This proposal is especially welcome in the context of the Deregulation Bill, which is currently before the House. Two important lessons arise from the Deregulation Bill. The first is that seeking to retrofit better regulation and deregulatory principles to the stock of existing legislation where there are no built-in reviews is a much more difficult and time-consuming proposition than seeking to improve the flow of new legislation where one can embed such principles at the start. The second lesson is illustrated by the sprawling nature of the Deregulation Bill, which shows just how widespread and inherent the need is to be able to revisit regulations and revise them as and when necessary. All legislation and all regulations, however well intended, intelligently designed and shrewdly enacted at the outset, have the propensity over time to become the cause of inefficiencies, anomalies and other consequences that were never originally intended or anticipated.
Relying on the occasional so-called portmanteau Bill to address regulations that are no longer fit for purpose, as is the case with the current Deregulation Bill, is an inefficient way in which to tackle an inevitable problem. However, embedding a rolling statutory review provision on a five-year cycle, as is proposed in this Bill for new regulations, is altogether a smarter, more intelligent and more efficient approach to updating and correcting regulatory inadequacies.
For a similar reason, the final measure I shall briefly touch on is the intention to create statutory definitions of small and micro-businesses so that, where appropriate, those two crucial sectors can be exempted from regulations that are judged to be disproportionately burdensome. Ensuring that all new regulations affecting business are not only reviewed regularly, but that small and micro-businesses in appropriate circumstances can also be exempted, has to make sense. I look forward to seeing this Bill have a successful passage through this House.
5.31 pm
Lord Snape: My Lords, this is indeed a long and complicated Bill, in many ways, that has been welcomed from both sides of your Lordships’ House. As has also been said from both sides, it is rather timid in some areas, a couple of which I intend to touch on in my contribution.
I was struck by the comment earlier from the noble Viscount, Lord Eccles, who, if I may summarise what he said, suggested that when all parties agree, invariably there are problems as far as legislation is concerned. The view was often expressed during my time in the Whips’ Office—that somewhat cynical apparatus of state, if that is the right term, in the other place—that gloom would descend if it was visibly apparent that all sides of the House were united on a particular issue. That was largely on the grounds, we felt, that if everyone agrees, as the noble Viscount said, it probably will not work.
However, there are matters within the Bill that people do agree on and that I hope do work. The late payment proposals are welcome and overdue. The fact is that small businesses in particular have great difficulty in getting their money out of larger companies, which often behave in a way that they would not tolerate from their own debtors. The attempt within the Small Business, Enterprise and Employment Bill to bring them to heel is more than welcome. Similarly, on zero-hours contracts my noble friend Lord Mitchell, who is not in his place at the moment, spoke vehemently about the need to abolish such contracts, particularly the exclusivity parts of those contracts, which indeed should have no place in the modern workplace.
I want to concentrate the bulk of my—hopefully brief—remarks on Part 4 of the Bill, on the future of pubcos and, in particular, the relationship between some of the pubcos and their tenants. All of us who take an interest in these matters will be aware of the pathos of the sad cases involving many tenants of pubcos. Many of them have written, I know, to noble Lords on both sides of the House about the problems that they have had. However, at this stage I should perhaps issue a disclaimer about my current physical appearance. I would like the House to bear in mind that the bruises and black eye that I suffer at the moment came as a result of medical intervention rather than occurring on licensed premises. So that is not the reason why I shall express the view that I do.
I would sum up the problems that many tenants of pubcos have by quoting an e-mail that I received in the last few days from a couple, Dawn and Michael Shanahan, who run the Bulls Head in Old Whittington near Chesterfield—not a part of the world I know particularly well. I received their assurances that they did not object to their names and address being heard during the course of our debate. They talk about their relationship with the pubco Enterprise Inns:
Our story is short but not very sweet”—
it was Mrs Shanahan who sent the e-mail.
“I have lived in the village all my life. I am now 60 years young. When the Bulls head came up for lease 6 years ago we decided that we could bring it back to life as a thriving village community pub. I left a job with the ambulance service and my husband retired from 40 years joinery. We didnt count on any person in
this world being as conniving and devious as enterprise are. Our plan was to run the pub for 8 years and then sell the lease on, what a joke that turned out to be!!. We have put all our money, time and energy into trying to run a business that had no chance of success from the beginning. The whole model is designed on people sinking their money into a pub, failing and reeling the next unsuspecting victim in. We have survived for the whole of our time here by robbing Peter to pay Paul. We work all the hours ourselves, we dont take a wage and are now totally wiped out and skint, we have no option but to walk away with nothing but leaving enterprise with a cleaner, better maintained pub for the next person to add to, or to undo all the work we have done, enterprise dont really care as long as the money keeps coming their way.”
“asking for help and making it clear we have no more money to offer they came up with a proposal. They would loan us the money to … refurbish the pub and put us on ‘the beacon Scheme’. This would have made us managers and if we didnt hit a certain amount of barrelage a week would have given them the right to give us 8 weeks notice to quit. So they were willing to loan us thousands of pounds knowing full well we would not be able to pay it back. That would have left us homeless but still paying for a newly refurbished pub!. When we refused their answer to us was to cut our credit off. So even though we didnt owe them any money we now have to pay for our beer before they will deliver it. They deliberately put you in a position where you have to buy out of tie and then fine you and remind you that you have broke your terms and conditions of your lease. We are desperately trying to hold on until after christmas. Whatever happens within the law now, will be too late to help us but our stories must make a difference and stop these unscrupulous business practices that ruin peoples lives. I am crying as i write this because we have been so naive and trusting and have put our heart and soul into this Pub that has been our home. We have nothing left but debt to look forward to and will be coming out feeling like the worse failures. Please stop these people”.
I think that summarises what is happening as far as relationships between tenants and pubcos like Enterprise Inns and Punch are concerned.
I have a personal story before I sit down. My own daughter and son-in-law ran a pub, an Enterprise Inns pub called the Red Lion in Longdon Green in Staffordshire. They invested all their life savings into the pub—an almost six-figure sum. Like Mr and Mrs Shanahan, when occasionally they had problems paying their bills, the pubco stopped delivering beer, leaving them with no choice—they cannot get beer from anywhere else—but to buy out of tie. They were then fined £500 a time by the pubco. My son-in-law was badly beaten in the pub by a couple he had befriended previously one New Year about seven years ago, and he has never worked since. In the three months that he was in intensive care, Enterprise Inns expressed a view to my daughter that they “had no duty of care to any publican”. My daughter and son-in-law eventually left the pub, literally with nothing, and my son-in-law will never work again. Of course, someone else then took over the tenancy of the Red Lion in Longdon Green, left after about six months and the building was then sold to another company. It has since been refurbished and is a going concern as a restaurant and pub. That is how tenants of the pubcos are being treated.
Although I am grateful that the Minister opened this debate saying that the Government were prepared to accept the amendment from the other place, I would like more clarification from her about any future consultation before these particular clauses—
Clause 40 and the succeeding clauses—are redrafted to ensure, as I indicated in a question to her earlier, that the pubcos will not be allowed to turn back the clock and behave in the way that Jeremy Paxman in the current issue of
The Spectator
this week
describes:
“Publican after publican has been telling the same story for years, of spivs from rapacious ‘pubcos’ driving them to penury through a beer-buying arrangement more suited to the truck shop on a slave plantation”.
It is some years since your Lordships’ House passed the Truck Acts, and it is about time that we passed another Act outlawing some of the practices of the pubcos. I welcome the clauses from Clause 40 onwards, although they go only so far, and I hope that the Minister can assure us that there will be no attempt to turn back the clock and allow these nefarious practices to continue.
5.40 pm
Baroness Byford (Con): My Lords, I would like to make a short contribution to this important Second Reading. Rather than repeat many of the items that have been raised by other noble Lords, the areas that I shall concentrate on are late payments; broadband; pubs and work experience; encouragement and enterprise; farm businesses; and regulation.
The Bill is to be welcomed. Among other things, it outlaws a number of practices that are difficult to prosecute because, while clearly wrong, they are not statutorily illegal. I believe that some of them contain unintended consequences of legislation passed by previous Parliaments that were formed of and staffed by people who were basically straightforward. We shall need to be aware of our own unintended consequences as our scrutiny of the Bill progresses. At the same time, we should not create laws that are too easy to amend without proper debate and the ability to alter the official proposals. The use of the affirmative procedure is welcome in many cases, but I have doubts about applying it to amend at some time in the future the purposes of a piece of legislation, as reflected in Clause 8, which will be passed today when we finally have the Bill.
Bearing in mind my farming interests in a small farm business, I am particularly pleased with the clauses that should have a positive impact in rural areas. I am pleased to see the proposals on streamlining company registration that move to make it easier for the residential landlord to allow a tenant to run a business from home. As the cuts bite, as they have done over recent years, the plight of rural dwellers dependent on public transport worsens in many rural areas. I believe that these moves will make it easier for numbers of people to work in their own village instead of having to travel into town.
Farming directly employs some 464,000 people as a small part of the very important food industry as a whole. Some 56% of farms surveyed in 2012-13 have diversification on them. However, I should like to raise a general query about the timetable for the introduction of a streamlined system. Is the deadline of 2017 sufficient for the computer system specification, the tender process and then the development, testing and final approval prior to installation and rollout with
regard to new systems? Perhaps the Minister will comment further on this aspect when she comes to wind up.
The change of definition for small and micro businesses makes sense, but I have questions about the effect on the numbers involved. Businesses will be reclassified to their disadvantage or advantage, so is there any danger that some at the margin will fall in and out of a particular classification as their turnover fluctuates? This last point may particularly affect the farming community, where employee numbers may tend to stay the same but the prices obtained for their output can vary widely. The annual statistics on farm incomes reflect this aspect.
Many noble Lords have spoken in great detail about the Pubs Code. I will therefore not go into it but I take up the comments about flexibility from the noble Baroness, Lady Harding, who at the moment is not in her place. Having had two grandchildren who worked in pubs to earn money while they were at university, I know that the experience of getting work in them is hugely beneficial. I realise that there are other aspects to employment, but the point should not be lost that giving someone that opportunity to work in the first instance is very valuable.
I turn to late payments. In many cases, sadly, small businesses are totally dependent on large businesses paying their dues at the right time. My late father-in-law ran Byford’s, which sold socks and sweaters. It started as a very small company at the turn of the 1920s, when he employed three people, and ended up as a company employing 2,000 people. He used to say of his competitors or the people that he was supplying, “Could you at least put my invoice into the hat so that I might have a chance of getting paid at some stage?”. I suspect that that is something I shall always remember. I suggest to the Minister that that message should be passed along to other government departments, because public procurement is clearly one of the big offenders. That is something that we should not lose sight of.
Another big problem for those living in rural areas is the whole question of having rural broadband. I am sure that some noble Lords who are based in urban areas cannot believe that there are still areas in the countryside where broadband is just not available, let alone at the speed of two megabits per second. I believe that the last 10% of areas that do not have broadband still need to be connected. I wonder if the Minister is in a position to tell us any more about that, because any small business has a better chance of succeeding if it is attached to broadband. You can operate anywhere in the country if you have access, but if you do not then it is very difficult.
I turn to regulation. I follow the noble Lord, Lord Curry, and my noble friend Lord Lindsay in support of the necessity for regulation, but it should be risk-assessed, proportionate and relevant. Where it is not, and where it has been surpassed, it should be done away with. I congratulate them on the work that they have been doing but there is much more to do. If I kept within my farming context, there are still some items covered by the Macdonald task force that have not been fully concluded. Again, I hope that they will not get lost because this new Bill is coming into being.
