“Local authorities are the bureaucratic mind at work, busily inventing disproportionately complicated procedures.”
Could the Minister look at the following points—she will be glad to hear that the list is not overly lengthy—to improve SMEs’ prospects of securing Government contracts? First, could access to public contracts and pre-qualification questionnaires not be simplified? Secondly, could there not be education seminars on how to tender for contracts, especially through e-procurement? Thirdly, there could be much better access to information about public sector procurement opportunities for SMEs. More needs to be done to improve channels of information, so that small businesses know what contracts are up for tender.
Government buyers need to develop business associations with local SMEs and to set up standard contracts of terms and conditions before inviting companies to tender for released contracts. That will, of course, entail a separation of duties, in that those who source would not be those who evaluate tenders and place contracts. There also needs to be a focus on building an integrated supply chain, in which there are no weak links, and on applying green procurement to keep that supply chain as short and as local as possible.
Where possible, e-procurement should be used to enable SMEs quickly and economically to bid for contracts. The Government also need to target and improve contract monitoring for performance if business associations are to continue and to be justified. In addition, the Government must prove best value by having multiple bids that are evaluated against clear contract weighting.
What of the spend of local authorities? The procurement spend of many councils is significant, averaging £185 million for each local authority. Nationally, that is billions of pounds per year. On the basis of the rather limited figures available, however, less than 50% of that spend goes to SMEs. A significant proportion of councils do not record the size or location of the businesses they spend with, and that should be rectified.
Cost savings are overwhelmingly the biggest driver of procurement policy, outweighing other factors, such as the quality of goods and services, and economic development. That is understandable, given the constraints on local government, but it is, none the less, regrettable, because cost should not always be the most significant factor in awarding a contract, and savings can also be made through quality.
If you will allow me, Mr Hollobone, I will describe what has been taking shape in Scotland over the past couple of years. There has been a total redesigning of the procurement process, which has embraced private, cutting-edge procurement practices to bring about the maximum savings. I hope that will banish the days of off-the-shelf, catalogue procurement.
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Some years ago, Scotland Excel was developed, bringing together the combined spend of the 32 local authorities in Scotland. More to the point, it updated and standardised procurement practices, which was necessary if local government was to deal with these challenging times and bring about the savings required in their spend. Many SMEs have been successful in gaining contracts through this collaborative buying consortium. Many other areas of the UK employ buying consortiums; they have had many successes, and they have many good practices they could and should share across the country.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): I apologise to the hon. Member for Ogmore (Huw Irranca-Davies) for being rather late for the debate. The hon. Member for Inverclyde (Mr McKenzie) is making an important point. About 75% of procurement in Scotland is sourced in Scotland, but only about 50% of procurement in Wales is sourced in Wales. What are the major lessons Wales could learn from Scotland?
Mr McKenzie: They are working jointly, and the McClelland report has been shared by both Administrations. As I said, it shone a light on procurement practices in local and national Government and updated them, bringing in many good, cutting-edge practices. It is recognised that if we devolve procurement to a local level, the supply chain can be improved and can be kept as short as possible. I should also mention the green procurement card, which is used across Europe to justify a local spend.
Can SMEs do anything to improve their situation? Yes, they can. They can prepare before bidding for contracts. They should know their strengths and highlight them in any bid. They can become aware of appropriate opportunities and select the right ones. They can engage with their clients, discussing their requirements if they are unsure about them.
SMEs can also use their clients’ chosen method to deal with those clients. If that is online, they should learn how to load to the bid portal and about what limitations the portal has in terms of the size of the tender document and the time it takes to load. SMEs should not miss a bid by running over the deadline because their data was slow to upload.
SMEs should also fully meet their clients’ needs and know what matters most in their hierarchy of weighting. Finally, they should combine expertise with innovation, and explain themselves clearly if any new practices or processes are involved on their side of the supply chain.
We should always remember that awarding to local SMEs has many rewards: it builds local businesses, with many becoming subcontractors to the initial contract winner; it creates local employment opportunities and secures employment locally; and moneys spent locally tend to circulate locally, supporting other businesses and jobs. To conclude, SMEs are important, and they will always be important to our economy.
3.17 pm
Chris Evans (Islwyn) (Lab/Co-op):
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Ogmore
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(Huw Irranca-Davies) on securing the debate. My only sadness is that a debate of such magnitude and gravitas does not have a much wider audience and that more Members could not be here. However, it is good to see that the Welsh are in a majority today, with four Members here, along with another Member from the Celtic fringe. We will look closely at what the Minister has to say.
Chris Evans: There is the hon. Member for Pudsey (Stuart Andrew) behind the Minister. He is a sleeper; we sent him on reconnaissance to Pudsey. Come back to Wrexham!
When we talk about the role of businesses in the economy, we are often talking about small and medium-sized enterprises. Let us not forget that half of private sector turnover is accounted for by SMEs. In Wales, the public sector spends approximately £4.3 billion per annum through procurement, which accounts for more than a third of the overall Welsh public sector budget. That includes everything from stationery, paper clips and office furniture to medical equipment. In my constituency, up in Croespenmaen, we have Abingdon Flooring, which supplies furnishings for MOD properties.
What is more, the public sector is the largest user of services and goods from the private and voluntary sectors in Wales. The scale of public sector procurement in Wales and across Britain means that it is the biggest driver of economic growth and the biggest lever the Government can use. No one, on either side of the House, can fail to recognise the importance of public sector procurement.
I remember going to a seminar with Lord Sugar, when he talked about green industry. He said that is okay having wind farms, but they need steel: where are we procuring that? My frustration about procurement is that everyone knows its importance; but, for all the companies that come to me and tell me that they are trying to procure for something, there are hoops to jump through. It gets to the point where they are frustrated and give up on the process.
I read recently that the Prime Minister’s enterprise adviser David Young said he was not convinced that the value of SMEs was being fully exploited across the public sector. It worries me that it seems from a Cabinet Office report that the target of 25% of all government contracts has been quietly dropped. Indeed, from some statements from the civil service it seems that the 25% target is not a target but an aspiration. I agree with the Government that that target could be a catalyst to achieve change in the economy; but that must be driven from Whitehall, and be more than an aspiration. It must be measurable, constant and universally accepted. Also, which businesses does it apply to? Is it for larger businesses or for small and medium-sized business? Are micro-businesses included as well? I do not believe there is anyone who does not see SMEs as job creators. The SMEs of today will be the major companies of the future.
What the debate comes down to essentially is this: we will cut the welfare bill and bring down the deficit only through people in jobs paying taxes. The only way we shall achieve that is by encouraging SMEs and other businesses to have the confidence to create jobs.
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Huw Irranca-Davies: My hon. Friend makes a valid point about the strategic importance to SMEs of procurement. Does he agree that there are practical things we can work through? Will he pay tribute to Bangor university, which is working with SMEs and the Welsh Government to, for example, reduce 50-page contract tendering documents to as few as 10 pages? We can see that those things can be done, and will create jobs through SMEs.
Chris Evans: I agree, and there was a discussion about that this morning in another place.
From my constituency experience of micro-businesses, such as painters and decorators, they make their money from painting council houses, school buildings and hospitals; but they must jump through rings of fire to get through the procurement process. I pay tribute to the work that Bangor university and the Welsh Government are doing to reduce the paperwork that SMEs must go through. That paperwork turns them away from a vital source of income, because of the complexity of the system.
I was interested when my hon. Friend the Member for Ogmore mentioned procurement examples in the food sector, and I want to touch on another example of best practice, which I am pleased to say comes from my constituency. It concerns the defence and security industry, which is a massive industry for us. We are lucky in Islwyn that we have General Dynamics UK, which moved there specifically because of a Ministry of Defence contract. It has access to markets and cutting-edge technology that can be used by small businesses. I am delighted that the EDGE UK facility is in Oakdale at the moment. It does an incredible amount of work with SMEs, helping them to get access to defence and security markets nationally and internationally. Not only that, but its modus operandi protects the intellectual property of the SME and ensures buy-in from all sides, offering clear benefits to both parties. If the Minister wants to see an example of innovation in the procurement process, she has an open invitation to come to Islwyn and to Oakdale. I shall be happy to show her round; I think she will find it is a beautiful constituency.
