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In the UK, because of the success of private equity in the British economy, firms have started investing more heavily in the companies that they choose to back. Although only 11 more UK companies received investment in 2006-07, the amount invested increased by 50 per cent. to more than £10,200 million. These are, therefore, substantial investments. Investments were made in 312 overseas companies in that period—an increase of more than 37 per cent. on previous years. Total overseas investment by UK private equity companies has reached more than £11,600 million, which is more than is invested in this country; it is 53 per cent. of the total investment, compared with only 42 per cent. in 2005. I have a concern that UK private equity companies are already increasingly investing overseas and that a Bill of the sort that is proposed might well encourage the proportion of overseas investment to increase. I am trying to ensure that that is avoided.
Most of that investment was in continental Europe—this relates to a point made by my hon. Friend the Member for Ribble Valley—where 214 companies received investment, which is more than double the number funded in all other overseas territories combined. The amount of investment in continental Europe was more than £10,000 million, which is only slightly below the investment in the UK. We therefore cannot take it for granted that UK private equity firms will continue to invest in the UK no matter what burdens we keep imposing on them.
I want to emphasise a point made by my hon. Friend the Member for Christchurch. Investment in start-ups increased considerably in the last financial year: £531 million was invested in 245 start-up companies, compared with 208 previously. Each company received an average of about £2.2 million, compared with £0.8 million in previous years. Private equity is making a great contribution to our economy. Technology-focused businesses also received more funding in the last financial year—a 35 per cent. increase in investment on the previous year. Private equity firms are therefore providing lots of investment in the country, and lots of jobs—jobs that are in industries that we need to attract to be successful in a global economy.
Andrew Miller: The hon. Gentleman is describing a successful British economy. He is right that that is partly a result of investment patterns. However, those investment patterns are a result of the Government’s success in attracting that investment. He should therefore praise the Labour Government for once.
Philip Davies: Once again, the hon. Gentleman is clearly not listening to what I am saying in the round. I made it clear that this industry is a success story in the UK economy—despite, rather than because of, the Government. I repeat, for his benefit, the point I made showing where the problem lies. Whereas 53 per cent. of total investment by UK private equity companies last year was abroad, in the previous year it was only 42 per cent., so private equity companies are increasingly investing money abroad rather than in this country. The trend is going in the wrong direction, which is why I argue that the Government must do more to attract private equity investment in this country.
Mr. Chope: I hesitate to disagree with my hon. Friend about anything, but is he right that the Government should try to second-guess the location of investment by private equity companies? Surely they are investing overseas to the extent that my hon. Friend describes because they think that they can get a better return on their investments than they can in the increasingly regulated UK markets.
Philip Davies: My hon. Friend is absolutely right. I was nervous when he said that he was hesitant about disagreeing with me, but he is certainly not disagreeing with me at all. That is precisely the point I am trying to make—that we want the Government to create the economic climate that will encourage people to invest here rather than overseas. I certainly do not argue for any regulation to make them invest here, which would be unenforceable as well as undesirable. I simply want people to feel that they will get the best returns in this country rather than abroad.
The private equity industry is extremely important to our regions. Although London and the south-east without doubt attract by far the most investment—about 60 per cent. of the UK total—quite a lot of money is invested in other parts of the country. For the benefit of my hon. Friend the Member for Ribble Valley, let me say that the north-west is one of the regions that benefit most, as 146 companies received £614 million of investment last year, representing 11 per cent. of companies and 6 per cent. of the total invested in the UK. In my area of Yorkshire and the Humber, £1.2 billion was invested in 83 companies, accounting for 12 per cent. of the overall UK total. I certainly do not want to pass Bills that might have a negative effect on the economy or the work force in Yorkshire, so I view my opposition to this measure as being important to my constituents.
Jim Dowd (Lewisham, West) (Lab): The hon. Gentleman has been speaking for well over half an hour. I, for one, do not dispute the importance of the private equity or the venture capital industry in this country. He says that he does not want the Bill to damage those industries. In response to an intervention from my hon. Friend the Member for Manchester, Central (Tony Lloyd), he said that he would be coming on to the Bill’s provisions at some stage. Given that that was 25 minutes ago, will he give us some idea of when that moment might arrive?