I want to pick up the theme of the right reverend Prelate, who spoke about the input of churches. I would like to give two examples of ways in which we can stimulate and help people to get started on the first rung of the ladder. I give them very humbly; they are fairly small but both relate to agriculture and the countryside. I cannot see anywhere in the Bill—I am not asking for this, but I think we should recognise it—a provision to urge individuals, charities, trusts and businesses to encourage apprenticeships or give start-up loans. I am not calling for this to be included in the Bill, but we should at least recognise it. I shall give two examples. The first is the Prince’s Countryside Fund, which gives grants to projects that support people who care for the countryside. Grants of up to £50,000 have been given and since 2010 they have aided 87 projects, helping some 64,000 people. In the overall global context of our debate today that might seem quite small, but one success then goes on to help someone else.
The second, more recent example that I share with noble Lords is the newly formed Henry Plumb Foundation, which in the past 18 months has helped 18 young people who have come up with ideas about what they could do by giving them small grants. More important than that, though, was the fact that they were allocated a mentor as well. So they started with a small grant but they did not get the rest of their grant until their mentor was happy that their business would succeed. I commend these examples to the House because they are but one small way in which we could do more.
I commend the Government on bringing the Bill forward. There are many good measures within it and I look forward to taking part in the debates that follow.
5.50 pm
Lord Hunt of Chesterton (Lab): My Lords, I welcome this opportunity for Parliament to revise its legislation on small businesses and enterprises and to examine the important implications for employment. It is a pleasure to follow the noble Baroness, Lady Byford, and, in particular, her remarks on rural small businesses—some of which I visited recently in Wales—and on the issue of green energy and its difficulties and opportunities for businesses. Although the Bill is important, it is, as comments made on this side of the House have revealed, quite timid in addressing the need to greatly expand UK business and exports and use small companies to advance technology everywhere.
I have experience of setting up a small high-tech company, in Cambridge. The company has grown slowly—which is not a bad thing—over the past 29 years. A notable feature of the UK since the 1970s is that many professionals, including academics, have found that setting up small companies enables them to apply their knowledge and experience more effectively than would work as a consultant or in a large company. I saw a similar situation back in the 1960s at MIT in the United States. Many people learnt from and were stimulated by what happened there. The Cambridge phenomenon was, of course, supported by the universities, and eventually by all sorts of other people, even colleagues in the Labour Party. There was a rather amusing joke.
People in the Labour Party said, “If you bring high-tech into Cambridge, it will turn Cambridge into an inland Bournemouth”—if you can imagine such a thing. In fact, this whole journey has been considerably more exciting than an inland Bournemouth.
Many of those companies were set up by members of the Labour Party, and the Labour Party broadly supports the principle of the Bill. As was said earlier, however, much more could be done. One remarkable example of doing more is—without referring to people who are still alive—the late Bob Edwards FRS, who was the initiator of test-tube babies and the founder of the Bourn Hall Clinic. He did many other things at the same time: he was chairman of Cambridge City Council’s finance committee, for example. The previous Labour Government introduced financial measures that considerably helped small companies, especially tax relief on research as well as improved maternity and paternity allowances, which are extremely important for small companies. They also improved redundancy payments to employees of dissolved companies.
I would also point out—I think that this view is shared by noble Lords on all sides of the House—that British red tape is as nothing compared with Italian red tape or red tape in some other European countries. I was recently in Rome and heard horror stories about the difficulty of setting up a company in Italy. In this country you have only to put down a couple of quid and off you go. As the process is much easier here, I do not always completely follow all the moaning and groaning about it. Compared with other countries, it is relatively speedy here.
Another aspect of small enterprises which I have not heard mentioned this afternoon is that many small companies are charitable or not-for-profit organisations—which are, of course, also limited liability companies. Those organisations are often very effective in working with Governments, legislators and the public, and the Government frequently use them to promote their policies, often abroad. However, as I and some of my colleagues know, life in such companies is quite precarious. Some of them become insolvent, so the rules of insolvency are relevant to them as well.
Many small companies are based on innovative ideas, services and products, which they provide to government, government agencies and large businesses. That is why it is important that we should consider the question of payments. There are many situations where smaller companies compete with larger companies and even with government agencies. In such situations the large companies sometimes want to get a government contract and will use their powers to do so. Another aspect is that they do not always want to pay promptly. It is important that government departments ensure a level playing field when large and small companies bid for important contracts because small companies do not have the financial resources of some of the larger ones. Sometimes there is also unfair competition between small companies because of differences in the subsidies provided to them. Some small companies are based in public sector organisations or universities while others pay rent in commercial premises. There should be more openness about such information as it is important when government provides contracts.
In Clause 3, the Secretary of State is required to ensure that payments from large to small companies are prompt so as not to stress or even bankrupt smaller companies. Clearly, that should be supported, and it is welcome—but it could go further. The Secretary of State should also ensure that payments made by government departments and agencies—including European and international government departments, such as the European Commission—should be prompt. My experience is that UK departments are rather better than some of those international bodies. However, there are examples of payments on European Commission contracts being delayed by 12 or even 24 months, which has been absolutely devastating for some of the small companies involved. The Government should look into that just as much as they should look into UK practice. The reason that the European Commission has given for those delays is that it deals with many small companies from many different countries and it does not pay out until every company has filled in every dot on every form. That is not necessary. It is equally important that there should be greater clarity from such international bodies about when and how decisions on contracts are communicated to potential contractors, who may be waiting, and have their resources waiting, to participate in projects. Delays and uncertainty can also bankrupt small companies, including non-profit companies.
If the Government want UK small businesses to compete internationally, it is also important to insist on good practice internationally. Clause 10 refers to the growth of UK exports and the fact that the provision of better information can contribute to it. The clause could also be amended to ensure that the Secretary of State and all relevant government departments are more open to foreign customers about services provided by UK companies to the UK Government and their agencies. Foreign customers currently have great difficulty in obtaining objective technical information about the services provided by UK businesses. For large companies, that is not necessary; but small companies want to be able to say to prospective customers that the information can be provided by BIS or the relevant departments or agencies. Currently, that is not available. Some information from previous contracts is now on the web but the technical information which clients need is often very difficult to obtain. Indeed, some government agencies are prevented from providing such information. By contrast, the European Commission trade commissions in foreign countries will provide that information when it relates to EC contractors.
My last point concerns the issue of insolvency, an issue which is dealt with at the end of the Bill and is important for high-tech companies. Many high-tech companies are formed and many become insolvent—it is a chronic situation. The need to have Chapter 11-type arrangements here to enable our small companies to avoid insolvency and continue trading has been raised both by the Financial Times and by the noble Baroness, Lady Wheatcroft, in our discussions yesterday. I recently saw how such arrangements worked in France, where a high-tech company which provided high-level environmental services to most cities in France became overextended. Such a situation in Britain would have resulted in the collapse of the company. In France,
however, the Government stepped in; arrangements for creditors were arranged for several years; the service continued, and the technology is developing. In the UK I recently visited the law courts, and seeing 70 companies going down every 30 minutes is a pretty sombre sight. With some assistance or investigation some of the value in those companies could be saved. BIS could provide that kind of information.
Finally, Part 10 addresses an important aspect of insolvency, when the employees become redundant. Current legislation makes the compensation dependent on the payment rates of the staff. In some cases where the company descends into bankruptcy, the payments to the staff may well be less than the minimum wage. Surely the redundancy payment by the Government’s Redundancy Payments Service should be based on minimum wages. That is not allowed for in the Bill but I strongly recommend it.
6 pm
The Earl of Lytton (CB): My Lords, I very much welcome this Bill. As needs must, I declare my interest in local government, particularly in the parish and town council movement. I am also a small business person; my professional practice as a chartered surveyor is a micro-business. The only other interest I ought to declare is that I have one recently graduated, job-seeking son, who is still at home; in that sense I share the comments of the noble Baroness, Lady Byford.
There are many things that I will address in my comments here, albeit briefly; but it is quite probable that I will not return to all of them later in the progress of the Bill. The first one is access to finance. It is my experience that businesses with assets but few ideas get ready access to finance, while those with ideas and no assets do not. Therein lies a disconnect. That is why we have lots of property development and residential investment interest with fewer high-tech start-ups. Development finance for small businesses is therefore still difficult where it ought to be better.
On electronic cheque cashing, my interest derives from what I have discovered in recent months about fraudulent digital evidence used in the courts, about which I have spoken in the past. I simply want confirmation from the Minister that there will be safeguards against the digital alteration of scanned cheques, the paper copies of which often contain many security devices such as UV printing, holograms, chemical reagents and microtext, none of which readily replicated on a scan.
On procurement, the All-Party Parliamentary Group for Excellence in the Built Environment, of which I was privileged to be a vice-chairman, produced a paper on the subject in 2012. The first thing to note is that lowest cost is not necessarily best value for money, even though it may be seen in some circles as best value. In that report we made a lot of recommendations about procurers being better equipped, identifying what they needed and the best way of procuring it, determining whether they were getting what they needed, and allocating sufficient resources to quantify and reduce the risks. Bear in mind that often these were municipalities, trustees or school governors, who did not have the relevant expertise in procuring large-ish—for them—projects.
We made a whole series of recommendations about standards, relating primarily to construction. There was an item about selecting teams and getting the best performance from an integrated performance arrangement, recommending that the teams should be based on a balanced scorecard so that you could look at the bids against specified criteria, of which sustainability would be one. I am glad to see that the Bill refers to prequalification criteria. The object, of course, is not to squeeze out the little man but to produce increased efficiency and better, more durable, reusable, longer whole-life spans for our projects. There are other impediments, such as high insurance standards imposed on potential small business bidders, or perhaps—more appropriate in my case—very high levels of minimum professional indemnity insurance cover. These need to be looked at to make sure that they are reasonable and proportionate.
All I will say about the Pubs Code is that over the years I have seen a number of leases relating to these lettings. Almost without exception they are absolutely appalling. It is not just an issue that might be disposed of as being between a pub-owning company and a tenant, both of whom might be assumed to be consenting and adult parties. It is a mismatch of relative strengths. There is a community interest here as well in a thriving facility, not the shackling of a hapless tenant to somewhere not far short of eternity.
I have a comment to make on company registration. I welcome the proposals for greater transparency in this area, but I draw the Minister’s attention to those mutual and co-operative companies which are registered via the FCA in Canary Wharf. It appears that they can still hide behind the fact that it is prohibitively expensive and awkward to search for and get access to their information, as compared with the relatively free and low-cost access to information from Companies House data held in its various offices in Belfast, Cardiff, Edinburgh and London. I am sure that many of these mutual and co-operative companies are entirely worthy, but the suggestion has been made that some of them may not be or that they may be used for shielding criminal or terrorist activities. In a debate on Ukraine about a year ago, I asked whether the Government could be sure that ill gotten gains from that country were not being invested in UK government bonds. I was told that the information was not available, and I accept that. Perhaps I could also suggest that a lack of political will and the potential for political embarrassment might have been an impediment.
I welcome the removal of exclusivity clauses in zero-hours contracts but I continue to feel that the regulatory impediments to employment require further work, and I will return to that later.