Anyone who has dealt with SMEs will say how important it is for them to work with larger companies, retain their intellectual property and win new business in the market. EDGE UK is appreciated by the customers of General Dynamics UK, including the Ministry of Defence, as it helps those with a niche capability from SMEs who usually cannot get access to the customer. Through EDGE UK General Dynamics works with an average of 50 SMEs a year, constantly seeking out and reviewing innovative developments. I know from speaking with people from General Dynamics that it is always keen to attend business events, to expand awareness of EDGE UK through the SME community, and to invite new SMEs to talk about ways they can engage with a company through EDGE UK. I remind all those with small businesses, if any of them are watching the debate—hopefully on television on a Sunday morning—that they have an open invitation to get involved with EDGE UK, and to get access to its innovation and capability. It is fantastic.
Not every SME can work with General Dynamics, of course. Products may need maturing. EDGE UK provides support to such SMEs, to help them identify avenues
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for funding that will help them develop their technologies. Those include, for example, the Centre for Defence Enterprise, the Technology Strategy Board, and the various business funding streams available from the Welsh Government. We cannot talk about SMEs and procurement in the public sector without looking at examples such as EDGE UK and seeing what we can learn and apply. For every General Dynamics success story and every EDGE UK there is someone in Wales, or somewhere in Britain—perhaps a micro-business employing five people, such as a painter and decorator—who is desperate to get hold of a contract: to paint a council house or school building. That is because those are what I like to term Bank of England contracts—they will not fall apart under someone’s feet, and they will not walk away: the business owner knows they will get the money at the end of the day. When there are businesses that pay their bills late, access to contracts of that kind is vital.
I find it frustrating that, as my hon. Friend the Member for Ogmore mentioned in an intervention, people have to wade through 50 pages of tendering documents. The time and money that goes into public contracts makes it harder and harder for small and micro-businesses to tender for them. The process costs money that is precious to them, and they become caught in a vicious cycle. They have no money for the tender, but they need to tender to make money. The fact that the Government are willing to promote the tendering process, but allow companies to get stuck in a system where they cannot get hold of contracts, is a bit of a hare-brained scheme. On a recent visit to Axiom Manufacturing Services, a successful manufacturer in my constituency, the frustration of the situation was pointed out to me. First, no help is provided with filling in the contracts: the business does not know what is being looked for in the tender. Secondly, feedback is rarely given to those who are unsuccessful, so it is not possible to move on and improve processes the next time.
To return to the 25% aspiration, let me say that now is the time for a coherent Government plan. Since I entered the House I have often heard the accusation that all the Opposition do is oppose everything, but I want to set out concrete plans, and I hope the Minister will listen to five points. First, there should be agreement by Government that procurement will be used as an engine of economic growth. I do not mean central Government but all levels of government, including councils and the NHS. Secondly, a border line should be established and we need to set a target in stone. If 25% is too high, and is just an aspiration, we need to bring the target down; but we need to begin achieving targets, and they need to be measurable.
Thirdly—and I must return to the example of General Dynamics UK and EDGE UK for this—every company with more than a certain number of employees, in receipt of a Government contract, needs to produce a training plan and an apprenticeship scheme, to enable young people to get on the ladder, so that skills and training will improve. That cannot be put in place at zero cost.
Fourthly, we should take a leaf from the book of General Dynamics UK and use procurement to encourage innovation, allowing bidders to come up with new, fresh ideas. That should be in the tendering process. My fifth
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point relates to what I said before about Axiom. There is a need for help from public bodies, for contracts to be designed in a way that allows SMEs to compete. We need standard contracts across the board. We also need a helpline or someone in Government, in the Department for Business, Innovation and Skills; at Axiom I discussed bringing troubleshooters in. There is a need for a crack team that can be called free and told, “I need help to fill this contract in.” The Government could send it on.
Those would be innovative processes. However, we must remember that, without Government will, a limited number of suppliers will still reinforce their market share, stifle competition and keep prices high. Government will and action are needed, and I hope that we see that today.
3.30 pm
Chi Onwurah (Newcastle upon Tyne Central) (Lab): It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing this debate on an important issue that does not attract the attention it deserves. As my hon. Friend the Member for Islwyn (Chris Evans) said, hon. Members from all parties are aware of the importance of this issue and it would have been fitting if more had attended this debate. However, important points have been made by hon. Members from both sides of the House. My hon. Friend the Member for Islwyn said that there was a Celtic emphasis to the contributions. This is a cross-party, national issue.
Contributions, particularly from my hon. Friends the Members for Islwyn and for Inverclyde (Mr McKenzie), and the passionate opening remarks made by my hon. Friend the Member for Ogmore, emphasised the importance of procurement for small and medium-sized enterprises and their importance to our economy.
This has been a remarkably non-partisan debate and I hope that that will not change too much as I make some remarks on behalf of the official Opposition. If there is one thing that all hon. Members agree on, it is that small and medium-sized enterprises are the lifeblood of our economy and should be supported. They account for 99.9% of all private sector businesses in the UK, 59.1% of private sector employment and almost half of private sector turnover.
As has been said, given the economic challenges that we face, encouraging small and medium-sized enterprises must be a focal point for Government policy as we seek to find growth again. In short, they are critical to our economic recovery. Yet still the proportion of public spend on dynamic small and medium-sized enterprises is far too low. As the UK’s biggest single consumer, government must do more to support SMEs across the country.
In February 2011, the Prime Minister and the Minister for the Cabinet Office and Paymaster General, the right hon. Member for Horsham (Mr Maude), outlined Government procurement reforms at a conference for SME suppliers, where the famous pledge was made that
“25% of all government contracts”
“awarded to small and medium-sized enterprises”.
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Regrettably, that 25% target did not last long. It has been downgraded, rather like our credit rating, and is now merely an aspiration. Last month, the Prime Minister’s enterprise adviser, Lord Young, said that he was
“not convinced that the value of SMEs is being fully exploited across the whole public sector.”
I think that we can all agree with him.
I am sure that the Minister will tell us that procurement figures for SMEs are up. The Government do not have a particularly good record on statistics, but it is still depressing to hear the Minister for the Cabinet Office say that most Departments do not know their spend on SMEs and that therefore people “cannot trust the numbers”.
Mark Taylor, the former co-chair of a panel set up to advise the Minister for the Cabinet Office on SME procurement, has accused the Government of “recounting” their procurement SME figures. He said that Government contracts to SMEs were “drying up”, that things were “going backwards” and that SMEs were
“finding it more difficult to do business with Government.”
Huw Irranca-Davies: Perhaps a way forward is to replicate the Welsh Government’s approach. They are now asking all their local authorities, the NHS and any procurers to carry out regular procurement fitness checks, including monitoring how many contracts are going out to SMEs.
Chi Onwurah: My hon. Friend raises an excellent point that I hoped to make later. It is useful to see concrete examples of where that is being done successfully, but the measurement and understanding of procurement practices and, most importantly, what the outcomes are, particularly for SMEs, is a key way of improving the situation.
What is being done to measure SME procurement in Government? What is the Minister doing, specifically, to stop things going backwards? Will she confirm that only two Departments have increased SME procurement spend to any significant degree and that one of those—the Ministry of Justice—only achieved that by including providers of legal aid?
Will the Minister say what concrete action has been taken to increase the proportion of spending with SMEs? Fine words are all very well, but we want to know what is actually being done to address this issue, which everyone agrees is critical. Speeches and leaning on Departments can only go so far. We have all read reports of bloody battles going on between Departments and the Treasury over spending envelopes in the next Budget. There is a huge pressure on Departments to use their buying power to cut costs and, unfortunately, that tends to be through ever-larger contracts.
The Government have spoken many fine words of encouragement to social enterprises, without delivering. Most social enterprises are SMEs. The message that I get from social enterprises—I recently held workshops in Newcastle and London—is that often, how Government contracts are bundled makes it impossible for them to bid. That is, as we have heard, a general concern among SMEs. Will the Minister explain what specific actions have been taken, and what actions are planned, to unbundle as many contracts as possible, to level the playing field for smaller enterprises?
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Support through direct procurement is not the only way to support SMEs. The previous Labour Government introduced the innovative small business research initiative programme to drive innovation through procurement. The SBRI allows small businesses to bid for contracts to provide innovative solutions to procurement problems, supporting innovation and small businesses at the same time.
We in the official Opposition had been calling for some time for the programme to be expanded, so we were glad when the expansion was agreed to by the Treasury. This is good news for innovative SMEs. However, a recent survey by the Federation of Small Businesses found that nearly 40% of small firms felt that they were being “sidelined” by the Government because of their persistent belief that bigger firms are better. What are the Government doing to address that?
