Enterprise Bill [HL]

Explanatory Notes

Policy background

Part 1: The Small Business Commissioner

4 On 26 July 2015, the Government published ‘Establishing a Small Business Commissioner’, a consultation which closed on 21 August 2015. The paper proposed the creation of a Small Business Commissioner to assist small businesses in payment disputes with larger businesses – a problem that is estimated to adversely impact small businesses to the tune of £26.8bn per year. The Commissioner's role is intended to enable small businesses to resolve disputes and avoid future issues by encouraging a culture change in how businesses deal with each other, promoting fair treatment for all.

5 The Small Business Commissioner will achieve this by providing:

a. General advice and information, for example, related to dispute resolution and contract principles, including options for resolving disputes;

b. Signposting to appropriate services, such as relevant sector ombudsmen or regulators, existing independent advice services, or, for business-to-business disputes, to an approved alternative dispute resolution provider;

c. An in-house complaints handling function, in respect of payment issues between a small business supplier and a larger business.

6 The Small Business Commissioner will not provide advice on legal issues relating to a specific case, nor information or advice on matters specific to dealing with a public body.

7 The legal position in relation to the matters and disputes which the Small Business Commissioner seeks to cover is determined by contract law and, where relevant, legislation such as the Late Payment of Commercial Debts (Interest) Act 1998 (LPCDA). The Bill does not alter the substantive legal regime. The LPCDA entitles a supplier to statutory interest and (limited) compensation, where a business fails to pay the supplier within certain periods. If there is no agreed payment date, statutory interest starts to run after a 30-day period. If there is an agreed payment date, interest starts to run after a 60-day period for a contract between two businesses, or (if longer) after the agreed period if this is not grossly unfair.

8 The Small Business Commissioner is intended to complement the existing court and alternative dispute resolution landscape. The Bill does not alter existing court rules or formal mechanisms for dispute resolution. It establishes a statutory office holder whose role is to encourage and facilitate dispute resolution.

Part 2: Regulators

Business Impact Target

9 Sections 21-27 of the Small Business, Enterprise and Employment Act 2015 (SBEE Act) require the Government of the day to publish a Business Impact Target (BIT) for the duration of the Parliamentary term, regarding the economic impact of new legislation on business, including voluntary and community bodies.

10 The Government is required to measure and report on the economic impact of all provisions that are included within the Secretary of State's determination of "qualifying regulatory provisions" and come into force or cease to have effect over the course of the Parliament. Section 22 of the SBEE Act specifically describes which provisions can qualify for inclusion within the target. It currently covers legislation and regulatory activity undertaken by UK Ministers, including some non-statutory regulators who exercise regulatory functions for or on behalf of UK Ministers. To increase transparency, the intention is to extend the scope of the target to include the regulatory activity of all statutory regulators, as their activities have an impact on businesses. The list of regulators subject to this measure will be specified in secondary legislation.

11 Statutory regulators will be required to assess the economic impact to business of any changes to their regulatory policies and practices that come into force or cease to have effect during the course of the Parliament. They will have to publish verified assessments which will be incorporated into the Government's annual reports outlining its performance against the Business Impact Target.

Reporting requirements

12 Section 22 of the Legislative and Regulatory Reform Act 2006 (LRRA) places duties on a person whose regulatory functions are specified by order under section 24(2) of the LRRA (i.e. a regulator), to have regard to any code of practice issued under section 22 in the exercise of certain functions. The current code of practice, issued in April 2014, is called the Regulators’ Code.

13 Section 108(1) of the Deregulation Act 2015 places a duty on a person exercising regulatory functions to be specified by order under section 109(1) (i.e. a regulator) to have regard, in the exercise of those functions, to the desirability of promoting economic growth (the growth duty).

14 Together, these two measures are intended to support a positive shift in the way regulation is delivered by regulators.

15 There is currently no express legal requirement for regulators to report on how they have performed their duties under the Regulators’ Code or the growth duty ("the Duties"). Consequently, not all regulators publish such information, which makes it very difficult to measure the effect the Duties have had and assess whether or not they benefit business.

16 These provisions amend the LRRA and the Deregulation Act 2015 by requiring a regulator to report on the effect that their performance of the Duties has had on the way it has exercised those functions to which the Duties apply. It also requires regulators (other than the Commission for Equality and Human Rights in respect of the Regulators' Code) to provide information about that effect to a Minister when requested to do so from time to time. The aim is to ensure regulators are more transparent about the action they have taken in respect of the Duties.