The provisions relating to whistleblowers are welcome. The present proposals, however, are embodied within employment law and I am satisfied that that is really not where they should be. They ought to be independent of the employment environment, of line managers and of first-stage scrutiny within the company. Indeed, the matter complained of may not be an employment issue as such. The organisation Public Concern at Work has sent me a briefing at my request. The noble Lord, Lord Willis, who is a great champion of this
cause, is not in his place today, but I know that he takes a great interest in this issue and I am sure that he will come back to it in Committee. The Bill does not deal with gagging clauses, disclosure by legal professionals or protecting a whistleblower from sanction, blacklisting, career destruction and so on. There ought to be some non-discrimination provision, perhaps along the lines of sex or race anti-discrimination laws. There needs to be a per-sector series of industry ombudsmen to protect organisations from false accusations or malicious complaints. It is important that those responsible for bad practices will not for ever continue, safe in the knowledge that few will ever dare snitch on their organisation.
Some things are missing from the Bill. I would like to see a proper dispute resolution service so that businesses—small businesses in particular—can bypass or in some way overcome the far too expensive recourse to normal legal processes though the courts. Even mediation, I fear, is being hijacked, in its commercial sense. We need something locally based, acceptably priced, reasonably quick and conclusive, delivered by people who know what they are talking about and cannot be manipulated through the rules and procedures by a powerful and well funded party against an honest but impecunious one. A nation that allows access to justice to be prejudiced in the way in which I see it fails to hold the candle up to a belief in fair justice and the rule of law. It is also a matter of great economic inefficiency.
I refer again to empty rates. At the moment, this is having seriously negative effects on business premises. HMRC does not appear to be cognisant of the fact that it is producing a significant skew, haemorrhaging people’s incomes and making properties difficult to let or sell, while all the while high empty rates have to be paid. Most billing authorities are unable to remit the charge for financial reasons. That is something that ought to be dealt with here. Then there are planning and development and the upfront compliance costs before you can expect a planning application to be put through—the environmental stuff, the access and design criteria and everything else that goes with it. This is putting the cart before the horse. Of course, fewer and fewer people can do this, although everybody is in the hands of developers.
There are many other things that I would like to mention, but it would be better if I wrote to the Minister. I commend her for introducing a very useful Bill, and I hope that between us we can improve it as it goes through the House.
6.11 pm
Lord Flight (Con): My Lords, I add my congratulations to the noble Baroness, Lady Harding, on her excellent and, if I may say, charming maiden speech. Seeing the noble Lord, Lord Wakeham, in his seat, perhaps I may just mention—I declare an interest as a director—that Metro Bank has solved the issue to which he referred. You just present your driving licence and that plugs into a system that tells the bank more about you than you know; then you can open an account in 10 minutes—so the ridiculous procedures that other banks have are entirely unnecessary.
I support what the Minister said about entrepreneurship in this country. I have never known more active entrepreneurship, but it is not just happening in London and the south-east—it is all around the country. Young people are being brave and courageous enough to start their own businesses when in my generation we were told we had to go and work for the Civil Service or a large company. The universities are becoming, as they have been in the United States for many years, a cradle of new business, including new technology businesses. The numbers are immensely impressive. Over the past two years some 1 million new companies have been formed. Not all of them are necessarily actively trading, but something immensely exhilarating is happening in this country now.
I declare my interests as in the register. There are a lot of good things and good intent in this Bill, and things that could be added, as the noble Lord, Lord Hunt, and others have said. I very much hope that they will achieve their objectives as they become law.
However, I want to speak about something that is unsatisfactory in the Bill and could be quite damaging. It is covered in Parts 7 and 8 and in Schedule 3, on public company registers. The requirement, as noble Lords will be aware, is that for shareholders holding 25% or more or having some form of control over the company, ownership has to be kept in a register and that register must be made public, recording what are called the PSCs. This is really a Treasury anti-money-laundering issue, and it sits ill in this Bill, which is about positive things, particularly for SMEs. Everyone is in agreement about what is needed in this area. Beneficial ownership should be available to the tax authorities, the police and the security authorities on any sort of investigation to do with crime, terrorism or tax evasion, and companies should also know who their shareholders are. My main objection to what is in the Bill is to the public aspect. It adds nothing to the objectives and, among other things, it casually breaches 200 years of company law in terms of this embodying and including private companies, which are thrown out of the window with no evidence that a public register will achieve anything. The Government have offered very little and perhaps no justification or consultation in thus destroying the right to privacy.
The requirements of the G8 and the G20 are that companies should know who owns them, not competitors, spammers or media folk looking for a good story, or others looking to misuse such information. In arriving at where we are, I criticise in particular the impact assessment project. It is unclear whether other options were proposed or considered other than that in the Bill, and I think that it amounted to a stitch-up. It does not properly assess the potential cost to individuals. One of my colleagues in the other place said that it was the worst impact assessment that he has ever read.
As for considering other possible options, the Crown territories have for a long time had a system where all beneficial ownership is recorded and made available to the authorities. That has worked extremely satisfactorily. The United States similarly has its own system. No case has been made as to why the register needs to be public or what is added by being public. Indeed, the impact assessment itself found that the public register’s
addition of value would be precisely zero and that only 10% of respondents indicated that the proposed reforms would ensure that they knew with whom they were dealing.
The big hole in the proposals is that they cover only UK companies—non-UK companies are exempt. That aspect means that it is completely avoidable. We will see a migration of the ownership of investment in the UK from UK companies to UK branches of foreign companies. It is also potentially damaging to our interests in discouraging investment. Sovereign wealth funds, investors from the Gulf, Islamic and Chinese investors like to be discreet, and for them a public declaration of their ownership is often anathema from a business and cultural perspective. It is also costly to individuals and small businesses. Some 2.4 million companies will be affected and the estimated costs so far are £1.1 billion, but that is without any potential allowance for a proper verification system.
Interestingly, public registers are also not required by the FATF guidelines, although the FATF guidelines do require proper verification procedures. So rather ironically, given that the reason for these proposals is that they are to comply with the FATF, which will add a lot of regulatory hassle for people, the Bill will not comply with the FATF unless there is proper verification.
The Minister rightly applauded growing UK entrepreneurship and the growing number of small businesses in the UK. I believe that she mentioned a total of 5 million. Part of that growth is due to the UK’s policy of making it extremely easy to use UK companies—much easier than it is to use companies in most other western economies. I think the Minister said that she wanted to see incorporation made even easier. However, the proposals in the Bill add hassle, regulation and costs when using UK companies. I am particularly concerned about the position of entrepreneurs. They typically own at least 25% of their companies. Most of their businesses are small. They will probably not know that they are supposed to keep a public register and to make information on their ownership available, partly because it will often be recorded at Companies House anyway, but they will commit a criminal breach by not so doing. If they do follow this procedure, it will add another regulatory cost. It is a further hassle for the innocent law-abiding while the guilty can very easily avoid the requirements. I think that it is substantially the NGOs which have called for public registers. It is somewhat ironic that there are no comparable requirements for public registers detailing who controls NGOs and what other organisations have an interest in them. Indeed, in one or two cases, NGOs have been shown to have had exposure to terrorist funding.
I do not believe that what is proposed in the Bill is what the Prime Minister intended in his G8 pledge. The City division of the Law Society has objected to public registers and the British Venture Capital Association has objected to their impact on the small venture companies it represents. Surely what is needed in this territory—here the right reverend Prelate the Bishop of Peterborough and I agree—is international legislation. I urge the Government to consider delaying this legislation in order to promote a common model across the
western world. As I have said, if this goes ahead, we will have something which is not effective in achieving its objectives. The sensible approach that has been followed in other jurisdictions is to require beneficial ownership registers to be kept and for these to be instantly accessible to the police, the tax authorities and the security authorities but for the registers not to be public. I am disappointed to be critical but I think that we have a dog’s dinner in this part which will not achieve its objective and will simply add regulatory cost and hassle for many innocent people.
6.23 pm
Lord Young of Norwood Green (Lab): My Lords, I thank the Minister for her contribution, to which I listened with interest. I also congratulate the noble Baroness, Lady Harding, who, unfortunately, is not in her place, on her maiden speech. I think it is an odds-on racing certainty that she will make a successful contribution to this House.
Lord Young of Norwood Green: It took a long time for noble Lords to appreciate that masterly piece of wit.
As I said, I listened to the Minister’s contribution but I want to redress the balance and mention what is missing from the Bill. We have heard a lot today about the flexible workforce and the need to ensure that we have minimum regulation. However, one of the most disturbing statistics I have come across is that only one in five managers of small businesses has any training at all. That ought to be addressed. It is no wonder that they have difficulty in recognising regulation. We tend to forget that, properly applied, regulation saves lives and stops unfair exploitation.
I cannot help recalling that when the Labour Government came to office in 1997 there was real exploitation. Before we introduced the minimum wage, you could go to work and earn about £1 an hour, or even less in some circumstances. Would anybody say nowadays that that was unnecessary regulation? If my memory serves me right, it was vigorously opposed by Members on the Benches opposite, who told us that it would cause massive unemployment. Therefore, we need to adopt a balanced view of regulation and set it in context. My noble friend Lord Mitchell reminded us that exploitation still exists in the form of unpaid internships quite apart from the other instances of exploitation—I do not mean to say this in a dismissive manner—that I hope will be addressed in the Modern Slavery Bill.
I also want to address what I describe as the Panglossian analysis of the noble Lord, Lord Stoneham, whereby everything is for the best in this best of all possible Governments, given that the deficit is shrinking and there is hardly any unemployment at all. I do not want to negate the significant gains that have been made in employment. However, we need to remind ourselves that some people in this still unfortunately low-wage economy have to have one, two or three jobs to survive, so everything is not as wonderful as it was painted by the noble Lord. We should also remind ourselves that in some parts of the country there are still very high
levels of unemployment and disturbingly high levels of youth unemployment. I make those points because it is necessary to set this important piece of legislation in the right context.
Unfortunately, the noble Lord who described this Bill as a Christmas tree Bill has gone but that description amused me. If we get our way, it will be not just a few flashing lights and baubles but will have a bit more substance than that. If it is a dog’s dinner, I hope that it will be a nourishing one with all the right vitamins. No doubt, by the time the Bill has been through Committee, we will get it right.
I want to focus on the employment aspects of the Bill, covering employment tribunals, the national minimum wage and zero-hours contracts. In my view, if anything demonstrates that this Government have run their course and are running out of steam, it is the employment provisions in Part 11. The Government have done the minimum in this part that they thought they could get away with or that they could reach agreement on. I will deal with the points of agreement first. There are measures in the Bill seeking to limit the number of postponements that parties can be granted in a case, which we welcome, with judges being given the power to make cost orders where late applications for postponements are made. Based on my experience as a former practising trade union officer, I think those measures are sensible, as do others, such as the TUC, which points to the difficulties that witnesses face in getting time off work to attend hearings.
However, improving the process once people get to a tribunal will be no more than an academic exercise for those claimants who, frankly, cannot afford to pay the tribunal fees instituted by this Government. We should remember that you cannot even claim for unfair dismissal until you have worked for two years. What the Government have done with those fees is erect a barrier to justice for some of the lowest-paid people in the country. They have simply priced them out of the system. That is the reason for the 79% drop in employment tribunal claims that was referred to earlier. Women and low-paid workers in particular seem to be the principal losers, so parts of the Bill certainly need to be changed in that regard.
I also wish to address the education evaluation section of the Bill in Clauses 75 to 77. The Explanatory Notes state:
“Clauses 75 to 77 are intended to make the sharing of information between Government Departments and schools, colleges and other assessment centres easier. This is expected to have the following benefits: enable parents and students to make more informed choices concerning education and employment destinations; help providers of education and training to evaluate their effectiveness in delivering qualifications”.
