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House of Lords

Tuesday, 3 March 2015.

2.30 pm

Prayers—read by the Lord Bishop of Norwich.

Royal Assent

2.36 pm

The following Acts were given Royal Assent:

Pension Schemes Act,

Serious Crime Act.

Cyclists: Safety


2.37 pm

Asked by Lord Jordan

To ask Her Majesty’s Government what is their assessment of the findings of the YouGov survey on cycling safety commissioned by the Royal Society for the Prevention of Accidents.

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, I received the top lines of the YouGov report only late last week. The YouGov survey asked many useful and interesting questions about attitudes to cycling and is sufficiently data rich to stand more detailed analysis. One key finding, which we are pleased to note, is the evidence of considerable latent willingness to engage in more cycling, which justifies the Government’s strategy on supporting cycling provision.

Lord Jordan (Lab): I thank the Minister for her reply and declare an interest as a vice-president of RoSPA. The RoSPA-commissioned YouGov poll has given us some compelling insights into the need for greater provision for cyclists. One-third of people think that cycling safety is one of the biggest transport issues we face; two-thirds back the idea of a network of cycle routes; and 78% say they would like to see separate cycle lanes. The Government have given money to certain cities, but with more than 100 cyclists a year being killed, what will the Government do now, given these findings, to accelerate the introduction of safe cycling provisions for all our roads?

Baroness Kramer: My Lords, one death from cycling is one death too many, so obviously we are very concerned with safety. Your Lordships will be aware that we launched a THINK! Cyclist campaign in 2012, and a third round of this is planned to run in 12 cities in March 2015—the original five cities and seven additional ones. We have made it easier for councils to introduce 20 miles per hour zones and 40 miles per hour zones in rural areas, and Trixi mirrors. The Deputy Prime Minister announced £100 million to improve conditions for cyclists and walkers, alongside and crossing the strategic road network. We have set up a task force with Transport for London

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to raise awareness of safety among HGV drivers and to take targeted enforcement against the minority of potentially dangerous operators, drivers and vehicles. We are always looking at more ways to make cycling safe.

Baroness Sharples (Con): Would my noble friend care to comment on pedestrian safety?

Baroness Kramer: My Lords, I do not have any numbers with me on pedestrian safety, but I will be glad to write to my noble friend on that issue. Pedestrian safety is obviously a key consideration as well.

Lord Scott of Foscote (CB): Does the Minister agree that a cyclist’s main protection should be his or her own eyes and ears? The eyes are there to warn against impending danger from the front and the ears ought to assist in identifying impending danger from behind. I cycle regularly from my flat in Camden to Westminster—it used to be Lincoln’s Inn, then it was the Royal Courts of Justice and now it is Westminster—and I am appalled by the number of cyclists who bicycle with earplugs in their ears listening to music. If they listen to music, they cannot possibly hear any danger approaching from behind. There are regulations to ensure the use of lights on bicycles in dark or dingy weather. Should there not also be a regulation to prevent the highly dangerous practice to which I have referred?

Baroness Kramer: My Lords, it is important that everyone does all they can to try to improve cycle safety. In London, many of the recent incredibly sad deaths have been related to collisions with HGVs. Europe has adopted, and we are enforcing, new rules on goods vehicles in consequence of that, and London is taking it further with its Safer Lorry Scheme, which will be more fully implemented in September. There is a whole variety of actions that we can take; London’s superhighways are another example. Much of the money announced today for the eight cycle cities may well go on segregated cycle provision.

Lord Brooke of Alverthorpe (Lab): My Lords, why are the Government so resistant to introducing 20 miles per hour limits for vehicles in cities and towns throughout the country?

Baroness Kramer: My Lords, it must be a local decision. There are some areas where decisions should be made not by government at the centre but by local government, which understands the local circumstances. Changes have been made to make it much easier for that to be implemented. Change in the rules on road layouts and changes in signage mean that it is now much easier for a community that wishes to have 20 miles per hour limits to make sure that they are in place.

Lord Taverne (LD): My Lords, since three recent fatalities of cyclists in London have been caused by tipping lorries, and as most of the fatalities have been caused by heavy lorries, often turning left, is it not a top priority for the Government to see that heavy lorries are redesigned so that the driver’s vision is not

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restricted? As for road junction safety, is it not a scandal that, as revealed by the Mayor of London in response to a Liberal Democrat question, something like £50 million of the present budget available for cycling safety has not been spent in the current financial year?

Baroness Kramer: As my noble friend knows, central government made £15 million available to London to deal with some of the worst junctions. That has been important and I obviously want to see that implemented. We have a wide range of approaches to dealing with issues around HGVs, including new rules that will mean that cabs are safer and vision is better. We are working on the technical standards that will apply to those rules.