I turn briefly to the Government’s Contracts Finder, which I am sure the Minister will address. The value of contracts published on the website each month is still very small compared with the £15 billion total value of Government procurement contracts that are outsourced each month. Does the Minister agree that more needs to be done to ensure that contracts are put on the Contracts Finder system? What is happening on that?
What are Ministers doing to ensure that local authorities are properly engaged with Contracts Finder? What work are they doing with councils to improve their procurement from SMEs? We have heard of a number of examples from local authorities across England and Wales that are being very innovative in that respect, and I would like the Minister to say whether she is studying what is happening in our local authorities.
There are a number of rivalries between cities in the north-east, particularly between Newcastle and Sunderland, but as we subsume them within a combined local authority, I am pleased to say that I can hold up Sunderland city council as an example of innovative and successful work in procurement.
Indeed, only last night, at the Federation of Small Businesses reception, Sunderland city council was praised for its intensive engagement with the FSB and local suppliers before implementing the Buy Sunderland First system for quotations below the tender threshold and the North East Procurement Organisation portal for all opportunities above the threshold. Consequently, spend with north-east businesses now accounts for more than 68% of all third-party spend by Sunderland city council. What other examples would the Minister like to hold up for us of ways in which local authorities are successfully engaging with small businesses?
I have asked a number of questions of the Minister. My hon. Friend the Member for Ogmore has raised a number of important points, and my hon. Friends the Members for Islwyn and for Inverclyde have made a number of suggestions. I draw my remarks to a close by saying to the Minister that, although we have seen some small steps forward, the Government’s approach lacks the required urgency. Whether on procurement or bank lending, Ministers across Government are failing SMEs.
Responding to a recent National Audit Office report on improving Government procurement, the head of the CBI said:
“Two and a half years after the Government committed to centralising public procurement, individual departments are still
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too often doing their own thing. We need to see strong leadership from the Cabinet Office to drive a culture shift across…Whitehall”.
Such complacency is all too common among Ministers. The CBI survey report recently stated:
“Across the board the rate of reform requires more urgency. The lack of progress on turning sound policy into actual change is not only damaging to government and costly to the taxpayer, but it also stunts growth.”
Will the Minister now take action to ensure that permanent secretaries prioritise and buy into that? Will they visibly start to split major contracts into smaller chunks? Will they take steps to record the success or failure of those policies?
Successfully changing the mindset on procurement so that we use and support our SMEs more effectively is an issue that unites the whole House, so will we see decisive Government action so that our ambitions can be realised?
3.44 pm
The Parliamentary Secretary, Cabinet Office (Miss Chloe Smith): I am grateful to the hon. Member for Ogmore (Huw Irranca-Davies) for initiating this debate on such an important subject and for setting us off so passionately. As has been echoing around the Chamber this afternoon, we share a passion for the same thing: seeing excellent procurement that serves the customer—in this case, the taxpayer—and promotes growth. I am confident that every Member here supports those aims and that my remarks will outline the action merited by that.
From the outset, the Government have fully recognised the vital role that SMEs play in helping us achieve the best possible value for money—in some cases for reasons of cost and in others for reasons of innovation, a theme that has also rightly reverberated around the Chamber—when we buy goods and services for the citizen, such as school, hospital or prison meals, wallpaper or any other goods or services.
In the minutes remaining, I will take the hon. Gentleman’s invitation to shatter some myths. Let us do that together this afternoon, because he is absolutely right in laying down his support for the theme and in his desire to see increased awareness of what is available for SMEs, of the ways in which they can grab it and of the ways in which we can hold procurers to account.
I will start by addressing the goal that, by the end of this Parliament, 25% of direct and indirect Government procurement by value should go to SMEs. Although I want to move on to some content that I know will be of great help to every Member when talking to their constituents, I first need to make an overtly political point. I am sad to say that we had to take the bold step of setting a 25% aspiration because before that, under the previous Government, no effort was made to measure such things. The lecture I have just received from the Opposition Front-Bench spokesman is more than a little rich in that context. Even a member of the previous Government has had the dignity to look ahead and say what we need to do better for SMEs, and I am afraid that I do not think the Opposition Front-Bench spokesman is hitting the same heights.
After a lot of hard work in 2010, we found out that SME procurement in 2009-10 amounted to 6.5% of all procurement, or £3.1 billion—a shamefully low figure given that 95% or more of private sector businesses in
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the UK are microfirms, or companies with fewer than 10 employees. We recognised that something had to be done to remove the barriers facing many companies when bidding for Government contracts, and we have gone a long way towards removing those barriers. I will work through a couple of points that will help Members to express that to their constituents, which is one important thing we can do to send the message outwards.
Over the past three years, we have increased accessibility and transparency, identified and addressed poor procurement practice and provided practical assistance to help SMEs. I will start with accessibility and transparency. We have made contracts smaller and broken them up under various headings. Some of the finest examples of that can be found in information and communications technology, where historically Governments have been subject to procurement disasters. We have instead deliberately gone out to approach SMEs for Government ICT needs and have had some good successes. We have also set up Contracts Finder to increase accessibility; it is a one-stop shop to enable suppliers to find procurement and subcontracting opportunities. They can also find tender documents and contracts online, all free of charge. I urge anyone listening to or reading this debate to look at that.
People will also find online and accessible pipelines of what the Government are looking to procure under a range of topics. All those kinds of thing help would-be suppliers to know what we are looking for. As I said in my opening remarks, we believe in procurement for growth, and we believe strongly that pipelines can help in that endeavour by explaining to industry what this very large customer, the Government, are looking for over time.
In the dynamic marketplace, companies can register without cost to provide quick quotes for low-value Government contracts below £100,000. That enables them to bid and compete at minimal cost alongside larger suppliers. I recognise the points made this afternoon about the cost of bidding. We are doing something about that. On the other side of the deal, what does that give customers—Departments and the taxpayers whom they represent? It gives us cost-effective access to pre-registered Government suppliers and allows bids to be issued and responded to electronically, which again makes the procurement process quicker and more effective.
On the theme of transparency, I also note that we have established a Crown representative for SMEs, which I know will be of great interest to the hon. Member for Islwyn (Chris Evans), who wanted to know where SMEs could turn for help. There is a Crown representative in Government especially for the purpose of giving SMEs a voice at the table. That is vital, and we have done it. We have also set up an SME panel to provide a regular forum for SMEs to raise the issues that concern them most and hold our feet to the fire. I assure the hon. Gentleman that the SMEs on that panel do so. I have been there, and I have enjoyed meeting the panel very much.
Moving on to tackling poor procurement practice, we have heard a couple of good examples in this debate, particularly from my hon. Friend the Member for High Peak (Andrew Bingham), who spoke about a wallpaper supplier in his constituency. I will start with that example.
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It is a great shame that he and his constituents felt the need for anonymity in that example. I understand entirely, but we would all like to live in a world where they did not receive bad service and did not feel the need to hide it for fear of reprisals.
We have introduced a mystery shopper service that will be familiar to anyone who has seen such a thing in supermarkets or reputable businesses throughout the private sector. It allows poor procurement service to be identified and acted on. If a supplier encounters poor procurement practice, such as the overly bureaucratic pre-qualification questionnaire in my hon. Friend’s example, or unreasonable selection criteria, as in other examples, they can refer it anonymously to the mystery shopper service, so that we can investigate it on their behalf.
I encourage and urge all constituency Members to push that information out to SMEs or anybody bidding in their constituency for Government work. It is the only way that one by one, piece by piece, we can tackle that kind of bad practice. It allows us to identify the broader themes that we can perhaps tackle more systematically, but it also allows us to put right individual cases where something has gone wrong.
Jonathan Edwards: Based on what the Minister is saying, does she consider the move towards centralising legal aid contracts an example of bad procurement?
Miss Smith: I suspect that I do not have time to do that topic justice and that you would not wish me to go there, Mr Hollobone. However, if the hon. Gentleman thinks that it is bad practice, he or anybody else ought to enter it into the mystery shopper and see what comes out the other end. We regularly publish the outcomes of mystery shopper investigations on the gov.uk website, and I am sure that the hon. Gentleman will find it easy to use.
By 31 May this year, we had received 425 mystery shopper cases. Of those that we have closed, a great majority have had a positive outcome. Once again, I encourage all Members to ensure that their constituents are aware of it.
Huw Irranca-Davies: Briefly, and in case the Minister does not touch on these two issues, what are the UK Government doing in terms of the threshold for advertising on the web? The Welsh Government have moved to advertising any contract of more than £25,000 on the web. Also, what are the UK Government doing to reduce the insurance and turnover thresholds to break down more barriers for SMEs?