As I have said on a number of occasions to this House, when I go to secondary schools to talk to 15 and 16 year-olds about their destinations in careers, my experience is that most are being pushed towards universities. I am not knocking that but we know how important it is for young people to understand that universities are not for everyone and that there are really good prospects in a vocational career. What the Government are proposing does not do enough to ensure that schools live up to their legal requirements
to ensure that when they give career guidance it covers the full range of career and educational opportunities for young people.
As someone who enjoys the odd pint or so, I cannot resist having a little ramble around the tied pub and tenancy provisions in the Bill. The noble Lord, Lord Cope of Berkeley, who is unfortunately not here, mentioned the dreaded two words: Red Barrel. I was going to my local about 30 or 40 years ago—I dread to think of that now; it shows that I am now over 21. The pub, which is now long gone, was the Alma in Harrow Weald, where I used to enjoy a pint of Manns IPA. I protested at the bar and asked where Manns IPA pump had gone; in its place was the dreaded Red Barrel. We have CAMRA to thank, as the noble Lord, Lord Cope, acknowledged, for a fantastic campaign.
We undersell the glories of British real ale, served at the right temperature by a landlord who understands the importance of settling the beer and keeping the pipes clean. We should see it as our equivalent to “appellation controlée”; I mean that seriously because it is important. Not a lot of people know this but we now have more breweries than Belgium, which is an interesting but important statistic. This is an important area. At my current local, the Plough in Norwood Green, I discussed this issue with the landlord at a recent visit. He is a tied tenant who pays a significant amount for his beer, and he will be pleased that there is progress in this area. I am glad that the Government have seen sense because, if they had not done so, we know what would have happened.
I am conscious of the time but will end my contribution by drawing attention to the fact that this Saturday is an institution—I hope it is an institution; it has happened for the second year running—introduced by my honourable friend Chuka Umunna MP after a visit to America, where he observed Small Business Saturday as a means of drawing attention to the importance of small businesses. This Saturday is Small Business Saturday; so it is the duty of every Member of this noble House to make sure that they patronise one of their small businesses. I say that seriously. It makes a significant economic contribution and reminds people of the importance of small businesses.
I thank noble Lords for their sufferance of my contribution and look forward to participating in the proceedings on the Bill.
6.33 pm
Lord Hodgson of Astley Abbotts (Con): My Lords, it is always a pleasure to follow the noble Lord, Lord Young of Norwood Green. He is always engaging. I shall come back to the pub in a minute but hope that he will not take offence if I gently remind him that one of the reasons for the high levels of employment is the flexible labour markets introduced by this Government. Some of the removal of flexibility that he was recommending, proposing or thinking about would reduce employment, which we all agree it is essential to preserve.
If one is 23rd in the speakers list, much of what one wants to say has been said already—sometimes more than once; sometimes several times over. However, like
other noble Lords, I agree with and support the Government for what they are proposing. I have some questions that we shall wish to examine in Committee but applaud the general direction of travel. I want to make just three points.
First, I congratulate the Government on taking up the challenges of pre-pack administrations in Part 10. Pre-packs have been promoted as a way of saving jobs in the firm in question—and they may well do so. However, in my experience, the ability to write off debts often appears close to a fraud on the creditors. When the firm that has been pre-packed arises like a phoenix from the ashes, no one considers the position of the creditors in the firms that have lost everything. Job losses may have been avoided in the pre-packed firm but may well have been replaced by job losses in the creditor firms. Nowhere is this more important than in pre-packs involving connected parties. I am therefore very glad that the Government are going to tackle this aspect, and I look forward to discussing the details of this in Committee.
My second point concerns the procurement provisions in Part 3. I wrote a report for the Government entitled Unshackling Good Neighbours, which, inter alia, looked at the problems and regulatory burdens that inhibited the growth of small companies, charities and voluntary groups. It is not yet clear to me that the well meaning provisions in Clauses 38 and 39 will enable the Government to tackle the fundamental issues that too often put smaller companies at a competitive disadvantage. The noble Earl, Lord Lytton, referred to these. In particular, it is the innate conservatism of commissioners, for whom risk aversion is the default option. Of course, one has to applaud the objective, as explained in the memorandum that my noble friend on the Front Bench so kindly circulated, which is,
“to create a simple and consistent approach to procurement across all public sector authorities”.
However, we have been here before. Four years ago, the Merlin commissioning approach, designed to provide a common governmental template—originally devised by the Department for Work and Pensions—was then being rolled out across government generally. What has happened to Merlin; where has it gone to? Perhaps my noble friend could let us know, either by letter or when she responds.
My final point is about the pub tie, on which, as others have mentioned, the Government suffered a defeat in the House of Commons. I am afraid that I am going to have to upset the noble Lords, Lord Snape and Lord Young, because I was disappointed to hear that the Government do not propose to reflect further on this decision. The arguments are not as simple and straightforward as our colleagues down the corridor believe.
In making these comments, I have to recognise two things. First, in any dispute that can be broadly characterised as David versus Goliath, the British people will instinctively side with David. It is one of our most endearing national characteristics to want to stick up for the little man. Secondly, in any arrangement involving more than 20,000 people—and there are between 20,000 and 25,000 tied pubs—there will always
be problems, difficulties or misbehaviours. While we need to deal with and remedy these, they must be set in context and proportion to the whole.
Lord Snape: I apologise for interrupting the noble Lord, but before he leaves that point will he at the next stage of the Bill bring forward some evidence from satisfied pubco tenants about how wonderful their relationship is with Enterprise Inns or Punch Taverns?
Lord Hodgson of Astley Abbotts: I shall be glad to bring forward some evidence. I have some here but, given the hour, I should not be talking about the Black Bull, Mansfield, which is one of the pubs on which I have some evidence for the noble Lord. We will discuss this at a later stage.
There are two types of integrated pub. The first, called integrated operators, are companies that brew beer and sell it through their own estate, whether managed by employees or tenants in tied pubs. They sell their beers also through supermarkets, free houses and off-licences, but their estate is an important route to market. The second group consist of what are known as pubcos. They do not brew any beer but buy it in, often from the breweries of the integrated operators. Their focus—which the noble Lord, Lord Snape, is driving at—is on rental levels. They are, to some extent, very specialist property companies.
Noble Lords may wonder how on earth this rather counterintuitive second group came into existence. As my noble friend Lord Stoneham of Droxford said earlier, it is the result of a decision of Parliament. The beer orders were designed to strip the breweries of too much market power, and the pubcos were the result. If our predecessors all those years ago had seen where we were going to end up, they might have considered it better to think of an alternative business model. If we do not revisit the decision to end the tie, our successors in 20 years from now may find that, far from this decision slowing pub closures, it may well accelerate them.
Before I get into the rest of my remarks, I need to remind the House that I was, until a year ago, a director of an integrated brewery. We had five breweries, two big and three small, stretching from Cumbria to the New Forest, and more than 2,000 pubs—500 managed and the balance tied in various forms.
Why is it that pubs arouse such strong emotions? In some large measure it is the result of the image that we have of a community—a point made by the noble Lord, Lord Bilimoria, earlier this afternoon. That community has three aspects: a church, a post office with a shop and a pub. We may not wish to use them much: we may go to the church on high days and holidays and for hatches, matches and dispatches; to the shop or the post office only to buy the milk when we have forgotten to buy it at the supermarket; and to the pub only for the occasional drink. However, we like them to be there. We also like them for the ambiance we believe they project. We all have our image of the ideal pub: the welcoming atmosphere, the cheery landlord dispensing pints and homespun philosophy over the bar. However, for reasons quite unconnected with the brewers, the pubcos or the tenants, the pub sector is under severe strain.
I identify three fundamental features behind this. The first is the rapid rate of socioeconomic change in Britain. Twenty-five years ago, the company of which I was a director would have operated probably a dozen pubs in Kidderminster, the home of the carpet trade. The carpet trade has gone and there are three pubs left. In areas of Nottingham, Leicester, Manchester, Leeds and Birmingham the increase in the Muslim population, who do not drink, leads to many pub closures. It is exceptionally hard for a publican who has put 10 years of his life into trying to build up a business to accept the inevitabilities of these tides of history.
Secondly, there is the inexorable rise of regulation and of cost generally. Noble Lords may not be aware that, for many pubs, business rates and council tax are more important items than rent.
Thirdly, there is the availability of low-priced alcohol in supermarkets. The average price of a pint in a UK supermarket last year was £1.13. It would be substantially less in the weeks leading up to Christmas and in the few days before a bank holiday. If any noble Lord can find a pub, tied or untied, that is selling lager at less than £2.50 a pint—more than double the price in a supermarket—let me know and we will go along to sample the wares.
These are trends that defy King Canute, so pubs are likely to continue to close. The reasons for closure may be portrayed as rapacious owners increasing rent, wishing to profit by turning pubs into houses or corner stores, but the tide is turning against the ordinary pub. To offset this trend, the pub has to offer an experience and value for money for its target market: maybe with food, with fine dining or pub grub; maybe for families, with play areas for kids; maybe for younger men, with Sky Sports and pub games; maybe for younger women, with more of a wine bar feel to the place; or maybe for pensioners, with cheap food, particularly at lunch. However, this all requires operational experience and capital resources. It is this that pub owners can provide. It is exceptionally difficult to find capital for all the sorts of things that are required to refurbish a pub—kitchen fittings, signage, fixtures and fittings of one sort or another—and it is the pub owners who can do this.
The balancing item is the tie. The brewery is assured an outlet for its beer and other drinks, though it should always be remembered that every bit of profit from the foods goes to the tenants alone. Remove the tie and you risk removing this ladder, by which many people have become very satisfactorily self-employed. No pub owner is going to invest many thousands of pounds—hundreds of thousands of pounds in some cases—in refurbishing a pub if the tenant can then walk away from supply agreements.
In an effort to lance this boil of suspicion about rents and treatment, some breweries have introduced a franchise agreement, which has been approved by the British Franchise Association. This means that the tenant is in exactly the same position as a franchisee selling hamburgers, pizzas or ice-cream. The Bill apparently proposes to ban even these arrangements. To do so only where they involve a pub and not, for example, a McDonald’s outlet, seems to me to be illogical, perverse and unfair.
My final word must go beyond your Lordships’ House to the wider world: the most important thing to do if you wish to save your local pub is to use it. If you do not, you will lose it whether it is tied or not. I look forward to some vigorous debates in Committee.
6.45 pm
Lord McKenzie of Luton (Lab): My Lords, I start by congratulating the noble Baroness, Lady Harding, on a sparkling maiden speech. We look forward to hearing many more. I had not originally planned to speak in this debate but was tempted by Christian Aid and its briefing on the Bill’s transparency provisions. I am grateful for its briefing and the follow-up information.
Before I address that subject, perhaps I can revert briefly to the contribution made by the noble Lord, Lord Stoneham, at the start of our deliberations. He waxed lyrical about easyJet. He was right to do so, but he might have mentioned that it has flourished in part by its partnership with London Luton Airport, an innovative public/private partnership developed by a Labour council.
As noble friends have already made clear, we think the Bill has generally been a missed opportunity and to be deficient in a number of key respects. However, we should be supportive of the thrust of these transparency provisions, although, as the right reverend Prelate the Bishop of Peterborough said, we wish to probe whether they go far enough. I am bound to say that I do not share some of the concerns expressed by the noble Lord, Lord Flight. The problem under consideration has been clearly set out in the impact assessment: the lack of corporate transparency over who owns and controls companies is facilitating illicit activity and undermining good corporate behaviour, eroding trust and damaging the business environment.