Lord Butler of Brockwell (CB): My Lords, please will the Minister address the question raised by the noble and learned Lord, Lord Scott of Foscote, about the case for regulation to prevent cyclists cycling with earplugs in their ears?

Baroness Kramer: My Lords, enforceability is always absolutely crucial. I hesitate to tell cyclists exactly what they should do when there is so much scope for us to make improvements in other areas, and I suggest that we pursue those. Obviously, cycle training matters and addresses many of those issues, and we have invested a great deal in Bikeability.

Lord Rosser (Lab): The noble and learned Lord, Lord Scott of Foscote, asked a question about headphones. I do not think that he got an answer to it and no doubt the noble Baroness the Minister will wish to respond. However, the Government’s Cycling Delivery Plan, published more than a year late, contains no specific targets on increasing the percentage of journeys undertaken by bike from the current level of 2% and no specific long-term funding targets for cycling. Bearing in mind that, following pressure from Labour and cycling organisations, among others, the Infrastructure Act included a requirement to produce a cycling and walking investment strategy, do the Government intend to update the Cycling Delivery Plan by including the specific targets that are currently lacking and to which I have just referred?

Baroness Kramer: My Lords, noble Lords will be aware that the Government have committed over £588 million to cycling—more than double the previous Government—and that has been absolutely crucial. The cycling and walking investment strategy will require a major piece of work, including a great deal of consultation, to design investment for the future, but our goal is to get to the £10 per head benchmark, which I think is widely accepted as the right number.

Schools: Academies


2.45 pm

Asked by Baroness Jones of Whitchurch

To ask Her Majesty’s Government what advice they have issued to individual academy schools regarding the £2.5 billion held in their reserves.

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The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, academies are independent, self-managing organisations. Academies cannot borrow, except in exceptional circumstances, and so can build up reserves in order to accommodate longer-term plans that reflect their success and popularity, such as capital investment to fund maintenance or expanding provision for greater pupil numbers. They also need to hold cash to pay short-term obligations such as salaries.

Comparing net current assets of academies with the closest equivalent measure in local authority maintained schools shows that academies have 51 days’ cash, whereas local authority maintained schools, which can obtain money for capital from their local authorities, have 25 days’—51 days is a prudent buffer.

Baroness Jones of Whitchurch (Lab): I thank the Minister for that reply, but does he accept that most parents would be appalled to know that academies are stockpiling public money, averaging nearly £6,000 per school, rather than spending it on their child’s education? Does he not accept that the fact that academies feel the need to have these reserves is simply a damaging consequence of having thousands of individual academies being managed separately—many would say badly—by the Secretary of State?

Lord Nash: As I already said, we regard the cash management of academies to be very prudent. We see no reason why efficiently run schools should not be involved in careful financial planning. It may well be that the Labour Party would like to run the school estate like they ran the economy—borrow, borrow, borrow and nearly go bust. We do not think that that is a sensible approach and we do not think that we should penalise successful schools.

Lord Storey (LD): My Lords, my noble friend will be aware that this works out at an average of £1.2 million per secondary academy and £1.8 million per academy chain school. He will also be aware of the suggestion that we are setting up schools to be run as businesses. Will he tell us, in no uncertain terms, that there never have been and never will be any attempts to run schools as profit-making businesses?

Lord Nash: My noble friend will know from his experience over 25 years as a primary head that all schools are facing cost pressures from national insurance and pensions, so any prudent school will have some level of cash reserves. I mentioned capital requirements for academies. The education sector has a lot to learn from the business sector in terms of efficiencies. We have found that when business people and educationalists work well together through the academies programme the effects can be quite dramatic. I cannot make promises for ever, but there are no plans as far as this Government are concerned to bring profit-making to the school system.

The Lord Bishop of Norwich: My Lords, some academies and other schools have secured private funding which they ring-fence to finance a chaplain,

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international links or some other good purpose. For the avoidance of doubt, will the Minister give an assurance that such funds are not to be treated as free reserves? Further, will he encourage academies to secure such funding?

Lord Nash: I entirely agree with the right reverend Prelate and I pay tribute to his very good work in the school system in Norfolk. We should welcome such funds into the school system. We should welcome people who bring these funds and give their time freely. It is a development that we should seek to encourage.

Lord Faulkner of Worcester (Lab): My Lords, given the Minister’s statement a moment ago that he does not wish to penalise successful schools, will he look again at the imposition of VAT on sixth-form colleges, which was the subject of a Question that his noble friend answered the other day, to which, frankly, we did not get a satisfactory Answer? For £31 million, which is a tiny part of the amount held in reserves by the academies, the VAT burden could be lifted altogether. Is that not the right thing to do?

Lord Nash: The noble Lord is right that this is a difficult issue and it is one that we have been looking at. I assure him that we will continue to look at it.