Miss Smith: On the first question, all central Government contracts of more than £10,000 must be advertised on Contracts Finder; I am sure that those who have their smartphones out will find it a helpful source of information. The second question brings me to a point that I shall make later. We need to leave some areas of professional competence for the contractors themselves. It may be under the headings that the hon. Gentleman mentioned. There are instances in which a particular contractor will need to find particular characteristics that suit their procurement.
I turn to a couple of other points that have been made. Hon. Members have asked for there to be ways of giving feedback to unsuccessful bidders. We have used
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the mystery shopper to provide that in some cases; I am interested in how we can encourage it as a far wider practice. I will also give an example of the move away from frameworks, another point made earlier. In some cases, it can be an instance of poor procurement practice when frameworks are used inappropriately. They can certainly be a blunt instrument. I point hon. Members to the example of the G-Cloud, a way that we are procuring for IT across Government that has done away with frameworks entirely. There are many more such examples.
PQQs, or pre-qualification questionnaires, are undoubtedly a burden to small and medium-sized businesses. To address that, we have eliminated their use in 15 of 17 Departments for all central Government procurements under the EU threshold of £100,000. The two Departments still using PQQs are doing so only for security reasons.
Andrew Bingham: Will the Minister give way?
Miss Smith: I am terribly sorry, but I need to finish some points before I run out of time. For procurements that still require a PQQ, we have introduced a much simpler standard set of questions that reduces the burden on suppliers.
On late payment, we recognise that being paid promptly is vital to enabling SMEs to manage their cash flows. Again, we have addressed that by making Government a fair payment champion. We have a policy of paying 80% of undisputed invoices within five days and ensuring that prime contractors also pay suppliers in tier 2 within 30 days. We expect our suppliers to follow that example.
My hon. Friend the Member for High Peak briefly mentioned the fact that Government can end up paying through the nose for procurement. I make the point in passing that we are one of the best clients going. I think that the hon. Member for Islwyn said that, actually, we have some of the best credit available as a Government purchaser. We can take advantage of that and get results for the taxpayer, which is crucial because that is
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whom we are procuring for, as well as shaping the market. I suggest that fair payment is a way in which we can do that.
I turn to a couple of other points about assistance to SMEs. Hon. Members have spoken about the small business research initiative, under which we have provided more opportunities within Government for SMEs. To address a further point made by the hon. Member for Islwyn, we have also produced a series of “top tips” videos that help SMEs and voluntary organisations pitch for Government business. Again, he should get out his smartphone right now and find out how good those videos are.
On how the measures are giving results, I should say that direct spend with SMEs across Government has increased from the paltry 6.5% when we took office to 10% in 2011-12. We will shortly announce, two years on, the results of our efforts in that area. SMEs have also benefited from a further 6% in indirect spend through the supply chain in 2011-12, meaning that spend with SMEs across Government has increased steadily since 2010.
Looking ahead, we must keep up the pressure on Departments. The hon. Member for Newcastle upon Tyne Central (Chi Onwurah) will be delighted to know that I am personally scrutinising plans from Departments to increase their spend with SMEs and sharing them with the Prime Minister throughout. We have appointed SME champions to do so at ministerial and official levels in all Departments.
Hon. Members will also be pleased to know that we are working closely with the Department for Business, Innovation and Skills to ensure that unified advice is available to SMEs. To conclude, we are aware of the recommendations in Lord Young’s work, and I want to do more to support growth with SMEs throughout the public sector.
Mr Philip Hollobone (in the Chair): All good things must come to an end. I thank all the hon. Members who took part in that most interesting and illuminating debate, and ask those who are not staying to leave quickly and quietly.
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Prepayment Meters
4 pm
Mr Mike Weir (Angus) (SNP): I am pleased to be able to appear under your chairmanship this afternoon, Mr Hollobone.
The debate came about because, on Report, I tabled amendments to the Energy Bill on the Government’s new proposals to help consumers with their energy bills. Unfortunately, my amendments were not discussed due to lack of time, but there are serious issues relating to the new powers and to prepayment meters in particular.
Under what was new clause 13, powers would be taken to allow the regulator to require
“licence holders to change the domestic tariffs or other terms of domestic supply contracts so as to reduce the costs to their domestic customers for supplies of gas or electricity.”
However, what was then subsection (3)(e) provides
“for requiring a licence holder to change the domestic tariff or other supply contract terms on which it supplies gas or electricity to a domestic customer by—
(i) switching to a different domestic tariff or different supply contract terms, unless the customer objects, or
(ii) offering the customer, or inviting the customer to switch to, a different domestic tariff or different supply contract terms.”
My problem is with sub-paragraph (ii).
I fully appreciate that the Minister may argue that consumers should be given the maximum amount of choice and should be empowered to make their own decisions, but the plain fact of the matter is that, as we all know and as is remarked on in the regulatory impact assessment of the Bill, there is a huge amount of inertia among energy consumers, in particular those who remained with their former monopoly supplier after privatisation. If the provision in the Bill remains as it is, there is a real danger that companies might take the second option and make an offer to the consumer. We are then faced with the issue of what form that offer might take.
We already receive a huge amount of paper from our energy providers. As well as bills, we get special offers and offers to take on maintenance of domestic appliances, drains, pipes, electrics and whatever else. We also get invitations to take up different ways to pay our bills, especially if the providers have not yet signed us up to a direct debit; once we have direct debits, they make regular attempts to increase the amount we are paying by direct debit—amounts that sometimes bear no relation to how much energy we actually use. Now, too, we get annual and regular energy statements. That is all useful, but how many of our constituents really take the time to go through that mountain of information, and how many just put it in the recycling bin with all the other junk mail?
The first option, however, is straightforward: if consumers are on a contract or supply terms that are not the best, they can be automatically transferred to a better deal, unless they make the specific decision not to do so. That seems to have a better chance of fulfilling the Prime Minister’s promise to ensure that every customer is on the lowest tariff. Of course, the situation would have to be monitored, to ensure that the energy company is indeed offering the lowest tariff, but that can be addressed by Ofgem and to an extent by the provisions of subsection (5) of what was the new clause. I am interested to hear what Ministers have to say about that point.
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My other concern and the main point of today’s debate is how that relates specifically to some of the poorest in our society who have to rely on prepayment meters. If someone is on a direct debit tariff, that may be fine, but if they are on a prepayment meter, for example, they will still be stuck on a higher tariff, since those tariffs are generally higher than the ones that would be available to someone who is paying by direct debit. If the Government are truly intent on ensuring that everyone has the lowest possible bill, they need to ensure that the requirement not only applies within the type of contract that the customers already have, but allows them to move to a cheaper type of contract.
There are particular problems with prepayment meters. It has always seemed to be slightly perverse that this is one of the few examples in which consumers end up paying much more by paying cash in advance.
Jim Shannon (Strangford) (DUP): I congratulate the hon. Gentleman on bringing this important matter before the House for consideration. I have been dealing with a number of constituents who have had similar problems with the tariffs for, for example, oil. Does he think that other options might be necessary, not only for oil but for gas, so that people can switch, whatever the fuel that provides their heating? If we do not enable that, fuel poverty will continue to grow.
Mr Weir: The hon. Gentleman makes a valid point. I have often talked about oil, though it might be outwith the terms of today’s debate, but I take his point, which is very true.
The issue of prepayment meters is important. Citizens Advice Scotland issued a report on energy recently, showing that citizens advice bureaux had dealt with 7,400 people with 9,500 different energy issues in 2011-12; of those, 83% related to difficulties with paying or debt. The report stated that
“the cases highlighted by bureaux regarding difficulty paying are most commonly with regards to prepayment meters recouping an unaffordable amount for arrears every time the consumer tops up.”
The problem with prepayment meters is not only that the tariff tends to be higher—to be fair, things are better than they used to be, and many companies now fix at the standard tariff, although this is higher than the tariffs that can be achieved on, for example, direct debit—but that many, though not all, of those on prepayment meters are put on them because they have a debt, and part of that debt is recouped every time the consumer tops up the meter. The costs of installation can also be added to the debt, meaning that consumers are pushed further into debt.
Meters tend to be used when a consumer is already struggling. The perverse effect is that if people are already struggling to keep up with payments on the cheapest tariff, such as an online one paid by direct debit, should they fall into difficulties—perhaps they lose their job or become ill, or for any of a vast number of reasons—they end up being put on an even more expensive tariff, which simply deepens their difficulties.