The scale of the problems and illicit money flows involved are truly staggering. In 2013 the EU considered the scale of criminal proceeds associated with money laundering and terrorist financing to amount to 3.6% of GDP—around $2.1 trillion. This includes billions of dollars lost to Africa. The human misery and lost economic opportunities resulting from all this beggar belief. Reducing the potential for these flows through the misuse of company structures will not solve the problem but offers one means of helping to counter it, particularly if there is international co-operation, a point on which I agree with the noble Lord, Lord Flight. The Government are right to pursue this.
This lack of transparency also facilitates tax avoidance and evasion. This continues to be one of the scourges of our time. We know that a global response is the only way effectively to tackle the challenges it presents. In this regard we acknowledge and support efforts considered by the G20 in September this year to complete progress on the base erosion and profit shifting project, to provide support for developing countries in preserving and growing their revenue base, and to progress the automatic exchange of tax information on a reciprocal basis. Some of the EU initiatives to rebuild trust in the international tax system have yet to bear fruit: the common consolidated corporate tax base is stuck in ECOFIN, but work goes on. We may hear more tomorrow about further measures
on the domestic scene, but the EU is negotiating the anti-money-laundering directive at the moment. Can the Minister say what efforts are being made to include public registers in the final outcome?
Corporate transparency was, as we have heard, a particular focus of the G8 meeting held in June 2013 under the UK’s presidency. In determining to act, the G8 agreed that the lack of knowledge about who ultimately controls, owns and profits from companies assists not only those who evade tax but those who seek to launder the proceeds of crime. Each of the countries has published its action plan. In the UK’s case, we have the resultant legislation before us, which introduces the obligation to implement a central register and for this to be made public. Such arrangements will only be most effective if other countries follow suit. Perhaps the Minister might say a word about progress across the EU, and other G7 and G20 countries.
The Minister will also be aware that in 2013 the UK’s overseas territories with financial services centres committed to conducting consultations on creating registers of beneficial owners of companies and on whether to make them public. This commitment was matched by the Crown dependencies. The BVI, the Cayman Islands, Montserrat, Gibraltar, Anguilla, the Turks and Caicos Islands, Jersey and the Isle of Man have each held consultations, but none, according to the briefing that we have received, has published the submissions received, responded or set out a policy position. Bermuda seemed to have abandoned its commitment to consultation, and Guernsey has yet to hold a consultation. It is suggested that these territories account for some one-third of the world’s shell companies, which might explain their reluctance to proceed but the importance of encouraging them to do so.
At the end of April this year, the Prime Minister wrote to the overseas territories stating:
“I have welcomed your … commitments to work with the UK to promote the application of high international, including EU and OECD, standards and your action plan on beneficial ownership setting out the concrete steps you will take to strengthen your laws on financial transparency ... I believe that beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion”.
We very much agree, but can the Minister say what continued engagement there has been with these territories and what, if any, progress is in sight in ensuring that the overseas territories and Crown dependencies meet their commitments? Unless they do so, the very legislation that we are considering in this Bill will be substantially undermined.
As for some of the detail, we note that the existing definition of “beneficial ownership” used in the anti-money-laundering provisions is to be adopted, setting a 25% test as the threshold. Some of the responses to the consultation expressed concern that this was too high a threshold and that it would be capable of manipulation so that a few could collude to obfuscate ownership of a company. The justification for the 25% is that it will be familiar from the money-laundering rules and is, anyway, the shareholding level at which a minority can block resolutions. We see the merit in that approach but want to test it further in Committee.
We also wish to examine how it might all work where there are tiers of overseas companies in a structure where those overseas territories have not signed up to any form of register. We support the concept that there is a responsibility on the beneficial owners, as well as on the companies themselves, to identify beneficial ownership arrangements, and that companies to be brought within the scheme properly include at least companies limited by guarantee, as well as limited liability partnerships. Keeping the register current, as the right reverend Prelate said, will also be an important task.
We note that there was some opposition to exempting companies required to comply with the disclosure and transparency rules, and we will need to understand the extent to which such rules effectively cover what the register will require. The Government are wise to keep under review the definitions of control, given the proven ingenuity of companies and their advisers to construct arrangements to circumvent the intent of legislation. We note that the Government say that they cannot extend these requirements to overseas companies because of EU company law directives, but can the Minister say whether this applies to overseas companies which operate in the UK as well as to those that do not?
The prohibition of corporate directors, which we support, is qualified to be subject to exceptions which will be introduced by regulations under the negative procedure. Such regulations can make different provisions for different parts of the UK. Again, this is something that we will need to probe in Committee to understand its extent.
The prohibition on the creation of new bearer shares and arrangements to eliminate existing bearer shares should receive our support. They are currently an instrument which makes it all too easy to disguise ownership.
These provisions are a small part of the Bill but, nevertheless, a very important part. They will help in the fight against crime, money laundering and tax evasion. We should recognise that they will not solve these problems and will be faced with huge efforts to negate and ameliorate their effect. It behoves us to scrutinise them as rigorously as we can to send them on their way as watertight as possible.
6.54 pm
Lord Leigh of Hurley (Con): My Lords, I add a very warm welcome to my noble friend Lady Harding. A friend who is a bit of a wag suggested to me that she has been elevated to this Chamber as a person who runs a business called TalkTalk, but through her maiden speech she has shown herself to be a great asset to this House.
I very much welcome this Bill, focusing as it does on small businesses, which, as has been said, amount to some 5 million enterprises employing some 24 million people and with a turnover in excess of £3 billion. In so doing, I draw your Lordships’ attention to the register of interests. Additionally, I am advising a pre-revenue start-up in the crowd-funding space, which will be relevant later on. Having said that, so far it is without any financial reward, but I live in hope and expectation.
I am concerned that progress is made with this Bill. It would be a great shame if it fell away because Parliament ran out of time before the election. The Bill has been welcomed by a large number of business bodies—in particular, the Institute of Directors, which specialises in this space, the BVCA, of which I am an associate member, and the Federation of Small Businesses.
It is pleasing to note, by way of background to the Bill, that in the last four years the number of small businesses has grown substantially and that, since the election, generally employment is up by 1.7 million. This means that since the election the employment rate has risen by 2.8%, while unemployment has dropped by over half a million. That is a great result for the coalition Government.
That has not happened by chance and it is no coincidence that this country has shown a dramatic increase in employment—greater than the whole of the rest of Europe combined. This has been brought about not just by economic success but also, as my noble friend Lord Hodgson of Astley Abbotts said, by changes in legislation to facilitate that growth in employment, such as this Bill and others.
I note that this is the first Bill ever brought forward which focuses on small business, and, as a partner in a small business, I am delighted to see it. My business and professional life has given me an insight into most parts of this Bill, so I apologise in advance if I stretch my remarks over most of it other than the part relating to the pubs adjudicator and the Pubs Code, in which, sadly, I have had no professional involvement.
The noble Lord, Lord Stevenson, whose excellent memory I must commend, will be pleased to hear that I have new areas to highlight and on which to bang a new drum in addition to those that I mentioned last time, but they do not include takeovers, which I believe are satisfactorily regulated by the Takeover Panel.
Looking at the finance side of the Bill, it is clear that, while high-street banks have provided the majority of finance to our businesses in the past, high-growth SMEs need alternative finance—as the noble Lord, Lord Kestenbaum, said—and London has become a world leader in providing it to the whole of the UK. We must make it as easy as possible for SMEs to operate and allow them to get the information that they need to access finance. We must strike the right balance between showing world leadership on transparency and regulation—on which I will say more—while encouraging external investors. I believe that this Bill strikes a sensible balance.
I particularly welcome the proposal for banks to be required to pass information to finance platforms in respect of customers who have been rejected. The Government have been extremely successful in encouraging challenger banks and alternative sources of finance for both debt and equity, and this has helped British businesses to grow. I am, however, concerned that the proposal is simply and only to allow banks to refer customers to software-based finance platforms. Typically, these platforms have a small number of lenders—roughly three or four—who interact with each separate platform, and that obviously restricts the potential borrower. In my opinion, borrowers need advice to access the full range of alternative lenders,
which currently number around 130 or more in London alone. More importantly, they need face-to-face advice which clearly would not happen by simply transferring details on to a software platform.
The Bill seeks to give much more freedom to SMEs by forcing incumbent banks to share information fully, if requested by the customer. This would allow other banks, including the new challenger banks, to offer finance more competitively as they have a different view of risk. The more information available to them, the less risk they feel they would be undertaking, and therefore, the better terms they are likely to offer. High-street banks currently have a monopoly on that information. There is a lot of confusion in the marketplace on whether the banks are lending to SMEs. Major banks, such as Lloyds, for example, representing 25% of SME lending in the area of invoice financing, claim that they are lending to 80% of requests. On the other hand, it is very clear from talking to SMEs that in many cases they do not feel they are receiving the finance for which they applied.
This section of the Bill motivates the banks to list all their rejected applications where the applicant consents. That then means, first, that banks will take much more care before rejecting an application, as not only will it have a significant impact on their published success statistics, but by rejecting it they are opening the door to their own competitors. Secondly, the SMEs will now be exposed to many potential sources of finance, which should help them to not only achieve their goal but do so at a competitive rate. The marketplace for lending, combined with a much needed requirement to share bank-held information, could dramatically transform lending to SMEs within the UK. Access to finance is an issue that has been debated in this House many times before. The coalition’s excellent initiative to start the Business Growth Fund, start-up loan schemes, the British Business Bank and other organisations complement the direction of travel of this Bill.
Like my noble friend Lord Flight, one area of interest to me relates specifically to the transparency of companies. Clearly, generally speaking, greater transparency is welcome and the Prime Minister’s commitment to G8 in this respect has to be honoured—in particular, as has been said, in support of crime-fighting initiatives. My concern is that the cost to business of implementing these reforms could be substantial. For a regular business owned by one or two people, it would be easy, but there are many private companies that have been established for years which have ended up being owned by descendants of the original founders, and many of such companies’ shares are held in trust. The costs of establishing exactly who is the ultimate shareholder could run into tens of thousands of pounds per company.
There are wonderful examples in the UK of businesses currently run by the grandsons, great-grandsons and indeed, great-great-grandsons of the founders, and it would be a great shame if these businesses faced unnecessary administrative burdens simply because they have been around a long time and the shareholding has become diffuse.
It also seems to me that this is another example of the UK leading the way, possibly to our cost. I note that the disclosure regime is not extended to foreign companies operating in the UK, as has been noted by my noble friend Lord Flight and the right reverend Prelate the Bishop of Peterborough. As a result, the rest of the world can choose to preserve privacy while doing business in the UK, which is, of course, a significant loophole in trying to ensure transparency.
I would like to say a few things about persons of significant control and the PSC register. In particular, my concern is that all investors should be treated equally when it comes to being required to disclose. For example, in the case of private equity, it is clearly the GP—the fund itself—that exercises control over the businesses it invests in and, as such, stakeholders have a right to demand information from them. However, the investor base, possibly numbering in the hundreds or even thousands does not, and mandating disclosure there would be unnecessary, misleading and unhelpful for those stakeholders interested in finding out more about those who control the business. Thankfully the Government understood this position and have amended the Bill in the other place so that those investing in English limited partnerships do not have to make that sort of disclosure. However, I believe that it is crucial to extend this amendment to include other limited partnerships, in particular those established under the Channel Islands law, which is the conduit for most overseas investments into the UK.
