because they are not considered to be expert in that case. Surely that speaks to the problems at the Valuation Office Agency and nothing that this measure will address.
I have also heard reports that the central region of the Valuation Office Agency is suspending all activity on appeals. This again is an extraordinary measure. Is this because there is already such a large backlog? I am concerned, once we change these measures, about what will happen to that backlog. I am sure that there are a number of people who are concerned. As I said, I have a direct interest, so it would be nice to know. I am reaching my anniversary, so should I buy a cake, or will it be that these measures will wipe out and everyone will have to start again?
I do not accept the premise of the arguments in favour of these measures, and these incidents in themselves provide a commentary on the stated objectives which the Government have presented before. Interim findings are that rating appeals are made with little supporting evidence and take too long to resolve; that is one of the central claims. That is absolutely true. The reason for this is that you have no option to pursue any part of the case other than to appeal on an instinct. You are not given any assistance, so if you ask the wrong question, you end up with the wrong answer.
Secondly, it is claimed that businesses can be confident that their valuations are correct and they are paying the right amount of rates. No, unfortunately not: I cannot see in this measure any way of doing that. If you were to do that at an earlier stage, in keeping with Amendment 64, you probably would not need to go through an appeal process.
Finally, the new staged process provides a structured and transparent approach with clear expectations about timescales, requirements and actions, even though there are not any established—we tried to establish it in one of our amendments—and there is not a transparent approach at the very core of it, which is what Amendment 64 does. I share the feeling of the noble Lord, Lord Stoneham, that this is one of those issues that actually has a direct and material benefit—a major, calculable and serious benefit to small businesses in an area where small businesses are at a material disadvantage. It seems to me a terrible shame that a couple of potential amendments that would have such a detrimental impact on business and a huge benefit only for an agency should form part of the Enterprise Bill. I really hope that the Minister will consider keeping this one open. It has become clearer to me that there are many people outside who have a very deep sense of grievance and a feeling that this is a matter that needs to be resolved. I hope that she will consider this very carefully and come back at Third Reading with at least something that will give some people some comfort.
I thank the noble Earl, Lord Lytton, for his amendment, and, in particular, for his words and the work that he has done in this very complex area. Having said that, some very critical comments have been made this evening which seem unfair. I will, therefore, take time to go objectively through the amendments and respond where I am able to do so.
The experience of the noble Lord, Lord Mendelsohn, underlined to me the urgent need for reform. That is why we brought forward provisions in the Bill, the consultation and the modernisation and improvement plan for the agency. I will look into the point that the noble Lord made, on which I am not briefed, about the fact that the backlog seems to be increasing and cases are not being dealt with—but I am not able to answer that this evening.
Amendment 64 would allow the Valuation Office Agency to share HMRC information with ratepayers. Members of my team greatly appreciated the meeting noble Lords held with them to discuss these issues. A subsequent meeting has now been held with ratings agents and further meetings with businesses will follow. I understand that our proposals to address the high volume of ineffective appeals and delays under the current system have been recognised as worthwhile, not least in speeding up any refunds. We will continue to work with businesses to ensure that the new system is practical, workable and beneficial.
As the noble Lord, Lord Stoneham, said, we have been running a parallel consultation on implementation, in which we set out a clear and structured three-stage process. The consultation is still open and I am sure that the bodies mentioned this evening will respond. The reforms promote full and early engagement between parties. Factual information will be established during check stage, with arguments and evidence exchanged at the beginning of the second challenge stage—far earlier than happens at present. This significantly brings forward the point at which the Valuation Office Agency is able to provide information to address the ratepayer’s case.
Business rates are a unique tax which require the collection and holding of commercially sensitive information. This can include details of market deals such as rent-free periods or the treatment of fit-out costs—information that the landlords and tenants in question may well not wish to make available to their competitors. I note the concern about the Valuation Office Agency but we should abstract from that to some extent because it has a duty to protect information and the interests of the ratepayers must be taken into account. That is a fundamental principle of data protection and to override it and allow routine sharing of confidential information would undermine the basis of trust on which the system depends.
Amendment 66 allows the Secretary of State to regulate the operation of several aspects of the appeals system. I share many of noble Lords’ aims: to support small business, of course; to see high performance standards in the appeals system, which is obviously not fit for purpose at present; and to ensure that decisions are made quickly. I have some good news today for small businesses in that the spending review extended the doubling of small business rate relief for a further year. Given the discussions, particularly in Committee, noble Lords will also be pleased to hear that the Valuation Office Agency will now prioritise small businesses within the appeals system. Of course, the majority of rates are paid by larger businesses and they bring the most appeals, but I think we all agree that the small business interest is extremely important.
Performance is more appropriately addressed by a service-level agreement than in the Bill, and that is what we proposed in the consultation. The requirement for parties at every stage to provide specified information in a structured way will ensure that the Valuation Tribunal for England is able to deal with cases in a quicker and more efficient way. However, it would not be appropriate for Parliament to prescribe the operation of an independent judicial body, which is what would happen with the amendment.
The Government agree that ratepayers should be able to move on to appeal stage if no decision is forthcoming at challenge stage. The proposal for trigger points in the consultation paper will provide that right. The 18-month figure in the consultation paper is obviously longer than the six-month figure proposed by noble Lords. However, we have made a commitment to reduce that figure as the system develops and beds in.
