Small Business, Enterprise and Employment Bill

Written evidence submitted by the Local Government Association (LGA) (SB 36)

1. About the Local Government Association

1.1 The Local Government Association (LGA) is the national voice of local government. We work with councils to support, promote and improve local government.

1.2 We are a politically-led, cross party organisation which works on behalf of councils to ensure local government has a strong, credible voice with national government. We aim to influence and set the political agenda on the issues that matter to councils so they are able to deliver local solutions to national problems. The LGA covers every part of England and Wales, supporting local government as the most efficient and accountable part of the public sector.

2. Summary

2.1 The LGA supports enabling more small businesses and voluntary sector organisations to bid successfully for public sector tenders.

2.2 However, we are concerned that the Government intends to use the powers in clauses 33 and 34 of the Bill to centralise procurement, which will not work for local government and small businesses who are interested in providing goods and services within their localities. For this reason, the LGA will be seeking the deletion of these clauses.

2.3 Local authorities support the objectives that the Government is seeking to achieve with this legislation.  They are keen to work with small businesses and voluntary sector organisations because this increases the potential for retaining value within the local economy. There is no need for legislation to address these issues and the continuing work of the LGA and the Local Government National Advisory Group for Procurement creating a National P rocurement S trategy will do much more to enforce these messages.

2.4 W e fear that over-regulation may have the effect of discouraging local authorities from thinking strategically about procurement opportunities and preventing access to markets for small scale providers who may not have the capacity to acquaint themselves with and respond to statutory procedures.

2.5 Moreover, the N ational Procurement S trategy has identified that successful procurement, and with it the opportunity to maximise economic and social value, has to be seen in terms of the whole procurement process, not just the tendering phase. The use of legislation to regulate the tendering stages, however, tends to focus the attention of public bodies on this part of the process to the detriment of the equally important phases of contract deployment and contract management.  L ocal authorities need to be given the flexibility to respond to local circumstances and meet local needs in order to optimise public value .

2.6 In respect of the provisions in the Bill to recover certain exit payments paid to public sector workers, we support appropriate mechanisms to safeguard public money. However, we have concerns about the ease of legislating on this issue given the complex relationship between various pieces of statute la w and individual contract law. The LGA suggest s that better transparency in governance arrangements , such as those applying in local government , might be an alternative.

2.7 In general the employment provisions in relation to whistleblowing, employment tribunal measures, zero hours contracts and national minimum wage would not be expected to have a substantive impact on local government. The introduction of higher penalties for breaches of the minimum wage provisions will require greater clarity on their interpretation and application, particularly where there is a conflict between case law and government guidance.

3. Part 3: Public sector procurement

3.1 Clause 33(1) in Part 3 of the Bill allows the Government to implement further measures relating to public procurement in the future, and as it deems necessary. According to the Explanatory Notes to the Bill, the Government "may use the power to make regulations which require procuring authorities to run an efficient and timely procurement process, including a duty to accept electronic invoices and make available, free of charge, information or documents necessary for any potential supplier to apply for a contract".

3.2 The LGA and its members support the Bill’s aim of enabling more small businesses and voluntary sector organisations to bid successfully for public sector tenders. However, in accordance with the existing EU regulations and the principle of localism, it is for local authorities to decide how to conduct procurement, provided they comply with the principles of transparency, no n - disc rimination , proportionality and value for money.

Rationale for deletion of clauses 33 and 34

3.3 The LGA is concerned that the Government intends to use the power in the Bill to centralise procurement. Such a move is signalled by the abolition of the Pre-Qualification Questionnaire (PQQ) and mandating the use of a single online portal for all contracts across the public sector in the Public Contracts Regulations 2015 which transpose the package of EU Directives on Public Procurement into UK law. A centrally imposed procurement process would reduce local authorities’ ability to ensure public value by working to local circumstances.

3.4 The LGA is therefore seeking the deletion of clauses 33 and 34 and puts forward various arguments in support of this :

· Councils and other contracting authorities are already bound by existing EU Directives for ‘above threshold’ procurements. The corollary of this is that the duties relating to ‘below threshold’ procurements should be determined by contracting authorities themselves; for councils this would be through their own contract standing orders.

· Clause 33 as drafted would give central government wide power in relation to procurement. This could, for example allow central government to mandate the use of Cabinet Office framework contracts even if other, better value, framework contracts exist.

· Clause 33(5) provides for the imposition of duties on contracting authorities, including duties to exercise functions relating to procurement in an efficient and timely manner (33(5)(a)) and duties to publish reports about compliance with the regulations (33(5)(e)). Given t he Transparency Code 2014 already requires councils to observe due process and publish data in relation to procurement, the LGA believes these duties would place an unnecessary additional burden on councils .