Ensuring the continued attractiveness of investing through such partnerships for international investors will continue to encourage more capital to flow into the UK. While I can see that this information might be needed to fight criminality, I am not clear why it has to be available to a company’s competitors, customers and all sorts. Concerns have been expressed, with which I agree, that shareholder lists could be open to abuse if they are in the public domain in an unintended manner. I ask my noble friend the Minister to consider that any such register should not be made public initially, with information restricted to law enforcement bodies and then possibly to open the register fully to the public at a later time, once matters have settled down.
I have to say that I do not have quite the same experience as the noble Lord, Lord Bilimoria, in respect of insolvency. I am pleased to say that I have had limited involvement with the insolvency profession, but from time to time I have seen it in my professional career and I welcome the Government’s approach to bring a spotlight to this area. Generally, the direction of travel to provide greater competence to unsecured creditors is very welcome. I am not sure that abolishing the creditors’ meeting carries us in that same direction and I note that some amendments in the other place have led to the beginnings of a rethink. I certainly welcome mechanisms that compensate creditors for director misconduct, and I am pleased to see that administrators have been given the same powers as liquidators in certain circumstances.
It is, of course, appropriate to consider regulation of the insolvency business. I believe that the current system works quite well, but having the reserve power to establish a sole regulator if there are instances of
abuse seems to be the right approach. Christmas, which will shortly be upon us, is traditionally a great time for retailers but also a time when many go to the wall. The experience of a well known electrical retailer two years ago has raised some valid questions about some professional practice in this area.
Similarly, the Government’s approach in respect of pre-packs is very welcome. To put it into perspective, every year some quarter of a million businesses disappear from the register of Companies House. Of those, 20,000 go into insolvency procedure, and of those, only about 600 to 700 are through a pre-pack. So the numbers are relatively small, but the public are right to be concerned when very quick deals take place and the subsequent owners of the business turn out to have been the same people who ran it into the ground only a few days before. I believe that the direction of travel of the BVCA’s turnaround code of conduct and, in particular, the Graham report, is the right direction. There are some specifics in the report which are, of course, not mentioned in the Bill, such as the requirement for a pre-pack pool. I have reservations about how that would work in practice. Other ideas, such as the requirement for the proper marketing of a business within a pre-pack process, must be right.
I appreciate that the Government want to see the impact of the Graham report before putting new legislation in place. Indeed, as the author of the report herself says, nobody wants unnecessary legislation, so again the creation of a reserve power to make regulations if things do not work out seems to me to be the right approach. A major concern to me is that the pre-pack proposals, while seeking to protect against abuse, fail to give employees, customers and creditors any comfort about the ongoing viability of the business itself. One idea for my noble friend would be, as part of a pre-pack, and possibly other insolvency situations, for a turnaround professional to be charged with the role of reviewing the business before administration and that professional ensuring that the management of the business is undertaken as intended after the pre-pack for the greater good and not just for themselves. To date the focus has been on Old Co., and I would like to look at New Co.
There is an extremely welcome section on employment. As I mentioned earlier, employment has grown dramatically in the UK and employers, in particular small businesses, must be given every assistance in feeling encouraged to take on more people. They will do so only if they are confident they can let employees go without huge penalties. No one likes letting people go, particularly in a small business, but it is sometimes essential for the health of the rest of the business. The employment tribunal system in the UK has dramatically improved through the changes made by the coalition Government, but a tightening up is needed to cut the costs and, in particular, reduce the delays, as envisaged in the Bill.
Similarly, the only way in which employers will seek to take on more people is if they are given the flexibility to employ people in a manner which suits their business, rather than the old-fashioned nine-to-five, 35-hours-a-week approach, which is simply inappropriate in the current workplace for most employers. I strongly encourage the Government to give employers and individuals the
opportunity to take advantage of the flexibility of zero-hours contracts, while, of course, stopping any obvious abuses. It also seems fair to allow employees to work flexibly for a number of organisations—not just one—and I welcome the proposed changes.
Finally, it is interesting to compare the coalition Government’s approach to small business in the UK, which has been so successful, with the approach taken by the left-wing Government in France, which actually led to a demonstration by some 8,000 business owners on the streets of France yesterday in protest against their policies. That is unimaginable here but a stark warning to us all. I congratulate and pay tribute to the Ministers who have produced a Bill with so much that could help our economy grow. I wish it a speedy outcome.
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Lord Watson of Invergowrie (Lab): My Lords, I wish to speak in particular to Parts 7 and 8 and Schedule 3 to the Bill, an area that has already been covered by noble Lords. I hope that I can find something different to say. I want to start with a quote:
“Companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily, for example—through central registries—so people can’t avoid taxes by using complicated and fake structures”.
Those were the words of the Prime Minister who, as host, made corporate ownership transparency central to his theme when he spoke at the 2013 G8 summit in County Fermanagh. I have to say that he has been as good as his word, and it is very much to be welcomed that this Bill includes provision for a,
“register of people with significant control”,
representing as it does a major step forward in preventing people hiding criminal activities behind shell companies. This is something that is strongly supported by the general public, according to a recent ComRes poll for Christian Aid, which revealed that only 9% of the British public believe that company ownership should be allowed to be kept secret. I suggest that it would not be too demanding a task to work out what sort of people might be included in that 9%. Legislating for a PSC register in this way would deliver Commitment 7 of the UK’s Open Government Partnership National Action Plan 2013-2015. Although it is not something I do very often, I want to congratulate the Government on making the UK the first country to introduce a public register of the beneficial owners of companies.
Businesses play an important role in developing thriving societies across the world, but some companies abuse global corporate structures for their own gain. Secret ownership structures allow wealth to be hidden away, preventing useful investment and driving inequality. The way companies are structured is more often than not at the heart of how such illicit flows are facilitated, either through evading tax, money laundering or outright corruption. The cost to developing countries of this behaviour is quite staggering. It has been estimated that such countries may lose as much as $120 billion to $160 billion annually in tax revenue, a figure greater than the entire global aid budget.
Many companies and individuals dodge taxes by keeping their money in a complex network of trusts and so-called shell firms, whereby companies are hidden
inside each other without revealing their true owners. These are often based in secretive tax havens, and it is secretive company ownership that makes most cases of large-scale corruption, criminal money laundering and terrorist financing possible. A World Bank review of 213 big corruption cases from 1980 to 2010 found that more than 70% relied on anonymous shell entities. Company service providers registered in the UK and its Crown dependencies and overseas territories were, to our shame, second on the list in providing these shell entities. I shall give just one example. An anonymous UK company owned the Ukrainian presidential palace of the vilified and ultimately overthrown Viktor Yanukovych.
Unlike the noble Lords, Lord Flight and Lord Leigh, I urge the Government to tighten the actions they have taken in this regard rather than loosen them. I want to see the Government build on the commitments in the Bill and I believe that there are various actions they could take. As has been stated by other noble Lords, the EU, other G8 and G20 countries are yet to introduce public registers, although progress is being made. I would call on the Government, using their own example, to do all they can to persuade others to introduce public registers. Surely it is deplorable, as my noble friend Lord McKenzie said, that despite the pressure exerted on the UK’s Crown dependencies and overseas territories at the 2013 G8 summit and since to introduce such public registers, not one has yet done so. Ministers should do all they can personally to persuade the dependencies to introduce public registers so as to shine some light on to what are often pretty murky waters.
In terms of actions specifically relating to this Bill, it provides that the public register will be updated annually. The Government need to monitor the accuracy of the public register closely and to consider what measures they might employ to ensure that it is updated more often. The Bill does not propose a verification regime for the information in the register and assumes a 100% compliance rate. I believe that the Government should work with Companies House to ensure an adequate verification regime for information that will go into the public register. In another place, the Government said that exemptions to publishing information in the register would be given only in exceptional circumstances. It is essential that they should abide by that commitment, and the broad categories under which exemptions may be granted should be published. There should also be adequate sanctions for those who fail to update the registers properly and, pour encourager les autres, the Government should publish a list of the sanctions available.
Finally in relation to this part of the Bill, businesses must keep their own registers up to date. It is important that members of the public can view them as they will be updated more often than the public register could be. For that reason, new Section 790O(4)(d) on page 162 should be removed because it seeks personal information that may well discourage organisations from publishing information that they have obtained about businesses’ registers. I would ask the Minister to
give an assurance that that new section will not be used to prevent reports or investigations being undertaken and published.
I would like to make some brief comments on two other aspects of the Bill. Prior to being a Member of another place and the Scottish Parliament, I was a full-time trade union official and, at a different time, a director of a small company. I know what it is like to wait anxiously for debts to be paid as staff salaries become due. Indeed, when I eventually left the company I was owed thousands of pounds because, like the other directors, we had forgone part of our salary simply to ensure that the staff could be paid. That was not because we were unable to find business, but because we were unable to force those businesses to which we had provided our services to pay what was due. My noble friend Lord Sugar drew attention to the fact that one in five insolvencies is the result of a business being unable to secure payment for goods and services that have been provided. That is surely a scandal, and yet the figure is unlikely to improve through the implementation of this Bill.
Clause 3 requires merely that certain companies—I have to say that it is notable that the financial services sector is exempted—must publish information about their payment practices and policies relating to business-to-business contracts. I have to ask the Minister why the Bill does not contain measures that would force late payers to play fair. Perhaps I may make a suggestion, although it is not particularly scientific. Debts of up to £10,000 should be paid within 30 days and debts above that figure within 90 days. If this was enshrined in legislation and the debts were not paid in that time, a 1% increase to the debt could be applied. I suggest that that would make most companies pay within what by any standards are reasonable timeframes. I cannot see what the legal arguments against this suggestion would be, although I am sure that there would indeed be some.
Several speakers have mentioned the fear of small companies not wanting to make a fuss about unpaid debts for fear of losing future business with the larger company. If there were a legal requirement for debts to be paid within a certain period, every business from the smallest to the largest would be in the same position and would suffer no detriment. Without some sanction being applied, I believe that small businesses will continue to go under through non-payment of debt and through no fault of their own. That is not a situation that should be tolerated.
On the other side of the coin, as a trade union official I represented people who wanted security in the form of a regular job with good conditions such as sick pay, maternity pay, holiday pay and pensions. I will concede to the noble Lord, Lord Leigh, that we are no longer in the position of nine to five jobs and 35-hour weeks. I did not know many people who worked a 35-hour week then and I certainly do not know any now, and I accept that. However, that is not to say that the conditions to which I have referred should simply be swept aside. None of the above—sick pay, maternity pay, pensions and so on—is payable to people on zero-hours contracts, and to hear such
contracts being defended by so many speakers in this debate, including the Minister, is dispiriting, to put it mildly.
Often we hear Ministers speak, as several noble Lords have done today, about the need to reduce burdens on business. I accept that in many cases that is legitimate. But what thought is given to reducing the burdens on the individuals who work for those businesses—the burden of not knowing when or perhaps even where they will next be working; the burden of receiving no sick pay when they are too ill to present themselves for work; the burden of arranging childcare to enable them to get to work, only to find when they get there that the employer says, “No work today”, and there is no compensation for the costs that they have incurred; the burden of being unable to get a mortgage because they do not have a regular wage or salary; and the burden of being unable to make financial plans with any certainty? Other than removing the exclusivity clause from zero-hours contracts, those with no alternative than to work under them get no solace or support from the Bill.