Hywel Williams (Arfon) (PC):
I congratulate the hon. Gentleman on making a fine point. Does he agree that, with prepayment meters, we now have the grotesque
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example of people cutting themselves off by not paying beforehand, rather than waiting for the fuel companies to cut them off?
Mr Weir: The hon. Gentleman makes an excellent point, and I shall come on to discuss that issue shortly.
The report from the Scottish CAB cites the case of a single parent with two children who loses £7 towards arrears every time she puts £10 in the meter, and the £3 left is entirely insufficient to heat her home. What chance has she of ever getting out of the cycle of debt, or even of keeping her home warm?
When the debate was announced, Barnardo’s got in touch with me and mentioned the problem, expressing its concerns that the Government’s plans to simplify the charging system will still allow fuel companies to charge higher prices for those who pay for their electricity and gas through prepayment meters rather than through direct debit. Barnardo’s quoted research showing that vulnerable households in or on the margins of poverty are forced to pay through their energy bills an extra £1.1 billion a year above those on high incomes. A key reason for that is that such households often have to opt for a higher-cost payment method.
Interestingly, the energy companies often argue that the costs of providing and servicing prepayment meters are higher than for other payment methods, but Barnardo’s cites the example of what it refers to as the “reasonable cost” of the Northern Ireland keypad, which shows that prepayment meters do not necessarily have to involve a large premium. I am not familiar with the Northern Ireland system, but the Minister might want to investigate it.
Jim Shannon: Will the hon. Gentleman give way?
Mr Weir: We might get some information from the hon. Gentleman.
Jim Shannon: The hon. Gentleman and I discussed this matter before and, if anyone heard my phone going, that was a text coming through to confirm the issue: the administrative costs in Northern Ireland are less, which is why it is cheaper than on the mainland. If the keypad system in Northern Ireland can be cheaper, perhaps that needs to be looked at.
Mr Weir: I thank the hon. Gentleman for that clarification. Ofgem should certainly be looking at that matter, and perhaps the Minister will encourage it along that route.
Barnardo’s also makes the point that the reason that many people use such meters is that they do not have access to a bank account to take advantage of direct debit payment. That is undeniably true, but it is also true that it is almost impossible for many people in such situations to get a bank account, since, frankly, the main banks are not interested, and many of them now seem to be moving to charging for current accounts, which is hardly likely to help. Barnardo’s calls upon the Government to extend the Post Office card account to allow payment of bills by direct debit, which I understand was promised in the coalition agreement. I appreciate that this may be outwith the Minister’s remit today, but that could be considered when introducing the universal credit.
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Prepayment meters also have the problem of self-disconnection, as the hon. Member for Arfon (Hywel Williams) said. If people cannot afford to heat their homes, they simply do not put money in the meter. There is no active disconnection by the energy company, but the end effect is the same. That applies not just in Scotland but throughout the UK. The hon. Gentleman raised the issue in relation to Wales, but Stratford-on-Avon and district citizens advice bureau has contacted me about it. It takes issue with the term “self-disconnection”, making the valid point that it implies an element of choice. It also makes the point that in a harsh winter the loss of power to homes is national news—even during the spring this year it was national news—yet the plight of prepayment meter users, who must endure a regular loss of supply in both summer and winter because they cannot afford to buy credit, goes largely unnoticed.
Stratford-on-Avon and district citizens advice bureau told me that it has worked with other citizens advice bureaux and other organisations in its area to conduct a survey of prepayment users. It found that, as I have said, the exclusion of people from the best deals is clearly part of the problem, but it also noted that a worrying number of people do not understand how they are charged when they have such a meter. Those who move into a property where there is already a prepayment meter inherit an unfair system. They may quickly get into difficulties through no fault of their own and they often cannot afford to change the system they inherit.
Citizens Advice Scotland also raised that point and noted that many consumers are caught unawares by standing charges, so debt may accumulate in periods when they are using very little energy and impact upon them when they start to use it again in the winter months. It quotes the case of a client who is having 70% of each payment taken to meet those charges. Surely it is high time that action was taken to end such charges.
Citizens Advice Scotland adds that when consumers are in receipt of benefits, energy suppliers should recognise that they face additional payment difficulties and take action to support them, especially given the significant ongoing changes in the benefit system. In particular, suppliers should monitor usage, particularly among prepayment consumers, and take proactive action if there is evidence of self disconnection. I have been contacted by the StepChange debt charity, which has pointed out that an increasing number of over-60s are in fuel poverty because of rising prices, and that that number is substantially higher than in other age groups.
Citizens Advice recommended that prepayment meters should be fixed at the supplier’s cheapest tariff. I fully support that and urge the Minister to take it up with the energy companies and, if necessary, introduce amendments to the Energy Bill in the other place to make it happen. He did not accept my amendments when they were offered to him, but I will not take offence if he introduces his own. That would help to ensure that customers who have difficulty paying for energy and use prepayment meters as a budgeting tool are not penalised for doing so, and that customers with arrears are not pushed further into debt by the additional costs of installing a prepayment meter and of paying a higher tariff.
I would go even further. I sought in my amendments to put a cap on the amount of any payment into the meter that can be used to meet accumulated debt.
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I suggested 20%, but in the example I quoted earlier 70% was being taken and we should agree that 70% is totally unacceptable in such circumstances.
When alluding briefly to my amendments last Monday, the Minister’s colleague, the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon), said that he was not in favour of a specific percentage because that could mean that people would continue to pay towards the debt over the summer months when they use little gas. However, as I said, because of the operation of standing charges on prepayment meters, debts continue to increase over that period whether energy is being used or not, so that argument does not hold water. He also stated that it would take a long time for a family to get out of debt. The problem with that approach is that people on low incomes cannot ever get to the stage of being able to heat their homes properly, leading to ever greater difficulty.
It may take much longer to pay off the debt, but it is surely better to accept that in an age of ever-increasing energy bills—few of us believe that they will fall significantly in the foreseeable future—we must make a much greater effort to help those who are in genuine difficulties, and accept that when people have got into difficulties the arrears simply must be paid off over a much longer period. It is imperative to ensure that people can heat their homes and cook their food, and are not subject to having no energy because they cannot afford to put credit on the meter.
Will the Minister consider whether that is a sensible way of dealing with an increasing problem? If he followed up some of my suggestions, it might help the Prime Minister to fulfil his promise to ensure that everyone is put on the lowest tariff.
4.15 pm
The Minister of State, Department of Energy and Climate Change (Gregory Barker): I congratulate the hon. Member for Angus (Mr Weir) on securing this debate on fuel poverty and the use of prepayment meters. He is an acknowledged champion in this place of the fuel-poor, and from my time on the Select Committee on Environmental Audit I know of his personal commitment and professional expertise. Whenever he speaks on the subject, we listen carefully and thoughtfully even if we do not always agree. I reassure him that the coalition Government are committed to helping hard-working families and consumers with the rising cost of living. We recognise that the rising cost of energy is currently one of the biggest worries for householders.
The modest fall in the number of households living in fuel poverty was confirmed in April. The latest figures show that in 2011, 4.5 million households in the UK were in fuel poverty. That was a slight decrease from 4.75 million in 2010, which saw the first fall in the number of fuel-poor since 2004. Throughout the last Parliament and for a couple of years before, there was an inexorable increase in the number of fuel-poor. Despite the modest falls, encouraging as they are, there is absolutely no room for complacency. The figure is still far too high and we are honest enough to realise that some of the problem is beyond the Government’s control. The steady growth in the number was driven
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primarily by increases in the wholesale price of gas. There is a direct correlation not between the sympathy that the Government of the day feel for the fuel-poor and the rhetoric they employ, but between the wholesale cost of gas and the price of energy that people must pay. We must do more to decouple that link and to cushion consumers from the international gas markets.
Mr Weir: I do not disagree with what the Minister has said so far. He is correct about what is driving rising fuel prices, but does that not make it imperative that the Government adopt the little things I suggested to ameliorate the situation? It is all very well talking about wholesale gas prices, but it is the people at the sharp end who are suffering them. My suggestions would not solve the problem, but they would ameliorate the situation for those vulnerable people.