Amendment 67 would remove the power to introduce the payment of fees at appeal stage. This is a fundamental part of our reforms, because it will increase the incentives for early and full engagement in the first two phases. It will promote quicker decisions and reduce costs for businesses, as well as helping to reduce the large number of speculative appeals, which I do not think anyone has mentioned but which clog up the system for everyone else. We need to get away from that.
In the three-stage process, there are no charges at check or challenge stage, where it is our expectation that the majority of cases will be resolved. We are also proposing that appeal fees will be refunded where appeals are successful. Discussions on these important matters will continue as part of the consultation process. The consultation closes on 4 January, and we will consult further next year on the draft regulations.
The Government are not, as the noble Lord, Lord Stoneham, implies, clamping down on taxpayer information. These measures introduce earlier information exchange and will help the ratepayer. The new system enables businesses to make the judgment on the basis of information provided at stage 2, before launching an appeal, which is stage 3. So the Bill addresses the information deficit, which I think is of mutual concern.
Finally, Amendment 65 changes Clause 22 to protect taxpayers’ information. Identifiable taxpayer information which is held by the Valuation Office Agency is exempt from FOI requests, but that exemption does not extend to information shared with local government under Clause 22. Therefore, as the clause stands, identifiable taxpayer information could become exposed to disclosure under FOI. The amendment will exempt from FOI anything shared under the clause which would identify the ratepayer; it will not exempt any other information from FOI and will merely ensure that taxpayer confidentiality is maintained. I reassure the noble Lord, Lord Mendelsohn, that the amendment, far from restricting the flow of information, is key to enabling the safe transmission by giving the agency the confidence and security to share data without risk under FOI.
It has been a long debate and it is late. I commend Amendment 65 to the House and ask the noble Earl to withdraw his amendment.
I thank very much those noble Lords who have supported this amendment, and the Minister for her thoughtful comments. I particularly took to the comments of the noble Lord, Lord Stoneham, which were elegant, to the point and delivered much more effectively than I could ever have done.
I make one point on the point raised by the noble Lord, Lord Mendelsohn, on the check, challenge and appeal process, which relies entirely on resources being available at the check stage. I, too, had heard the point about resources being withdrawn from appeal handling until, I think, the 2017 revaluation is out of the way. So there is an ongoing structural problem. On that point, the Minister did not answer the question that I put about at what level disclosure would take place. If, under the check, challenge and appeal process, the disclosure does not appear at the check stage, we are precisely back where we are at the moment.
There are two other things. With regard to what the Minister said about HMRC information being disclosed, the label “HMRC information” in this context is by proxy only because this is information that has always been dealt with as a Valuation Office Agency matter under the relevant legislation. It is about the valuation officer role rather than the person concerned with general taxation, the district valuer. There is a very important difference—which was pointed out in the Holgate opinion, which I have circulated—between the two. There is a morphing into HMRC information under that label which should not be used. It is mislabelling where that information comes from, the purposes for which it is compiled and the route by which it comes.
My final point is on confidentiality. Why would a lessor or business want to keep its rental information confidential? Given what is known and the leakage through the system, that would be a tough call in this country. We are not dealing with the sort of closed shop that applies in many other jurisdictions. However, I can think of some very good reasons why a confidentiality clause might be included, for instance, where a letting is procured ostensibly at a headline rent but is actually underpinned by a three-year rent-free period in a five-year review cycle. Of course, someone would not want that to be bandied about. If the Valuation Office Agency could be counted on to sift that out, so that there was absolutely no question of the integrity of the body in analysing that and it was a true reflection of what that rent was in real terms, as opposed to just the headline rent, I do not think we would have any problem. However, it cannot be. I know that from direct experience.
It is unfortunate that this very important point of principle occurs so late when there are not so many people in the House let alone in the Chamber. It would clearly be wrong even to consider pressing this amendment in the circumstances. Had it been in any other circumstances, I would have been sorely tempted to test the opinion of the House, but now is not the time or the circumstances to do that. It is with great reluctance that I withdraw this amendment because from having spoken with the clerks I am not at all clear that it will be possible to bring it back at a later stage. If it is not possible, we will have to rely on the good offices of the other place in order to raise this and, I hope, do it.
I will end on one thing. We stand in all this in terms of what we are doing to foster business in the construct of an Enterprise Bill, and we should never forget that mission. As the noble Lords, Lord Mendelsohn and Lord Stoneham, said, this runs entirely in the wrong direction. It is the wrong question and you get the wrong answer. It is a false premise. It is a reductio ad absurdum in terms of where we are. That has to be addressed. It is clear that this is an area of tax that is long overdue for fundamental, thoroughgoing reform. It is a failing of many Administrations over many years that it has not been dealt with. Businesses are the worse for it. With that, I beg leave to withdraw the amendment.
Amendment 64 withdrawn.
65: Clause 22, page 41, line 38, at end insert—
“63C Freedom of information
(1) Revenue and customs information relating to a person which has been disclosed under section 63A or 63B is exempt information by virtue of section 44(1)(a) of the Freedom of Information Act 2000 (prohibition on disclosure) if its further disclosure—
(a) would specify the identity of the person to whom the information relates, or(b) would enable the identity of such a person to be deduced.(2) In this section “revenue and customs information relating to a person” has the same meaning as in section 19(2) of the Commissioners for Revenue and Customs Act 2005.”
Amendment 65 agreed.
Clause 23: Alteration of non-domestic rating lists
Amendments 66 and 67 not moved.
Consideration on Report adjourned.
House adjourned at 9.06 pm.