Please, let us not justify zero-hours contracts by suggesting that the arrangement suits some people. Yes, I am sure it does but it is a small minority of those subject to what is no more than modern-day serfdom. Surely in an advanced, high-tech economy, we can do better than this for our people in the workplace.
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Lord Mendelsohn (Lab): My Lords, I draw attention to my entry in the register of interests, which includes my current involvement in small businesses.
We have had an extensive and interesting debate, which has covered most of the aspects of a quite wide-ranging Bill. Our debate was punctuated by a simply outstanding maiden speech by the noble Baroness, Lady Harding of Winscombe. The noble Baroness, Lady Harding, has an outstanding academic pedigree, has had a great career in consulting and has been a tremendous success in business. It is very strange to welcome her to the House given her comments about her strong association with and connection to this House. I have a confession to make: the noble Baroness, Lady Harding, has been part of my life for quite a few years. It dates back to 19 March 1998, when, watching the Gold Cup—I am occasionally attracted to a flutter—I was convinced to back a rank outsider very heavily. Unfortunately, that horse, which was a 14-1 bet, came second to a 25-1 outsider, which led from start to finish—Cool Dawn. Strong Promise turned out to be anything but. However, “strong promise” is what we saw today and I am sure that the noble Baroness, Lady Harding of Winscombe, will make a great contribution to this House.
It is encouraging that there is such strong support across the House for a Bill that covers small businesses, and for a number of employment and other measures to encourage and foster enterprise. As my noble friend Lord Stevenson made clear at the beginning of the debate, we are broadly supportive of the objectives and measures contained in the Bill. We of course have issues with many of the provisions; indeed, in the course of this debate we have seen that there is a
strong desire for the Bill to have been far more ambitious. There are also some provisions that will require some careful scrutiny in Committee to ensure that they not only achieve the objectives intended but are sufficiently clear and appropriate to ensure that they do not create merely temporary fixes which can be evaded.
We are strongly supportive of the overall intentions of the Bill. Small businesses are a great engine of economic activity and wealth creation, as well as providing huge levels of employment and essential goods and services to all parts of our country. They also represent a key area of life that ensures quality of life for many; provides motivation, aspiration and ambition; creates fulfilment and a social context for co-operation between people and in families; and is an important springboard for social mobility. It is therefore true that, despite the many important provisions in the Bill that will tackle many of the problems and ills experienced by small businesses and those involved in them—ranging from late payment issues to zero-hours contracts—our country needs a much stronger small business support strategy.
The definition of micro-businesses is welcome. Enterprises with fewer than 10 employees—and most of these entities have far fewer even than five—are frequently placed at a great disadvantage in the market next to other sorts of companies. They get limited opportunities to receive discounts and benefits available to firms with scale. Indeed, on many occasions micro-businesses are at a disadvantage to individual consumers, who have access to better discounts. We support being able to treat micro-enterprises as consumers in certain circumstances and think that this sort of measure would provide great benefit to those that frequently are paying in relative terms considerably more for services in circumstances where cash flow can be very acute.
In addition, echoing the comments of the noble Lord, Lord Kestenbaum, there are imbalances across the country that are not being adequately addressed by the Bill. With approximately 850,000 private sector small businesses, London has more firms than any other region in the UK. The south-east has the second largest number, with around 800,000. Together, these regions account for almost a third of all small businesses. I hope that we will be able to take a closer look in Committee at how we can open up public sector procurement across the country to help expand the opportunity to start and grow new small businesses in every region of the UK.
On the provisions covering transparency relating to ownership, control and direction, we are strongly supportive of the thrust of the Bill. We are also very keen on the provisions on company filing requirements. These are important measures to fulfil our G8 commitments. While these measures address illicit activities, the size of which was outlined by the noble Lord, Lord McKenzie of Luton, and in a powerful speech by the noble Lord, Lord Watson of Invergowrie, we support the thrust of these measures because we believe that employment, wealth and effective markets will be strengthened if they are built on transparency, information and fairness.
In Committee, we will naturally want to scrutinise and ensure that the balance between any particular requirements for privacy—and there are legitimate
concerns—can be covered appropriately. In addition, we will want to ensure that overseas companies and those that were established in, or that have moved to, favourable tax regimes or places with limited disclosure requirements are not provided with unfair advantages. But we hope that the Minister will confirm that all these measures cover the complexities of ensuring maximum disclosure, including, for example, from the finance industry and fund structures.
We are also pleased that these measures assist in strengthening the provisions looking to ensure that director disqualifications have more teeth in order to protect the integrity of the operation of the market and the interests of consumers and to ensure better corporate behaviour. We are all too often made aware of the terrible experiences inflicted on some consumers by rogue traders. Of special concern are those who target the vulnerable. Many will have experienced the terrible circumstances caused to suppliers who suffer loss, and in many instances small businesses are disproportionately negatively affected by such losses. We will be looking to Ministers to ensure that people are not just unable to act as directors but unable to continue to act with little consequence in circumstances where the public have a full opportunity to feel reassured that they have access not only to information but to a regulatory regime that can act to protect them.
In relation to the provisions on insolvency, we heard a strong consensus across the House regarding measures looking at pre-packs. We believe that there is a case for pre-packs but we must ensure that we deal with the abuses and the potential negative consequences of introducing them. The speeches of the noble Lords, Lord Bilimoria, Lord Mitchell, Lord Hodgson of Astley Abbotts and Lord Leigh of Hurley, all identified the balances that have to be struck when we are dealing with this issue. I am sure that the comments of the noble Lord, Lord Bilimoria, about Chapter 11, which were warmly received in parts of this House, will come up in Committee, and I look forward to that.
When addressing some of the provisions on finance, the House seemed to have a clear consensus, which we share, that there are wider concerns about failures in the credit markets and that there are many broad problems of lending that we have to deal with. In relation to access to finance, we share the concerns raised by the noble Lords, Lord Bilimoria and Lord Leigh, and the noble Earl, Lord Lytton. The noble Lord, Lord Kestenbaum, made a very powerful speech which evoked some very strong phrases, which we strongly support, such as “long-term patient capital” and looking at measures to create progressive public policy that can support small businesses rather like some of the things we have seen in other countries, such as Israel and Korea, which have really encouraged small businesses to scale.
We are concerned by late payments and share the concerns raised by the noble Lords, Lord Sugar and Lord Mitchell, and by the noble Baroness, Lady Byford. On zero-hours contracts, we agree with the powerful comments made by the noble Lord, Lord Young.
Many noble Lords have used this opportunity to raise a variety of other issues that are slightly outside the Bill. The noble Lord, Lord Wakeham, made some important observations on the impact of the money laundering regulations. The noble Lord, Lord Mitchell, referred to interns. The noble Lord, Lord Hunt of Chesterton, spoke on a range of issues not contained in the Bill. The noble Baroness, Lady Byford, also raised issues around rural communities and agriculture, where there is a high concentration of small businesses. The noble Earl, Lord Lytton, raised the possibility of introducing different forms of dispute resolution to assist SMEs.
The noble Earl, Lord Lindsay, addressed provisions that are in the Bill on regulation and expressed strong support for the appointment of small business champions in non-economic regulators—something which we, too, support and look forward to scrutinising in Committee.
It is useful to outline our approach to the measures set out in Part 4 of the Bill relating to the Pubs Code and the Government’s announcement today. We remain concerned by the unintended consequences mentioned by the Minister in her opening remarks and are concerned that this is a partial view of the state of the current market and of the impact of the changes on it. We would encourage a broader view to be taken of the consequences to take account of what is happening. The noble Lord, Lord Stoneham of Droxford, gave an astute analysis of the market and argued powerfully that the fears being expressed to us are designed to prop up strategic errors that ultimately and disproportionately disadvantage publicans.
The noble Lords, Lord Cope of Berkeley, Lord Bilimoria and Lord Snape, spoke of the consensus on continuing to push with great force for the market rent only option in Committee. It is our view that the industry is in a process of change and that tenants need more flexibility to operate in the changed environment. We are very pleased by the Minister’s confirmation that the Government will now adopt the will of the other place and develop an effective market rent only option. We will work constructively with the Government on this measure in Committee. We accept that there is work to do to make Part 4 consistent and coherent, and we will be happy to co-operate to ensure that the Government shape a Bill consistent with their new undertaking. In addition, our deliberations will be an opportunity for us all to look collaboratively at how we can add a strong dynamic to the pub sector. There will now be an opportunity for us to look at additional measures to boost the position of publicans.
This Bill could have benefited from pre-legislative scrutiny. However, the debate today has demonstrated how strong the support is for its core principles and how productive the Committee stage is likely to be. That is, of course, after we all do our bit when we face our first challenge—how we perform on Saturday, which is Small Business Saturday.
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Baroness Neville-Rolfe: My Lords, I thank all speakers for their contributions, which have helped highlight and distil some of the main issues that we look forward to discussing further as the Bill moves through the
parliamentary process. I am grateful to the noble Lord, Lord Mendelsohn, for so elegantly summarising the views of noble Lords, which I shall try not to repeat too closely.
Perhaps I may start by joining all noble Lords in congratulating my noble friend Lady Harding on her maiden speech. I was looking forward to it, and it was certainly a tour de force. We used to work together, and I always told her that she would end up in politics. She brings an extraordinary mix of experience, judgment, intelligence and charm to our House and her presence will lead to some great racing jokes. The noble Lord, Lord Young of Norwood Green, was the first to give us a great joke, so I thank him for that. I welcome the support expressed by my noble friend for the measures on zero-hours contracts. Her point was very well made that these can be helpful, especially in dealing with peak business in the run-up to Christmas.
Noble Lords have emphasised the critical role of small businesses in the UK economy, which the Government fully endorse. The purpose of this legislation is to adopt specific measures that recognise that reality. There are different views as to how best to take this forward, but that should not obscure the fact that there is great common ground across the House, not least on the importance of tackling late payment. Small businesses are the bedrock of our economy, so it is essential that they are supported and promoted to give them every chance of success. I am glad that the noble Lord, Lord Mendelsohn, mentioned Small Business Saturday, which takes place this very Saturday. This yearly event has been established to support, inspire and promote small businesses and encourage consumers to shop locally, which I hope we will all do.
In that regard, I was glad to hear my noble friend Lady Byford comment on the benefits of the Bill in rural areas. As she knows, I was brought up on a farm and so have business in my blood, even though, like many small businesses, it faltered and my father had to sell up—a useful experience in the context of this Bill. That was probably at about the time that my noble friend Lord Wakeham was starting out on his more successful career in small business. I was also glad to hear my noble friend Lady Byford asking about broadband coverage, a matter on which I, too, used to campaign. Progress has been made. I shall not delay the House this evening, but I will update her and anyone else who is interested by letter on the latest position on broadband.
I reassure noble Lords that the Bill will open up new opportunities for small businesses to innovate, compete and secure the necessary finance to create jobs and to grow. It builds on previous initiatives that we have implemented to support small business. More of them are getting access to the finance that they need; they are paying the lowest corporation tax in the G20; and have better access to support and advice. Evidence that these initiatives are working can be seen in figures from the Global Entrepreneurship Monitor, stating that in 2013 7.3% of adults were involved in starting or running a business in the UK. That compared to only 6.3% in Korea and 5.3% in Finland, which the noble Lord, Lord Kestenbaum, cited as best practice. We should be proud of our track record in this country. When I travel overseas, people are fascinated by the
success that we have had over the years in creating small businesses and, latterly, of cutting unemployment. This Bill will further enhance what we have done and provide more support to small businesses. To suggest that it is timid is to do it a disservice. It will ensure that the UK continues to be recognised globally as a trusted place to start and grow and do business.