Gregory Barker: The hon. Gentleman made several points that I hope to cover, but I want to set out the framework and the context in which we must operate. Of the 3.2 million fuel-poor households in England in 2011, around 20% paid for their electricity and 24% paid for their gas with prepayment meters. Many hon. Members and certainly members of the public will be surprised that the figure is so low, because there is often an assumption that “fuel-poor” and “prepayment meter” are synonymous. In fact, only a relatively small number of the fuel-poor—20%—are on prepayment meters. Prepayment meters enable customers to monitor and control their energy expenditure in a direct and immediate way and, as a last resort, they can be a valuable alternative to disconnection for non-payment of bills.
Where prepayment meters are installed to recover a debt, that element of a customer’s payment must be set at a level that takes into account their ability to pay. The hon. Gentleman rightly says that there must be an equitable balance in such situations between debt repayment and the real ongoing needs of a household to cook, to heat the home to a safe level and to light the premises, particularly where there are children, or elderly or vulnerable people. It is understandable that he seeks a cap for weekly payments. Customers in debt repay a fixed amount at fixed intervals—for example, weekly. The amount repaid is calculated for each customer based on their personal circumstances and their ability to pay. He asked what would happen if their circumstances changed. In those cases, customers should talk to their supplier about the change and how it may impact on their ability to repay debt.
I recognise that a percentage repayment, such as 20% of the amount spent, may feel fairer, and that fixed payments can be a blunt instrument, but there are two sides to the coin. There is a risk that setting a percentage limit may create a floor rather than a ceiling. It may encourage suppliers to use the limit as the automatic default position rather than, as they do now, individualised payment plans, which are surely in everyone’s interest.
The hon. Gentleman makes the valid point that in some cases customers may feel that they are set an inappropriately high debt recovery level. If that is the case, they need to speak to their supplier. If that does not satisfy them, they should speak to Ofgem or the energy saving advice service, which is run by the Government, for further advice on what to do.
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Mr Weir: Does the Minister not accept that if Citizens Advice Scotland is coming across rates of 70%, where £7 in every £10 goes towards paying down the arrears, something is seriously wrong? It is not just one case; Citizens Advice Scotland cites several. That cannot be right.
Gregory Barker: I agree with the hon. Gentleman that it does not seem right, but I am not aware that it is the norm; it is the exception and if he is aware of such cases, I encourage him to take them up. I want to know more about the individual circumstances of the household and how the debt built up to such a level. We cannot have a situation where we ignore moral hazard and certain households do not feel an obligation to repay debt, because that penalises and is unfair to those on low incomes who struggle to pay their electricity and heating bills on time. We simply cannot give away heating when their next-door neighbours are struggling hard to do the right thing and pay the bills. There is a balance of fairness to be met.
Jim Shannon: In an intervention, I made a point about the administrative costs of the keypad system in Northern Ireland. It is cheaper than the system on the UK mainland in England and Wales. Is the Minister prepared to consider that system? If we could reduce administrative costs, it would be a factor in the saving for the consumer.
Gregory Barker: I would be more than willing to do that. Perhaps the hon. Gentleman will be kind enough to write to me with his particular proposal, or the example he thinks best illuminates the case. Prepayment meters obviously have a cost. Ofgem estimates that it costs £88 more than paying by direct debit. If there is a cheaper alternative model for prepayment meters in Northern Ireland, I, for one, would be extremely interested in looking at it.
The hon. Member for Angus mentioned the Prime Minister’s commitment to put everyone on the best deal, but that deal must be cost-reflective. As I said, it costs more to put people on prepayment meters. Ultimately, with only 20% of the fuel-poor, roughly speaking, on prepayment meters, we should not see them as a good thing. In an ideal world, no one would be on a prepayment meter. We do not want to create such an attractive situation that more people opt to go to a prepayment meter.
One of the exciting developments in technology is the advent of smart meters, which will considerably change the ability of consumers to interact with suppliers and will enable suppliers to have a much better relationship with consumers. Consumers will be empowered to make better choices of tariff and how they pay. Obviously, it will be a while before the whole country has smart meters, but we are determined that our smart meter programme should cover the entire country by the end of the decade. Clearly, that leaves some time and we cannot ignore what happens in the meantime.
In many cases, prepayment meters are installed to recover a debt. That element of a customer’s payment must be set at a level that takes into account their ability
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to pay. That is a point of universal agreement. Prepayment meters also enable customers to monitor and control their energy expenditure, and smart meters will play a valuable additional role.
Hywel Williams: Will the Minister give way?
Gregory Barker: I will, but I am running out of time and I had hoped to answer more of the points that have been raised.
Hywel Williams: I will be very brief. Understandably, the Minister has so far talked about the individual consumer. Does he commend the Welsh Assembly for including a specific fuel poverty reduction target in their campaign to reduce poverty in general in Wales by 2020? Would that be a course of action for his Government?
Gregory Barker: We do not just have a target; we have a legally binding obligation to deal with fuel poverty. In common with many other people, I have a slight degree of target fatigue, because targets do not get rid of fuel poverty: action, policy and committing to take measures and following them through get rid of fuel poverty. I am slightly sceptical that setting more targets is a good way of addressing something. The previous Government had a target, and fuel poverty relentlessly rose during the last Parliament. We need a Government who are committed to real solutions in the real world, and that is the hallmark of this coalition.
Given the levels of concern over the payment method, I am pleased that 80% of the fuel-poor do not pay for their energy via prepayment meters, and I do not want those households to find themselves subsidising others, either intentionally or unintentionally. The coalition shares the concerns of the hon. Member for Angus about the remaining 20% of the fuel-poor who pay for their energy through prepayment meters.
Since 2010, most suppliers have chosen to equalise their prepayment tariffs with standard credit prices, which is a major step forward. In the current system, licence conditions require suppliers to take into account the consumer’s ability to repay when setting instalments to repay gas and/or electricity debt. That allows consumers or their advocates to come to an individual agreement with suppliers that fits their circumstances.
Clear communication is the key to compliance. An assessment of a customer’s ability to repay a debt should be verified through direct customer contact or through a third party, such as the citizens advice bureaux, which do such brilliant work. It is clearly important that consumers know how much they are repaying each week and when the debt will be repaid. The average level of debt owed by dual fuel consumers in 2011 was £728, so a family with an average level of debt agreeing to repay the debt at £5 a week on top of their consumption would know that the debt would be cleared within two years and eight months. Fuel poverty and a customer’s ability to pay their energy costs are among my Department’s top concerns.
Mr Philip Hollobone (in the Chair): Order. The meter has run out, and the debate has to be switched off.
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Gangmasters Licensing Authority (Civil Fines)
4.30 pm
Stephen Barclay (North East Cambridgeshire) (Con): It is a pleasure to serve under your chairmanship, Mr Hollobone.
This time last year, on 20 June 2012, I held a debate on the Gangmasters Licensing Authority, and the then Minister, my right hon. Friend the Member for South East Cambridgeshire (Sir James Paice), who is my constituency neighbour, assured the House that he had
“a package of proposed changes to the GLA, including…looking at the scope to use civil penalties.”
Indeed, he very kindly went on to say that I was right in calling for the ability to fine gangmasters. He said that the GLA board had “very few enforcement weapons” and that we needed
“a tier of measures for it to utilise.”—[Official Report, 20 June 2012; Vol. 546, c. 276WH.]
It therefore may surprise the House and you, Mr Hollobone, to learn that despite the Minister’s saying that that analysis was right, the Department’s own consultation now specifically excludes the tier of measures to which my right hon. Friend was referring.
We should remind ourselves of what is at stake. I am very pleased to see my hon. Friend the Member for Morecambe and Lunesdale (David Morris) in his place. He will know that the GLA was set up in 2004 after the tragedy of the Morecambe bay cockle pickers disaster. He has spoken most effectively in bringing these issues to the attention of the House previously. We are talking about legislation that is directed at protecting the most vulnerable people in society and particularly those working in the agricultural sector. In many cases, they are a long way from home, have difficulties with the language and are fearful of authority. They are therefore vulnerable people who do need protecting.
It is remarkable that the consultation brought forward by the Department seems to be excluding the measure that the Minister, in response to my debate last year, said was an important tool that was lacking and needed to be included. It may be helpful if I set out why I think that the Department has got itself into this situation. I think that it is in large measure down to another ministerial statement. We all like cross-departmental working, and it is very good that the Department is taking note of ministerial statements elsewhere. The Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), quite rightly articulated concerns about red tape. That is a concern that many hon. Members share. My right hon. Friend therefore set out a new test: it was a general rule that new powers to fine should not apply to firms with fewer than 250 people. There was good logic to bringing in that measure, but it was a general rule; it was not absolute. This Minister may want to clarify the position with his officials. Obviously, the measure has been signed off by Ministers, but there almost seems to be a bit of gold-plating whereby what is a general rule has been applied in absolute terms.