Application of regulators' principles and code

17 These provisions repeal subsection (5) of section 24 of Legislative and Regulatory Reform Act (LRRA). Section 24(5) prevents the regulatory functions of Ofgem, Ofcom, the ORR and Ofwat from being subject to the duty to have regard to the better regulation principles in section 21 LRRA and the code (currently the Regulators’ Code) under section 22 LRRA. This repeal will not of itself subject these regulators to this duty (this can only be done following consultation and via secondary legislation) but it removes a legislative barrier to doing so.

Secondary Legislation: Duty to Review

18 The Small Business Enterprise and Employment Act 2015 (SBEE Act) requires that secondary legislation which impacts on business must include a statutory review clause, undertaking to carry out a review of the legislation and report on it within 5 years of the legislation coming into force. This provision amends section 30 in the SBEE Act. The aim is to ensure that Departments adopt a proportionate approach when deciding how many other EU member states’ implementation to consider when reviewing EU or internationally derived legislation.

Part 3: Extension of the Primary Authority Scheme

19 Part 2 of the Regulatory Enforcement and Sanctions Act 2008 (c.13) (RESA) established the Primary Authority scheme. Under this scheme a local authority may be nominated, by the Secretary of State, to act as a primary authority for a person carrying out a regulated activity across multiple local authority areas. A local authority may also be nominated to act as a primary authority for a group of persons who carry out the same regulated activity, in a similar way, across multiple local authority areas, e.g. trade associations. The primary authority provides advice and guidance on regulatory compliance to that person, as well as advice and guidance to local authorities with the same regulatory functions as to how they should exercise those functions in relation to the person. The primary authority may stop another local authority from taking enforcement action against that person where it would be inconsistent with the advice and guidance the primary authority has given.

20 The measures in this Bill extend the application of the Primary Authority scheme and enable the Secretary of State to make legislation that will bring regulators other than local authorities within the scope of the scheme.

Part 4: Apprenticeships

21 The Government aims to deliver 3 million apprenticeship starts in England within this Parliament; an increase on the 2.3 million achieved in the previous Parliament.

22 The Government wants to ensure that the public sector is a model employer with respect to apprenticeships; leading by example and offering a significant number of apprenticeships to develop a skilled workforce for the future. These provisions therefore aim to increase the number of apprenticeships in the public sector.

23 The latest research, published June 2015, demonstrates the high level of return to investment delivered by the apprenticeship programme, indicating that adult apprenticeships at level 2 and level 3 deliver £26 and £28 of economic benefits respectively for each pound of Government investment.

24 The Government also wishes to protect the term ‘apprenticeship’ from misuse. Low-quality courses that do not meet the requirements of statutory apprenticeships should not be described as apprenticeships, or else it would damage the reputation of apprenticeships and have a negative impact on the growth of statutory apprenticeship schemes. Clause 21 is intended to protect the reputation of training providers, employers who offer statutory apprenticeships and apprentices who join those apprenticeships, by helping to ensure that statutory apprenticeships are not confused with lower quality training. It also secures a "level playing field" and fairness in the market to the benefit of training providers, employers and individuals. Preventing improper use of the apprenticeships name is intended to give employers more confidence that they are investing in high quality schemes.

25 A parallel can be drawn between this measure and the unrecognised degrees legislation in section 214 of the Education Reform Act 1988. The unrecognised degree legislation was designed to prevent persons from offering a degree when they were not entitled to do this. The Government wants similar protection for apprenticeships.

Part 5: Late Payment of Insurance Claims

26 The Law Commission and the Scottish Law Commission are undertaking a major review of insurance contract law. Their July 2014 Report, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law Com No 353 / Scot Law Com No 238), made recommendations for reform of the law in relation to late payment of insurance claims.

27 Under the current law in England and Wales, there is no obligation to pay valid insurance claims within a reasonable time. This is the result of a legal fiction which holds that the insurer’s primary obligation under a contract of indemnity insurance is not to pay money to the policyholder if an insured event occurs but is in fact to prevent the insured event from occurring in the first place.

28 In Scotland, however, the court has accepted that there is an implied term that the insurer should assess a claim reasonably quickly and with diligence.

29 Both Law Commissions recognised that the position in England and Wales was unexpected and difficult to justify on a policy or legal basis. They recommended that insurers in the UK should be under a legal obligation to pay sums due within a reasonable time, and that a policyholder should have a remedy where an insurer failed to do so.