Philip Davies: I am grateful to the hon. Gentleman and am delighted to hear that he is waiting in anticipation of what I might say further. I am sorry, Madam Deputy Speaker, if hon. Members feel that I am going too slowly, but I like to think that I am being generous in giving way to interventions. When we are conducting a debate, it is important to allow interventions so that Members can press their points, and I have been generous in allowing the hon. Gentleman to intervene. If he wants me to get on with my speech, perhaps it would be better if he and his hon. Friends did not intervene.
Mr. Evans:
I, as much as any other hon. Member, am waiting with bated breath to hear my hon. Friend’s examples, which he said 10 minutes ago—not half an hour or 25 minutes ago—that he would come on to.
My hon. Friend mentioned the importance of the regions, and as I look around and see hon. Members in their places I note that many regions are represented. He specifically mentioned the north-west. Great emphasis is placed on the City boys and financial brokers who are based in the City, but does he agree that such people are also important in the regions? In Manchester, for example, quite a considerable number of people are involved in stocks and shares and equity deals. It is important to us in the regions that we safeguard those jobs as well as encourage investment.
Philip Davies: My hon. Friend is entirely right about that. It is noticeable that Labour Members come from certain parts of different regions of the country and I can guarantee that all regions will benefit from private equity investment to some extent. My perspective is that Yorkshire and the Humber is, outside the south-east, probably the single biggest beneficiary of private equity investment in the country. It is absolutely crucial for my constituents and my local economy that we do nothing to damage that industry.
Mr. Heppell: The hon. Gentleman’s speech so far has been a great advert for private equity companies generally. He keeps referring to the problem of placing additional burdens on business, but does he think that the existing TUPE regulations should continue to apply?
Philip Davies: I am perfectly satisfied with the current arrangements. As I made clear earlier, this country’s private equity industry and the financial services industry are world leaders, and that has been achieved under current regulations. I argue for the maintenance of the current regulations, but I do not want to add any additional regulations.
Mr. Heppell: The hon. Gentleman misunderstands me. I am not talking about the private equity industry, but industries generally, to which the TUPE regulations apply. Does he agree that the regulations should continue to apply in those industries?
Philip Davies: Yes, I am quite happy with the current arrangements across the board. I am not arguing for any change. My purpose is to argue against the hon. Gentleman’s Bill, as its provisions would damage this important sector of industry. I understand the hon. Gentleman’s point that as the regulations apply to other companies they should apply to private equity firms. That is where we are: the TUPE regulations implement a European directive, so there is nothing we can do about it. I wish we could do something about the implementation of European directives, but there is not, so there would be no point in my arguing for the reversal of a European directive agreed 30 years ago. I am merely arguing that the rules should not be extended in the way that the hon. Gentleman wants. If the rules in his Bill were introduced, it would damage private equity businesses and might lead them to invest elsewhere.
Mr. Heppell:
We are not talking about something that happened 30 years ago, but about the Transfer of Undertakings (Protection of Employment) Regulations 2006. My point was that those regulations apply across
industry. So far, the hon. Gentleman has not provided any examples of companies that, as a result of the regulations, have had to cope with some bad or terrible burden. If the existing regulations are okay for those firms, why would it be such a problem if we applied the same ones to private equity?
Philip Davies: The hon. Gentleman talks about increased burdens, but I am not talking only about the burdens he refers to because I believe that this Government have imposed more burdens and regulations on industry than probably any other Government in history. If the hon. Gentleman does not believe that any of those burdens have made any difference to businesses, he is certainly not living in the same area as me. I think that the burdens imposed by the Labour party on British business, particularly on small businesses, have done an awful lot of damage to this country’s economy and to those small businesses.
Mr. Heppell: Let us be clear. Is the hon. Gentleman saying that TUPE represents a burden on business generally? Is he arguing that TUPE is bad for industry? What he is effectively saying is that we should not have TUPE at all, if it is responsible for putting burdens on business.