Of course, most gangmasters do not employ more than 250 people. Indeed, if they did, the existing powers would be confined just to those above 250, but we do
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not do that for the criminal powers, so is it not illogical that for criminal powers we say that they apply to the gangmaster population as a whole, yet for civil powers, where one assumes a lower test, we raise the bar and say that they apply only to gangmasters with more than 250 people working for them? That is at odds not only with what the Minister said to me this time last year in response to my debate, but with the existing legislation under which the Department is acting. It is also—dare I say it?—at odds with common sense, because if we look at the use of criminal powers, we see that it is clearly not working.
Let us take, for example, two recent cases in Northern Ireland. In those cases, the fines imposed on the gangmasters acting illegally and making large sums of money—often, gangmasters are not paying tax, and quite often they are linked to other crime, such as prostitution and counterfeiting—were just £500 apiece. I think that most hon. Members would accept that the profits that those gangmasters had made far exceeded the fines that were imposed by the courts. We have a strange situation in which we have criminal powers, which the GLA rarely uses. If a gangmaster is unlucky enough to be caught, they know that the fine is likely to be less than the profits that they have made. They know that, on most occasions, witnesses are very fearful of coming forward and therefore the number of prosecutions is very low. Last year, for example, there were just 15 prosecutions against gangmasters.
Let us put that in context. We currently have under way—I am very grateful to my right hon. Friend the Home Secretary for the support that she has given—an operation in the fens, which my hon. Friend the Member for Peterborough (Mr Jackson) will be familiar with, Operation Pheasant. So far, it has raided 80 homes and it has a number of live inquiries, but it is finding the most horrendous issues. We had a case recently in Whittlesey in which migrant labour was living in a house and there was CCTV not just on the front and back doors but in the inside rooms in order that the gangmaster could control his labour force. We have had other cases of people living in a garage with an open sewer.
This is an issue not just for the vulnerable in communities such as mine and that of my hon. Friend the Member for Peterborough but for the local residents, because where there are high concentrations of houses in multiple occupation, there is antisocial behaviour. It is very difficult for people to stay in the house, so they tend to go out and street-drink. When they street-drink, we get urination on people’s front doors. I cited some particularly unpleasant and disturbing cases in the debate last year. I will not detain hon. Members by rerunning those, but it is very clear that there are issues of antisocial behaviour and legitimate concerns for the local population that flow back to our unwillingness to tackle gangmasters.
Therefore, I suggest to the House that the key way in which we should be tackling gangmasters is by hitting them in the area that they are most concerned about. That is in their pocket; it is through fines. That is the way in which we will change their behaviour, so I find it remarkable that the consultation from the GLA is excluding a tool that the Minister last year said was important, is gold-plating a legitimate concern of the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks, and
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applying that in a bizarre and arbitrary way and is failing to address the legitimate concerns about antisocial behaviour with enforcement, because the criminal tools that are used are not working. They are rarely applied. The fact that there were just 15 prosecutions clearly shows that they are not working. Then when there are prosecutions, the level of the fine is derisory.
I say to this Minister that I find the situation quite disappointing. I, as a Member of Parliament, articulate real concerns about things affecting my constituency. The Home Secretary acts on those concerns with Operation Pheasant. We have good support from Cambridgeshire police—in the debate last night, I paid tribute to Inspector Sissons and the work that he is doing. I am keen that my local council do more, and I have been in active discussions to ensure that it uses its powers. I am very sympathetic about the difficulties of resourcing that the GLA has. We all know that the last Government left us with a huge level of debt. Although I believe that the GLA should be far better resourced—I think that that would be a good use of the Department’s budget—I am very sympathetic about the difficulties that the Department faces because of what was inherited. But surely the answer, if we have a problem in trying to resource it more, is to make it easier to prosecute—to make it easier to impose fines, because it is the fines that will change the behaviour of the gangmasters.
We are not talking about all gangmasters; there are perfectly respectable gangmasters, but we know that there are illegal gangmasters and heartbreaking abuses taking place in my constituency and the constituencies of hon. Members across the fens. Unwarranted pressure is being placed on local residents, who often have to bear the consequences of the antisocial behaviour that flows from the concentration of houses in multiple occupation and the lack of enforcement against illegal gangmasters, who often misleadingly attract people from overseas. Illegal gangmasters will go to Lithuania for example and say, “Come to the fens. You have a guaranteed job and guaranteed accommodation.” When the workers arrive, there is often only one, two or three days’ work before they exhaust their savings, are in debt and the gangmasters have control.
There are real issues and they were raised last year. Other Departments have gripped the problem and acted. The Minister for Housing, my hon. Friend the Member for Hertford and Stortford (Mr Prisk) is organising a workshop in the fens, in Wisbech, for councils, so that we can share best practice. Other Departments are acting, but the Department of the Minister who is here today is not. Not only is it not acting, but it is ignoring the assurances that I felt were given to me last year, in my interpretation of what the then Minister, my right hon. Friend the Member for South East Cambridgeshire said. In bringing this debate before the House again, I hope that the Minister here today will look again at his consultation and at whether the powers it equips the GLA with are adequate. If he wants to take this opportunity to announce additional resource for the fens, I will be delighted, but if he is not going to do that, what exactly is he going to do?
Mr Stewart Jackson (Peterborough) (Con):
My hon. Friend is making a powerful and fluent case. I pay tribute to his great campaigning work on illegal gangmasters. Does he agree that time is of the essence? The imperative
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is to do something soon, due to the free movement directive and the likely immigration of Romanians and Bulgarians next year. The Home Secretary has said how important reducing pull factors is, and measures on gangmasters would be part of that portfolio of policies, so the urgency is very much apparent.
Stephen Barclay: My neighbour and hon. Friend is right; there is urgency. I am sure that he shares my frustration for that reason. A number of us have been raising concerns for some time. I secured a debate on gangmasters last year. I raised concerns in the main Chamber. I have been to see the Home Secretary on a number of occasions. The police inspector came to see Lin Homer, the top official of HMRC, with me last year. For cross-departmental government to work, DEFRA needs to come to the party and get involved and the purpose of today’s debate is to draw the consultation before the Minister more firmly to his attention. I think that the ministerial statement of the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks, has been misinterpreted.
I hope that the Minister here today can reassure us, but if not, ultimately I hope that he can address the concern of my hon. Friend the Member for Peterborough: what will the Minister’s Department do through the GLA to effect change on the ground? If we are to maintain community cohesion, the GLA matters. To address the antisocial behaviour that flows from the consequences and criminal actions of illegal gangmasters, the GLA must be part of the action taken. I therefore hope that the Minister can reassure the House that the comments of his predecessor, my right hon. Friend the Member for South East Cambridgeshire, will form part of the consultation and the response to tackle illegal gangmasters operating in the fens.
4.44 pm
The Minister of State, Department for Environment, Food and Rural Affairs (Mr David Heath): It is a pleasure to serve under your chairmanship this afternoon, Mr Hollobone. I congratulate the hon. Member for North East Cambridgeshire (Stephen Barclay) on securing the debate. I am pleased to see his colleagues, the hon. Members for Peterborough (Mr Jackson) and for Morecambe and Lunesdale (David Morris) here. I know that they share a common concern about the operation of gangmasters in their constituencies.
It is important that I open by saying how significant the operation of the Gangmasters Licensing Authority is. We need it to work for precisely the reasons that the hon. Member for North East Cambridgeshire set out: to ensure that very vulnerable people are not exploited by criminals—let us be clear, they are criminals—who wish to use the opportunities that arise from people coming from overseas and finding themselves in a vulnerable situation.
I would like to respond to the points that the hon. Gentleman made, but also to say a few words about the proposed improvements to the operation of the GLA, which has done and continues to do a great deal of valuable work, which most people recognise, to protect and enforce the rights of vulnerable workers. Many reviews over recent years, including the farming regulation task force and forestry regulation task force, have looked
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at the GLA’s work, and there is general recognition among stakeholders that it has been effective in improving working conditions in the regulated sectors.
In recognising the highly valuable work the GLA has done, the reviews have also shown that there is room for improvement, so there is an opportunity to make the GLA a modern enforcement agency that better targets criminal activities, while applying a light touch elsewhere. That is one of the thrusts of the work we have done. Part of the consultation that is happening at the moment is about how we can take our foot off the pedal in areas where it is not needed, to concentrate resources on the areas that the hon. Gentleman has drawn to the attention of the House.