Lord Naseby (Con): Is it not enormously sensible for the governors of our academies to hold reserves at the end of a Parliament, when they have no idea what the policy may be in the future? We also have low inflation at this time, and I imagine that a fair number of them are preparing for capital works based on their reserves.

Lord Nash: I agree entirely with my noble friend, who makes the point admirably.

Baroness McIntosh of Hudnall (Lab): My Lords, would the noble Lord assist those of us who are, perhaps, not as clever as some other Members of this House and do not entirely understand the status of the money that is being held in these reserves? He said that academies are independent institutions and, of course, they are. However, they are publicly funded and the money held in those reserves is therefore, by most ordinary people’s calculation, public money. With reference to the answer he gave to the noble Lord, Lord Storey, could he explain in what way these funds are different from, say, the funds held in a charity? Are they to be used wholly and exclusively for the benefit of the institution? Can he assure the House that nobody else can benefit from them?

Lord Nash: I can give that assurance. They are there for the benefit of the institution, which in this case is the school in question.

Baroness Farrington of Ribbleton (Lab): In the light of the reply he gave to my noble friend, would the Minister be prepared to state that the Government’s policy should be and is that any pupil or student—of any age, whether sixth-former or primary school pupil—is entitled to have an equivalent amount of money spent

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on their education, unless there is a special allocation because of special needs? Government Ministers lambast local authority maintained schools, including some church schools, for not spending money and yet claim that academies have this right.

Lord Nash: The noble Baroness will know that we have had a bit of a postcode lottery in school funding for many decades. This Government have gone quite some way to try and reduce the differentials but we should seek to do more in the future.

Police: Complaints


2.52 pm

Asked by Lord Scriven

To ask Her Majesty’s Government what steps they are taking in the light of the number of complaints against police forces in England and Wales as reported by the Independent Police Complaints Commission.

The Parliamentary Under-Secretary of State, Home Office (Lord Bates) (Con): My Lords, the Government see the effective handling of complaints as a cornerstone to trust in the police. We have undertaken significant policing reform, including reforming the IPCC to handle all serious and sensitive cases. We have consulted on reform to make the complaints and disciplinary systems independent, customer-focused and transparent. These major reforms will improve the public’s experience and the process. The Government will respond to the consultation during this Parliament.

Lord Scriven (LD): I thank my noble friend the Minister for that Answer. However, will the Government, as a matter of urgency, set up an independent inquiry into South Yorkshire Police over its systematic failings and slow and inadequate responses and improvements in cases of child exploitation, particularly its handling of the Rotherham cases?

Lord Bates: My noble friend is absolutely right to highlight the appalling situation that has been uncovered in Rotherham and South Yorkshire. That aspect of the South Yorkshire Police is, of course, subject to review by Her Majesty’s Inspectorate of Constabulary, which undertook one review in 2013 and two in 2014. Reviews are now being undertaken by the National Crime Agency and Operation Stovewood. At this stage, we do not feel there is a need for a further independent inquiry but I would be very happy to meet my noble friend, as a very senior member of the community in that area, to see what more can be done to learn the lessons from that dreadful experience.

Baroness Uddin (Non-Afl): My Lords, last year the family of a severely autistic man, Faruk Ali, alleged that he was victimised by the police outside his home in Luton. The IPCC is currently investigating the incident in which an officer has been recorded deriding Mr Ali for his developmental disability and using

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racist language. Can the Minister confirm what steps the Government are taking to eradicate discrimination of this kind, which arises time and time again in complaints against the police? In asking this question, I declare my interests as set out in the register.

Lord Bates: The Government’s position is that we have a zero tolerance of that type of conduct and behaviour. As regards the specific case raised by the noble Baroness, I hope she will understand that I cannot comment on an ongoing IPCC inquiry.

Lord Avebury (LD): My Lords, is my noble friend aware that last week the Metropolitan Police and the Independent Police Complaints Commission reached an agreement on how complaints about stop and search and the confiscation of property at ports of entry should be dealt with. Can he tell us how long it will be before individual complainants against the conduct of the police at ports of entry receive an answer to their complaints?

Lord Bates: On the general subject of complaints, there is an ongoing consultation which will report shortly. However, I will have to write to my noble friend on the specifics of his question.

Lord Elystan-Morgan (CB): Does the Minister accept that one disquieting feature of the report is that cases that were investigated locally in 2014 took on average 135 days to investigate completely while in the previous year they were dealt with in 125 days? Can he give the House an assurance that all necessary resources, financial and otherwise, will be projected at seeing to it that the situation at least does not deteriorate and instead of that improves?

Lord Bates: The noble Lord is absolutely right and we know that justice delayed is justice denied. We need to move quickly towards a result in this situation. The reality is that most complaints are dealt with satisfactorily by the constabulary and it is only the very difficult cases that find their way to the IPCC. Often they are more complex and thus more lengthy in their consideration. However, the noble Lord makes an absolutely sound point.