Philip Davies: This Government have imposed many regulations on businesses. If my memory serves, about 3,000 or 4,000 regulations are introduced every year, all of which have an effect on businesses. It is a salami slicer approach. One regulation might not be a big problem in itself, but when it is one after another and another, it starts to create big problems for businesses, particularly for small businesses. I am sure that, as a diligent Member of Parliament, the hon. Gentleman has spoken to small businesses in his constituency. I would be astonished if none of them had expressed concern about the level of regulation that this Government have imposed on them in the past 10 years.
Lorely Burt: Does the hon. Gentleman agree that the TUPE arrangements were extensively revised, after great consultation, as recently as 2006? I find it difficult to imagine why the current business atmosphere was not taken into account in the 2006 regulations. I wonder why the hon. Member for Nottingham, East (Mr. Heppell) feels the Bill is necessary, given that TUPE has only just been revised. Perhaps the hon. Member for Shipley (Philip Davies) wonders that too.
Philip Davies: The hon. Lady makes a pertinent point. We should reflect on the fact that in the past 15 or more years, this country has enjoyed economic growth. There will always be growing numbers of business and people in employment at such times. The resilience of the economy to a serious downturn has yet to be tested. The complacent view of the hon. Member for Nottingham, East that the regulations have somehow helped businesses in the past 15 years may well be shattered if we face an economic downturn in the not-too-distant future. Only in a downturn can we see how resilient our economy is. I contend that it is not quite as resilient as people might think.
Tony Lloyd: It might help the hon. Member for Solihull (Lorely Burt) if I say that the point of the Bill, which the hon. Member for Shipley has not yet refuted, is to extend the application of TUPE. Does the hon. Gentleman disagree with that? If not, will he give us the list of the protections that apply to employees in private equity companies that make the Bill unnecessary, which he has promised a number of times?
Philip Davies: It is difficult to get to the point of my speech, for which hon. Members are waiting with bated breath, if they keep intervening and preventing me from doing so. It is a frustrating position in which to find oneself. I am not sure whether the hon. Gentleman is saying that I should not take any further interventions from him, so that I can get to my point. I am doing the best I can, but I am also being as generous as I can so that Members may have their say. That is important in a debate. I am trying to be generous to the hon. Gentleman, not restrict him.
Tony Lloyd: I don’t think you’re getting there.
Philip Davies: I certainly am, but the hon. Gentleman will have to be slightly more patient.
It is important that we examine the sources of the funding raised for private equity. Last year, members of the British Venture Capital Association raised independent funds for investment totalling more than £34 billion, a rise of 26 per cent. on the previous year’s figure. A greater proportion than previously came from UK sources, which now account for 28 per cent. of the total raised. An awful lot of the money invested is British.
As I said earlier, pension funds continue to be the most active private equity investors. They provided almost £10 billion of investment last year—29 per cent. of the total. The hon. Member for Nottingham, East has tabled the Bill with the noble purpose of protecting workers’ rights, but many of the workers whom he seeks to protect have their pensions tied up in funds that invest in the private equity industry. It is therefore as crucial to them as to anyone else that we do not introduce legislation that damages their funds.
Although overseas investors remain by far the richest source of UK private equity investment capital, more UK institutional and private investors are committing to it, because it is a hugely successful asset class. The UK private equity market is the largest and most developed in Europe, accounting for well over half of European investment. It is second in the world to the United States, whose economy is very successful, as we all know.
Madam Deputy Speaker (Sylvia Heal): Order. The hon. Gentleman said that he would give some background on private equity companies. I think that he has now done that, and I hope that he will turn to the measures in the Bill.
Philip Davies: Of course I will abide by your ruling, Madam Deputy Speaker. I hope that I have managed to go some way towards making clear how important the industry is to the British economy.
I turn to the Bill, as you direct, Madam Deputy Speaker. I notice the hon. Member for Lewisham, West (Jim Dowd) sitting forward in his seat with eager anticipation.
Tony Lloyd: On a point of order, Madam Deputy Speaker. Following your ruling to the hon. Member for Shipley (Philip Davies) a few moments ago, would it be in order for him to set the Bill in context by giving us the list of legal protections that exist for employees in private equity companies?