· Clause 33, which would allow central government guidance and regulations to be imposed on local government, is contrary to the principle of localism as set out in the Localism Act 2011.

· Clause 33 (5) sets out a number of examples where the Small Business Bill powers may be used, these examples all currently form part of the draft Public Contracts Regulations 2015 and separate legislation is not therefore required.

· Guidance issued by the Minister for the Cabinet Office or the Secretary of State is not currently mandatory for all contracting authorities, including councils. By implementing a further duty on councils to have regard to guidance, particularly without councils having any means to consult on the guidance, procurement processes will become less efficient and effective.

· Clause 34 operates in tandem with clause 33. As it sets out a means to investigate compliance with regulations made under clause 33, clause 34 would no longer be needed if clause 33 was deleted.

LGA national procurement strategy for local government

3.5 The LGA launched a new national procurement strategy for local government in July setting out how councils should be simplifying processes in order to engage with a wide supplier base, whilst at the same time using procurement to grow their local economies. We have already gained much support for the strategy and believe that a sector-led improvement approach on this issue is the way forward. Likewise, the LGA continues to encourage the sharing of best practice within the sector, so that local authorities can learn from each other’s experiences as to what works well when it comes to effective and efficient procurement.

4. Part 11: Employment

Exit payments

4.1 LGA always supports efforts to safeguard public money and agrees that, in certain circumstances, it may be appropriate to place limits on or consider the recovery of exit payments. However, there may be more merit in pursuing wider transparency arrangements such as those applying in local government. HMRC evidence suggests that exit payments in local government are on average significantly less than in other parts of the public sector.

4.2 Any recovery system for exit payments would be required to take into account the complex interplay of statutory employment law, pension law, contract law, public law and practical employment relations and human resources considerations. The LGA has outlined the technical details in its response to the recent HMRC consultation on the recovery of exit payments. There is little detail yet on the practical measures envisaged to implement the proposal. The HMRC consultation and the wide scope of possible qualifying payments listed in clause 140(4) of the Bill raises questions as to the need for amendments to other pieces of primary legislation, for example the Employment Rights Act 1996 (on redundancy pay, settlement agreements), the Equality Act 2010 (on settlement agreements) or the Working Time Regulations in respect of recovery of pay for untaken annual leave. The LGA is concerned that the Bill could undermine established employment and equality law.

4.3 Further detail is needed on the proposals in the Bill. The LGA envisages a significant administrative burden on the sponsoring government department in maintaining definitive lists of the individual legal employers to which the policy applies. This will be particularly important in local government, if local government and private contractors are to be covered, and clarity is needed as to which types of school are covered. Generally, it is essential that employees who are restricted by these new provisions are clearly informed and able to rely on up-to-date national government guidance on the exact nature of the restrictions as they apply. Failure to achieve the requisite clarity will create inefficiencies in the labour market, including delays in making appointments and disputes over obligations resulting in time-consuming and costly litigation.

4.4 The LGA questions whether the intention in clause 141(4) is to limit the obligation to repay only to situations where an ex-employee returns as an independent self-employed contractor or whether it is intended to include employment in senior positions in a contracting company or via agency arrangements.

4.5 The unanticipated effect of introducing recovery provisions may be to inflate the cost of initial settlement agreements and also make them less reliable, as any compensation won through litigation could presumably not be recovered.

4.6 At this stage, and taking into account the HMRC consultation already undertaken, the limitations on re-employment are unclear. However, an additional and concerning feature for public sector employers in general and particular areas of local government is that the provisions could act as a disincentive for an employee to return to employment in the sector to which their experience and skills are most suited. Indeed, some might see the provisions as an encouragement to remain unemployed for a time. This would dilute the value of the proposal in terms of financial savings.

4.7 Clause 142 provides a power for the Secretary of State and appropriate bodies in the devolved administrations to waive the requirement to repay the whole or part of any exit payment. The HMRC consultation clearly suggested that this power would also be vested in local authorities where they had made the payment, which would be appropriate. The LGA suggests that the clause should be amended accordingly rather than rely on subsequent regulations.

Other employment provisions

4.8 We would not expect clauses 135 (Whistleblowing), 136-137 (Employment Tribunals), 138 (National Minimum Wage) and 139 (Zero Hours Workers) to have a substantive effect on local government. However, the higher penalties payable in relation to underpayment of the minimum wage mean there must be clarity on the interpretation of the Minimum Wage Regulations. For example, on the issue of payments when asleep on call, rulings in the Employment Appeal Tribunal now contradict established government guidance produced by the Department for Business, Innovation and Skills. In these circumstances, it would be unfair if an employer was penalised for following government guidance.

October 2014

Prepared 22nd October 2014