Through the employment theme of the red tape challenge, the continuing need for the GLA’s work was endorsed, alongside the need to bring forward measures to ensure that it can become more focused on the worst excesses of worker exploitation in the sectors it regulates. As the hon. Gentleman said, my predecessor, the right hon. Member for South East Cambridgeshire (Sir James Paice), announced, via a written statement to Parliament a year ago, the range of reforms that would come forward.
The GLA will increase joint working with other agencies involved in stamping out serious organised crime activities, including human trafficking, money laundering, tax evasion and other serious organised crimes. To enable that increased focus on the serious criminal elements in the supply of labour to the food and food processing sector, the GLA will modify its processes and deploy its resources in a way that relieves the burden of regulation from highly compliant businesses, but targets criminals through improved intelligence gathering.
David Morris (Morecambe and Lunesdale) (Con): In Carnforth in my constituency, the Morecambe bay hybrid fishery order is being drafted at the moment. Can the Minister assist the legislation to go through quicker? It will enable the licensing and policing of the bay for shellfish farmers and harvesters and cockle pickers.
Mr Heath: I am not sure that I am in a position to help with what is presumably private legislation, in that it is independent of Government processes, but I have heard what the hon. Gentleman has said. Having such an order in place would clearly benefit his constituents, which is why he has raised it today. I do not blame him for doing so.
Before that intervention, I was suggesting that in areas where the experience of GLA enforcement over the years has shown that there is less need for regulation, we can safely remove those currently licensed activities from the scope of regulation and redeploy the resources elsewhere. My Department launched a public consultation in April this year on proposed reforms to GLA operations, as the hon. Member for North East Cambridgeshire said. That consultation includes proposals to exclude some activities that currently require a licence from the scope of licensing, where evidence suggests that there is a low risk of exploitation of workers. That proposal would remove about 150 businesses from licensing,
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saving those businesses about £60,000 and enabling GLA resources to be deployed elsewhere to tackle serious abuses.
Changes are proposed to the size and constitution of the GLA board, to make it smaller and better able to provide clear strategic direction for the organisation. The consultation also looks at the scope to introduce civil penalties—exactly the point that the hon. Member for North East Cambridgeshire made—into the range of enforcement tools that the GLA has available.
The GLA is a designated regulator under the Regulatory Enforcement and Sanctions Act 2008—the so-called RES Act—which permits the use of civil penalties as an alternative to prosecution in certain circumstances. The point that the hon. Gentleman made, and he quite properly set out exactly why this is an obstacle for us, is that the sectors that the GLA regulates are overwhelmingly made up of small and medium-sized enterprises.
The scope for use of civil sanctions in the RES Act is constrained by Government policy in that area, and I recognise immediately that what the hon. Gentleman is asking me to do is to challenge another Department’s policy. I think that is implicit in what he says, but for the benefit of the record I want to state that Government policy in that area was clearly set out in a written statement to Parliament last November, by the Department for Business, Innovation and Skills Minister, my right hon. Friend the Member for Sevenoaks (Michael Fallon).
That statement made it clear that, in general, SMEs should not be subject to monetary fines because of the risk of smaller companies feeling less equipped to challenge the basis for such fines. That is very clear Government policy and if I wished to engage in a dialogue with my right hon. Friend the Member for Sevenoaks on the issue, we would need to establish why this matter should be the exception to that rule.
Stephen Barclay: The crux of the matter is in two of the words that the Minister just said: “in general”. My colleagues on the Government Benches very much support the statement made by my right hon. Friend the Member for Sevenoaks. We understand the difficulties of the red tape, but it is this “in general”. What we are saying is that in this instance there is a distinction between the criminality of gangmasters operating against vulnerable people—the raids are revealing some horrendous and immoral issues—and the small business owner suffering from red tape. It is that distinction that I ask the Minister to take away, from a cross-departmental point of view, and take up with colleagues.
Mr Heath: Of course I understand what the hon. Gentleman says, and I understand why he is bringing the matter forward in the context of his constituency interest, but I have to say that where there is criminality I believe that criminal sanctions should apply. I want to make it absolutely clear that, if the evidence is there, there should not be the slightest hesitation in bringing a criminal action. The question of civil sanctions is, in a sense, a reserve position for situations in which a criminal prosecution is inappropriate.
Stephen Barclay:
The Minister is generous in giving way a second time. The facts speak for themselves—only 15 prosecutions. For criminal prosecutions a higher standard of evidence is required, and they are therefore
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more difficult. They take longer and are more expensive, and we are talking about an organisation with resource constraints.
For the measure to work, the Minister needs the resource. Perhaps I can take him back to his earlier remarks. Yes, in the consultation we are reducing the board—frankly, big deal; it is pretty irrelevant—but how many investigators from the GLA are covering Cambridgeshire, Norfolk and Lincolnshire? The figures I had, off the record, were very small. Will the Minister share the figures with the House?
Mr Heath: I am grateful to the hon. Gentleman. I do not have the figures with me and will, therefore, happily write to him to set out the position.
I will, in fact, go further than that. I am due in East Anglia tomorrow and I plan to meet with the GLA to discuss exactly how it operates and how we can help it to operate, so it seems entirely appropriate that we look at the resourcing issues. It is not small beer to redirect resources from areas where they are deployed to no great benefit because they are being used to license people who have not the slightest intention of breaking the law, and have the track record to show that they do not. It seems entirely appropriate to redirect the resource to deal with the bad guys, against whom we need to collect evidence.
I take the point about the difference between criminal and civil standards of proof. That is, of course, a factor, but let me be absolutely clear: I want more criminal prosecutions. I want to see more people brought before a court for their abuses and I want them then to suffer the further penalty, where appropriate, of proceeds of crime restitution, so that we get back the money that the gangmasters have acquired through illicit means. We also need to make it plain that they are not wanted in our agricultural industry. We must deal with them effectively.
I do not quarrel at all with the hon. Gentleman’s point, but I want to ensure that we do this right, and I am working within an overall Government policy that is resistant to the view that civil sanctions are the appropriate means of dealing with small and medium-sized businesses. That is my difficulty. It is not an insurmountable difficulty, but I need to persuade others in Government of the case.
Some provisions of the RES Act might be useful to the operation of the GLA. We have invited views from stakeholders on the usefulness of the measures, and the public consultation by the Department for Environment, Food and Rural Affairs remains open until 21 June. I therefore invite the hon. Gentleman, and others who feel strongly about the matter, to ensure that their views are fed into that consultation process. When we respond to the consultation in due course, it will be helpful for us clearly to understand, from colleagues who represent
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areas where many labourers work in such schemes, what the problems are and how we should best deal with them.
As I said, I am very happy to look at the matter in the round and to recognise the strength of the arguments, but I come back to my basic premise, from which I will not resile: the key change will be to redirect resources as the GLA is asking us to. That seems to make sense, but obviously we must wait for the consultation process to end to see whether others agree that we should redirect resources in the key areas of serious offences and organised crime.
The GLA itself has been at the forefront of the reform programme, and last week published its three-year strategy for protecting vulnerable workers, which emphasises an intelligence-led, risk-based approach, working closely in partnership with other agencies. The hon. Gentleman will know that the GLA is active in many parts of the country, including in the constituencies of the hon. Gentlemen here today: North East Cambridgeshire, Morecambe and Lunesdale, and Peterborough.
The hon. Member for North East Cambridgeshire mentioned Operation Pheasant, a multi-agency taskforce set up to tackle ongoing worker issues in the area. Three people have been arrested on suspicion of human trafficking offences in Wisbech, and a diverse team of agencies has been assembled to assist with the operation, with partners including Her Majesty’s Revenue and Customs, the Home Office, trading standards, Fenland district council and Cambridgeshire fire and rescue.
I want to know more about the matter at first hand, which is one of the reasons why I am going to East Anglia tomorrow to talk directly to GLA officers and partner agencies involved in the joint operation. If they tell me that there are clear areas in which we have still not dealt effectively with the issues they want us to address, the hon. Gentleman can be assured that I will act on that and take their advice in developing Government policy.
I believe that the package of reforms that we are taking forward with the GLA will make the authority better able to protect vulnerable workers, while easing burdens on the majority of businesses, which are compliant and law-abiding. I am very grateful to the hon. Gentleman for having given us the opportunity to discuss this extremely important issue.
Mr Philip Hollobone (in the Chair): I suspect that the debate has been the best possible pre-briefing for the Minister’s visit tomorrow.