We have heard from a number of noble Lords on pubs and I was glad to hear of the widespread support for the goal of ensuring that tied tenants are treated fairly and are no worse off than free-of-tie tenants. My noble friend Lord Stoneham spoke in favour of the market rent only option, while the noble Lord, Lord Bilimoria, and my noble friend Lord Cope of Berkeley supported the Government’s decision to accept the strong will of the other place to include this option in the Bill. I also noted the arguments advanced by the noble Lord, Lord Hodgson of Astley Abbotts, and look forward to debating with him in Committee. I agree with him on one point: that to save our pubs, we should all use them and not stay at home watching the TV—in fact, we could start tonight.
The noble Lord, Lord Snape, gave us some real examples of the difficulties that tenants can face, and I was very sorry to hear of the problems which his daughter and son-in-law seem to have experienced. These are exactly the sorts of issues that we are committed to address in these measures to ensure that tenants are treated fairly.
I reassure my noble friend Lord Wakeham that we will be looking at the market rent only option in detail to ensure that it is workable and that we minimise any potential unintended consequences. I also assure the noble Lord, Lord Snape, that officials and Ministers have been meeting and will continue to meet tenants’ organisations, pub-owning companies and their representatives to discuss those issues.
The noble Lord, Lord Young of Norwood Green, brought us down to earth. I agree with him on the importance of British real ale, and I am glad that we are doing better than the Belgians. I am grateful to the noble Lords, Lord Stevenson and Lord Mendelsohn, for their commitment to work with us to ensure that the measures deliver and that the thousands of tied tenants across England and Wales are treated fairly.
Turning to finance, I welcome the support of my noble friends Lord Wakeham and Lord Cope for the access-to-finance measures. I assure the noble Lord, Lord Kestenbaum, that the Government are very ambitious in that regard. I look forward to his scrutiny on this point in Committee.
It was good to hear from the noble Lord, Lord Sugar, and I pay tribute to his work to raise public awareness of entrepreneurship. I hear that he wants the Government to go further, but at least he did not tell me that “I am fired”—so far. The noble Lords, Lord Sugar, Lord Watson of Invergowrie, and others, talked about late payment, to which we will certainly come back. I fully agree that we need to do more on late payment; that is why we have made it a central feature of the Bill.
Our legislative proposals will help a lot, but of course legislation is not the only answer. Existing remedies are not being used, largely because smaller suppliers do not want to risk relationships with bigger
companies, as the noble Lord said so eloquently. We therefore need to effect a culture change by making it unacceptable to pay late. I look forward to discussing how to do that—probably mainly outside the legislative process.
The noble Lord, Lord Bilimoria, talked about the burden of the failure of prompt payment on medium-sized businesses. We are currently consulting on which companies should be subject to the prompt payment reporting requirements. I have heard concerns that its scope covers too many medium-sized companies, and we will consider his comments during the consultation.
The noble Lord, Lord Mitchell, was, I think, a little unfair about what we have done to help small businesses. Take Funding for Lending, for example. Funding for Lending has played a part in improving the willingness of large banks to lend, but we need to increase the sources of funding available to SMEs. Therefore, we welcome the rapid growth of challenger banks for business lending, such as Aldermore and Handelsbanken, and the growth of peer-to-peer lending and crowdfunding, which we have brought into the regulatory framework for the first time. By providing the data that those lenders need, the Bill will help to transform the lending landscape.
The noble Earl, Lord Lytton, asked about electronic cheque imaging. I am glad to say that the industry will be able to put in place a number of measures to mitigate any fraud and security risks. In a number of respects, cheque imaging provides an opportunity to address security risks that currently affect cheque users. The industry will be adopting proven technology that has been in operation in the USA for 10 years. The US banking industry has told us that it has no significant concern about fraud risk associated with cheque imaging. I hope that that will reassure the noble Earl.
My noble friend Lord Leigh gave a comprehensive contribution. I am very grateful for his support on the Bill. I echo his point about comparisons with Europe: when compared to France, our employment rate is more than 6% higher. On his concern about finance platforms, in which I think that the noble Lord, Lord Stevenson, was also interested, I am pleased to be able to reassure him. The platforms designated by the Government will be required to give fair access to financiers that request it. That requirement will be enforced by the Financial Conduct Authority. When designating a platform, the Government will certainly consider and take into account the ability of that platform to open up opportunities across financing markets for small and medium-sized businesses.
Turning to regulatory reform, I welcome the support of the noble Lord, Lord Curry of Kirkharle, for the measures in Part 2. I know that his comments draw on very long experience of better regulation. I completely agree that the measures in Part 2 will make life easier for millions of businesses, many of them small businesses. The measures build on the UK’s continued success in delivering regulatory reform and will help to embed our leadership internationally. I also thank the noble Earl, Lord Lindsay, for supporting the regulatory reform measures and for the work he has done.
I also listened with great interest to my noble friend Lord Eccles, because of his long experience. I know that there are a significant number of delegated powers in the Bill, but we are trying hard to issue consultations on the SIs concerned in parallel to our discussions. The key such consultation on prompt payment was issued last week.
I can assure my noble friend Lady Byford that the Government consider the timetable for delivering the target in Clause 15 of streamlining company registration to be achievable. We recognise that it will be a complex IT project, and the timetable allows for thorough engagement with businesses to ensure that they are an integral part of the solution. That is very important.
On public procurement, the noble Lord, Lord Hunt of Chesterton, talked about paying suppliers promptly in the private sector. We agree that it is important for all suppliers to be paid promptly, and that the public sector should lead by example. That is why the Bill supports a simple and consistent approach, and we will be requiring contracting authorities to mandate prompt payment terms of 30 days across the entire public sector supply chain early in the new year.
The right reverend Prelate the Bishop of Peterborough moved me a lot by what he said about local entrepreneurship—a word that the noble Lord, Lord Bilimoria, rightly asked us to use more—and about micro-businesses helping the young unemployed and people from very distressed backgrounds. I so much agree with him about the value of local support for small businesses. I loved his examples. More importantly, he supported our trailblazing measures on a register of persons of significant control. We recognise the clear advantages of collective global action. That is why we continue to lobby other jurisdictions, notably in the context of the G7, the G20, the EU and through the Financial Action Task Force to take equally ambitious action on transparency of company beneficial ownership—a concern also expressed by the noble Lord, Lord McKenzie. We are also working with the Crown dependencies and overseas territories in this space.
The noble Lord, Lord McKenzie, also asked about anti-money-laundering. The UK is lobbying hard to encourage EU member states to take equally ambitious steps in the sphere of company transparency. It is encouraging that the European Parliament voted in favour of public central registers and that negotiations are ongoing. We hope that that work will conclude soon.
This part of the Bill was also a concern of my noble friend Lord Flight—albeit from a different perspective. He questioned whether the registers should be made public. The UK’s G7 action plan committed to consult on the question of whether the register should be publicly accessible. When we consulted in July 2013, there was strong support for our proposals. That was evident during the public sessions on the Bill in the other place. The FSB, for example, said:
“Trust and transparency are absolutely critical. That is why we fully support other bits of the Bill that deal with some of these areas”—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 14/10/14; col. 19]
Allowing public access is consistent with the UK’s commitments to openness and transparency, and builds
on the established practice of making information on UK companies and shareholders available on the public record. The public register will enhance corporate transparency, promoting good corporate behaviour and building trust in UK companies. It will also help to ensure accuracy.
Furthermore, making this information public could assist international co-operation on law enforcement, reducing the time and cost associated with mutual legal assistance requests. I am sure that we will discuss the detail further in Committee, and I encourage my noble friend to read our consultation document on the implementing rules. This is a key plank of the Bill and I am grateful, too, to all noble Lords who supported these transparency provisions.
I assure the noble Lord, Lord Watson, that the Government do not intend to use Section 790O(4) to prevent legitimate access to company registers.
The noble Earl, Lord Lytton, asked about mutuals and co-operatives. As he knows, our reforms apply only to companies and to limited liability partnerships through secondary legislation. However, EU proposals in the fourth money-laundering directive may have a wider application and require mutuals and co-operatives to obtain and hold more information in this area.
The noble Lord, Lord Stevenson, asked what we are doing on takeovers. Following the AstraZeneca-Pfizer discussions, the Government said that they might need legislation to ensure that companies always honour big commitments. The Takeover Panel has now consulted on amendments to the takeover code that would significantly strengthen its ability to ensure that such commitments are honoured. We have therefore accepted its assurance that no further legislative change is needed in the Bill.
The noble Lord, Lord Bilimoria, started the discussion on Chapter 11. We shall talk about this in Committee, as there was quite a lot of interest expressed on it today, but it might be worth mentioning in advance of Committee that World Bank data indicate that the UK regime pays more to creditors, quicker and at lower cost, than the US, France and Germany. Chapter 11 is often criticised for its high cost; hence it is potentially sometimes less successful for small business.
On insolvency, the noble Lord, Lord Mitchell, expressed concern about pre-packs, although my noble friend Lord Hodgson took a different view. The independent Graham review found that pre-packs fulfil a positive and unique role in the insolvency landscape but identified a number of issues with current practice in how pre-packs are carried out. The review recommended a voluntary package of six reforms, which are being taken forward by the profession and the industry. They are making good practice on the recommendations and we hope to see these in place
early in 2015. On the point made by my noble friend Lord Leigh about the future viability of pre-pack businesses, I am sure he would agree that swamping business with increased regulation would be counterproductive. I was glad that he agrees that a reserve power is the right approach.
Finally, I come to the employment measures. There are several new measures, which I will not run through except to emphasise the increased penalties for breach of the national minimum wage legislation and the fact that exclusivity clauses in zero-hour contracts will become invalid and unenforceable, so that no one is tied into a contract without any guarantee of paid work. The noble Lord, Lord Stevenson, asked about the possibility of compensation. Late-notice cancellations are clearly an issue for some individuals. However, a single solution would not be appropriate and could prove very costly to business. It could also lead to employers offering work only at short notice to reduce the risk of cancelling, which could be a step backwards for the individuals. We feel that the issue should be addressed in sector-specific codes of practice on the responsible use of zero-hour contracts.
A number of noble Lords raised the issue of enforcement. The noble Lord, Lord Sugar, seemed to welcome the tougher penalties on the minimum wage but felt that the scale of investigation and enforcement was an issue. HMRC has actually increased the numbers in its team of inspectors who are responsible for investigations on the minimum wage. However, enforcement is an incredibly important area and I am sure that we shall discuss it in Committee.
On interns, which were raised by the noble Lord, Lord Mitchell, we have to achieve the right balance. Under current law, it is legitimate for employers to provide paid internships where an individual is not a worker for the purposes of minimum wage legislation. If the individual is acting as a worker, they must be paid the national minimum wage. This depends not on the job title but on the working arrangements. However, given the dependency on employment status, the Secretary of State has launched an internal review of employment status in this area. We will be getting a report early in the new year.
Small businesses in the UK can feel hampered by barriers that restrict their ability to innovate, grow and compete. The Bill will address these challenges and pave the way for the Government to be more supportive of, and less burdensome to, small businesses in the UK. I again thank noble Lords and noble Baronesses for their contributions today and I ask the House to give the Bill a Second Reading.