30 The measure in this Bill implements the key recommendations made by the Law Commissions on this issue.

Part 6: Non-Domestic Rating

31 Non-Domestic Rates are commonly known as Business Rates. The Valuation Office Agency (VOA), which is part of HM Revenue and Customs (HMRC), is responsible for compiling and maintaining non-domestic rating lists. These lists contain details of properties which are liable for non-domestic rates together with their rateable values. The rateable value is, broadly speaking, the annual rental value of the property. Local authorities and (for certain properties) the Secretary of State for Communities and Local Government are responsible for calculating and collecting rates bills using the information on those rating lists.

32 In the course of exercising their functions, the VOA also collects information from businesses such as the identity of the non-domestic ratepayer and plans of the property. However, this information is not published on the rating list.

33 Section 18 of the Commissioners for Revenue and Customs Act 2005 (CRCA) provides that HMRC officials, including VOA officials, are only able to disclose information in limited circumstances such as in relation to their functions. Section 19 of CRCA also sets out criminal sanctions for the wrongful disclosure of information that relates to an individual whose identity is specified in the disclosure or can be deduced from it. As a result, officers of the VOA are prevented from sharing the information they collect about properties and ratepayers with local government. This means that businesses have to provide the same information twice to the VOA and local government. It can also mean that the properties have to be inspected by both the VOA and the local authority.

34 In April 2014, the Government published a discussion paper on the review of Administration of Business Rates in England which included consideration of how to improve the sharing of non-domestic rates information in government. Following discussions with local government and ratepayers, the Government published their Interim Findings on the review in December 2014 and acknowledged that the current constraint on the VOA sharing information with local government was a barrier to the efficient administration of the rating system. The Government committed to seek legislation to allow greater sharing of information on non-domestic properties.

35 In cases where a ratepayer is not content with the assessment shown in the non-domestic rating list, they may challenge their rateable value by making a proposal to the VOA for an alteration to the rating list under section 55 of the Local Government Finance Act 1988. If there is a disagreement between the ratepayer and the VOA as to the proposed alteration, the ratepayer can appeal to the Valuation Tribunal for England (VTE).

36 In the Autumn Statement 2013, the Government announced it would open up a discussion with businesses and local authorities about long-term administrative reform to non-domestic rates in England after 2017. This was followed, in the Autumn Statement 2014, by publication of the Interim Findings of the Business Rates Administration review. This set out proposals for improvements, including a reformed non-domestic rates appeals system.

37 The Interim Findings identified that too many rating appeals are made with little supporting evidence and that they take too long to resolve. It suggested that a revised appeals system should be built around clearly structured stages which will provide transparency and clear expectations on all sides about timescales, requirements and action. The purpose of this is earlier and more effective engagement between the parties. The aim is to make the system more efficient, and to help to ensure that appeals are resolved at the earliest possible stage. Respondents to the Interim Findings paper broadly agreed with the proposed system.

Part 7: Other Enterprise-Related Provisions

Industrial Development

38 The Industrial Development Act 1982 enables financial support to be provided by the government to industry in the United Kingdom. It includes:

a. Section 8 (Selective Financial Assistance: general powers) – this enables the Secretary of State to provide financial assistance in any part or area of the UK, subject to certain conditions. Subsection (8)-(9) caps the amount that can be paid in respect of any one project at £10 million. Financial assistance over this limit to any one project requires a resolution of the House of Commons. Section 8 applies to the whole of the UK;

b. Section 13 (Improvement of basic services) – this allows a Minister in charge of any Government Department to make grants or loans towards the cost of improving basic services in development areas or intermediate areas (now commonly known as Assisted Areas), with the intention of developing industry in that area. Basic services cover the provision of facilities such as power, water or transport, and the section applies to Great Britain.

39 The business environment has since changed and the then Government consulted on 20 July 2011 on proposals for increasing the project cap in section 8 and giving Ministers the power to provide financial assistance in relation to the provision of telecommunications and broadband. The consultation on revision of the Industrial Development Act 1982 closed on 2 November 2011, having received 31 responses. The Government response (Revision of the Industrial Development Act 1982) to the consultation was published on 28 June 2012, noting that there was strong support for these two proposals from those who commented, and committing to bring forward legislation as and when Parliamentary time allowed. The measures in the Enterprise Bill updating the Industrial Development Act 1982 build on the response to the consultation.

UK Government Investments

40 The Chancellor of the Exchequer and the Prime Minister announced a machinery of Government change to create UK Government Investments Limited (UKGI) in May 2015. UKGI will bring together, into a single corporate structure, the two bodies that currently manage most of the taxpayer stakes in businesses – the Shareholder Executive (ShEx) and UK Financial Investments Limited (UKFI).

41 UKGI will be a government company (GovCo) - a company formed under the Companies Act 2006 with HM Treasury as its sole shareholder. UKFI already operates as a GovCo which enables it to successfully execute disposals, establishing and maintaining independence and commercial expertise.