Madam Deputy Speaker: That is not a point of order for the Chair, but the hon. Member for Shipley has heard my ruling and I have no doubt that he will now proceed to discuss the content of the Bill.
Philip Davies: Indeed, Madam Deputy Speaker. I think that I made it abundantly clear before the point of order that I was about to do so. If the hon. Member for Manchester, Central (Tony Lloyd) is so keen to get the list, I suggest that he go to the Library, whose staff will be more than happy to furnish him with it. If he cannot wait any longer, he should go there now. I am sure that they will provide the list happily.
Mr. Heppell: Some of the information has been provided to me. It is stated that such protections are included in the Information and Consultation of Employees Regulations 2004, which implement the EU information and consultation directive, 2002/14/EC, and in the Companies Act 1985, which will be replaced by the Companies Act 2006. That legislation has been cited to me as containing the relevant protections, but in reality it does not give the same protection as TUPE.
Philip Davies: I am grateful to the hon. Gentleman. There seems to be a new tactic: the hon. Members at the very back of the Labour Benches ask me to come on to my points, then the promoter of the Bill anticipates them. That is kind and generous of him, but I shall try to make some progress. I am not sure why Labour Members are so reluctant for me to do so.
“Extend the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 to the acquisition and disposal of substantial shareholdings by private equity companies; and for connected purposes.”
Responding to an intervention that I made, the hon. Member for Nottingham, East tried to define “substantial shareholdings”. He said that it was defined in the explanatory notes, but I have not had them, as I made clear. From his response to my intervention, I am still not sure what a “substantial shareholding” is, and what constitutes a shareholding that might be considered a controlling interest. For example, there has recently been great controversy about Sky’s stake in ITV, which I believe is about 17.9 per cent. A lot of people say that it gives Sky too much power, but I am not sure whether such shareholdings would be covered by the Bill. Does a controlling interest mean that someone must have more than 50 per cent. of the shares in a business? Will he be clearer about what he means by “substantial shareholdings”?
Key features of the Bill include the imposition of information and consultation of employees obligations similar to those that apply in the context of a business
transfer. The Bill would also make void post-acquisition changes to contracts of employment unless the changes were made for an economic, technical or organisational reason. The Bill would restrict the ability to vary or rescind any union recognition agreement following an acquisition, and would introduce a new right to apply to court to seek an injunction to prevent a transaction from being completed until ICE obligations were complied with.
The combination of collective redundancy consultation obligations, rights under collective agreements, and ICE agreements already provide employees with a broad range of protections and rights to receive information and take part in consultation. If those mechanisms are used as part of a constructive dialogue, they should be sufficient to protect employees during all share acquisitions. As far as I can see, the Bill affords additional protection in two main respects. First, it protects trade union recognition, and secondly it provides the ability to secure compliance with information and consultation rights. That does not seem particularly necessary.
From a legal and commercial perspective, it is inappropriate to amend TUPE to address private equity acquisitions and not trade acquisitions. In practice, post-acquisition, a trade buyer is more likely to wish to achieve greater synergies with their own business, and give rise to job losses, than a private equity house that is investing in a business with a view to making it work more effectively and prosperously, so that it can avoid selling the business in a distressed situation in future. Private equity works as a business not just in one way, but in many ways. Contrary to what the hon. Member for Nottingham, East, suggested, private equity can be used not to take over a company and cause it uncertainty, but to shore it up and ensure that no future sale causes workers uncertainty. Implementing the Bill and bringing private equity acquisitions into the scope of TUPE could give rise to an uneven marketplace and provide trade buyers with an unfair competitive advantage.
I should be very interested to know what view the Minister for Employment Relations and Postal Affairs takes of the Bill. I do not know whether the Government have the appetite to introduce further legislation regulating employee consultation or trade union derecognition rights. I am not sure whether that kind of action was part of the Warwick agreement that the Government signed up to before the last election, when they had run out of money. I am not aware of any Government proposal to introduce a similar measure. I should be grateful to learn from the Minister whether the Government—or, as the hon. Member for Ribble Valley asked, the European Union—plan to introduce any regulation on the subject.
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