42 ShEx operations will transfer out of the Department for Business, Innovation and Skills to UKGI and ShEx will rebrand as UKGI. It will continue to offer impartial advice directly to the Secretary of State and Permanent Secretary of the Department that owns the relevant company, asset or project. From 1st April 2016, UKFI will become a subsidiary company of UKGI continuing to operate as it currently does until, in time, it fully merges with UKGI.

43 UKGI will be funded centrally from HM Treasury (on behalf of Departments). This clause in the Bill provides a specific power to allow HM Treasury and Departments to fund and make payments to UKGI. This is in line with the 1932 Concordat between the Treasury and the House of Commons Public Accounts Committee, now reflected in HM Treasury’s manual "Managing Public Money", which requires there to be specific statutory authority for significant items of ongoing Government expenditure.

UK Green Investment Bank

44 The UK Green Investment Bank plc (GIB) is a public company established by the Secretary of State under the Companies Act 2006 to facilitate and develop investment in the green economy. GIB is currently funded by 100% equity from the Government and is entirely Government owned.

45 The Enterprise and Regulatory Reform Act 2013 (ERRA 2013) contains provisions to ensure that GIB engages only in activities which contribute to "green purposes". ERRA 2013 also requires the Secretary of State to provide an undertaking to the GIB in order to facilitate its operational independence, permits the Secretary of State to provide funding to GIB, and imposes certain enhanced reporting and accounting obligations on GIB.

46 These sections repeal some of the legislation on GIB contained in the ERRA 2013, in preparation of the Government’s disposal of part or all its interest in the GIB. In particular, the repeal removes elements of Government control over the corporate policy of GIB contained within the ERRA 2013. The intention behind the repeal is to facilitate the GIB’s re-classification to the private sector following a sale.

47 The Government has published additional information on the policy background for GIB, its plans to bring in private capital, and the need to re-classify GIB to the private sector, in its policy statement "Future of UK Green Investment Bank plc".

Pubs Code

48 Part 4 of the Small Business, Enterprise and Employment Act 2015 (SBEE Act) requires the Secretary of State to introduce a statutory Pubs Code. The Code will govern the relationship between large pub-owning businesses (those that own 500 or more tied pubs) and their tied tenants. The SBEE Act also provides for a new independent Adjudicator to enforce the Code. The Code and Adjudicator measures will be introduced through secondary legislation. The draft Code is currently the subject of consultation (Part 1 and Part 2). The consultation will run until January 2016 following which the regulations will be finalised and laid before Parliament.

49 One aspect of the Code required by section 43 of the SBEE Act is that tied tenants must, in specified circumstances, be entitled to occupy their pub on a Market Rent Only (MRO) basis, i.e. the option to go free of tie. The draft Code sets out the details of when the MRO option is available to tied tenants and how the MRO procedure will work.

50 The Code should deliver two principles: that the tied tenant should be no worse off than a free-of-tie tenant, and that there is fair and lawful dealing as between pub-owning businesses and their tied tenants.

51 Section 46 of the SBEE Act also requires the Secretary of State regularly to review the Pubs Code, to consider how well it is delivering the two principles and to propose any changes as may be necessary. Sections 62 and 67 of the SBEE Act provide that the Adjudicator must provide annual reports to the Secretary of State, who can also ask for the Adjudicator to provide specific information.

Part 8: Public Sector Employment: Restrictions on Exit Payments

52 The Government announced on 23 May 2015 that it intended to end six figure exit payments for public sector workers.

53 In this context, an exit payment is a payment made to an employee or office holder as a result of them leaving that employment or office. Exit payments can be any financial or non-financial transfer to an employee from the employer which does not represent remuneration for normal ongoing activities that are part of their employment. This includes, for example:

Payments related to voluntary and compulsory redundancies;

Payments related to other voluntary exits with compensation packages;

The cost to the employer of offering early access to reduced pensions in place of, or in combination with, other exit payments;

Special severance payments and ex gratia payments related to exit from employment;

The monetary value of any extra leave, allowances or other benefits granted as part of the exit process which are not payments in relation to employment;

Payments or compensation in lieu of notice and payments relating to the cashing up of outstanding entitlements.

54 There are a wide range of exit payment arrangements in the public sector. These include formal redundancy schemes (for example, the Civil Service Compensation Scheme) and schemes operated at local level by employers. Further, some employees may have individual contractual relationships that provide for additional exit payments. The regulations made under this Part of the Bill will cap relevant payments under these arrangements to the amount specified in the Bill or in later regulations.


Prepared 18th December 2015