Lord Clinton-Davis (Lab): Is the Minister surprised that complaints against the police, especially those on the beat, have increased and are bound to increase when police forces are being drastically reduced? Is he seriously asserting that in those circumstances the public are not being prejudiced thereby?

Lord Bates: I think that we have to look at this carefully. Certainly in terms of front-line policing, we try to preserve those numbers. The decisions are matters for the chief constable and the police and crime commissioner in a particular area. However, the acid test as to whether the police are effective on the ground is a twin point. One of those is that, yes, if complaints are rising then we should be concerned about that, but the other is that crime is falling to record low levels at the same time. That is something for which the police deserve our thanks and praise.

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Lord Brookman (Lab): My Lords, that is the very point I want to touch on. Let us not in our Chamber knock the police. The police are a vital organ of our society and they do a fine job. There may be the odd mistake here and there, as there is everywhere, but the police are first class.

Lord Bates: I could not agree with the noble Lord more.

Baroness Smith of Basildon (Lab): My Lords, following on from those two questions, there is another point to be made. The Minister will know that we are concerned about the sharp rise in the number of complaints being made to the IPCC and he will also be aware of our view that a more effective police standards authority is needed to tackle the most serious cases involving corruption and force integrity. Have the Government undertaken any research to understand why the greatest number of complaints that have been made are about police neglect and failure of duty as well as about individual police officers being rude or intolerant? The points that have been made by my noble friends reinforce that. Since this Government took office, in my county of Essex alone, we have lost almost 600 police officers, with even more cuts planned of around 200 officers. When the Government planned such a dramatic cut in police numbers, was any assessment made of the impact that that would have on the quality of service that the police would be able to provide to the public?

Lord Bates: A couple of issues underline those questions. One is that some very high-profile, major systemic failures have been uncovered, not least the one raised by my noble friend Lord Scriven in his supplementary question. But we have two bits of evidence. One is that crime has fallen by 20% since 2010 while at the same time we have seen the level of complaints against the police go up. That is why we are having a review: to understand why that is and what more can be done while at the same time recognising the incredible job that our police forces do in keeping us safe.

Electoral Registration


3 pm

Asked by Lord Tyler

To ask Her Majesty’s Government what steps they are taking to identify areas with underperforming electoral registration officers, and to issue directions to ensure the maximum possible number of eligible electors are registered.

Lord Wallace of Saltaire (LD): My Lords, the performance of electoral registration officers is monitored and reported on by the independent Electoral Commission. The commission’s most recent assessment, in June 2014, showed that the large majority of EROs are performing well against the performance standards set. Where problems are found, the Cabinet Office and the Electoral Commission work closely with the EROs to ensure that they are implementing their public engagement and implementation plans for the transition to individual electoral registration.

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Lord Tyler (LD): My Lords, did my noble friend see that, yesterday, the chair of the Electoral Commission reported to the Select Committee in the other place that 2 million applications to register have been received since 1 December? The position is improving. But I hope he agrees that the situation is very mixed locally. Given those circumstances, are the Government looking at the proposal from the Electoral Commission that it should be in a better position to monitor and instruct electoral registration officers locally? The commission recommended:

“Should any ERO decide not to undertake such activity, the Commission will make a recommendation to the Secretary of State to issue a direction to require them to do so”.

Is it not time for the Government to respond to that recommendation? Indeed, is it not time to name and shame those local authorities and those EROs who are simply not doing their job?

Lord Wallace of Saltaire: My Lords, the evidence that a large number of EROs are not doing their job is not there. Five of the six EROs who were rated last year as not having achieved their performance standards were in Devon and Somerset, rather to my surprise, and not in Labour-held areas—in Devon and Somerset, it tends to be either Liberal Democrat or Conservative seats. The question of training is one that we are well aware of. The Electoral Commission works with the Association of Electoral Administrators and others to ensure that EROs are well trained and do their job as well as they can.

Lord Maxton (Lab): My Lords, does the Minister agree that the best way of ensuring that we have full registration is a compulsory ID card with a biological identifier, which would then allow all people to be registered from the word go and to then vote electronically as well with that card? That would ensure the fullest participation in registration and in the election.

Lord Wallace of Saltaire: I agree with the noble Lord that there are some very large questions about how much data the Government already have about people who are or are not registered and how much they are allowed by current law to pull those data together. I very much hope that, in the new Parliament, we shall debate actively what changes in the law we need for that. Moves towards compulsory registration and the sort of unique individual identifier that he suggests—a lighter form of ID card—may be coming, but that is something that we all need to discuss very carefully.

Lord Roberts of Llandudno (LD): Are the instruction and the training given to EROs of the more modern and imaginative type, as we have seen in relation to certain youth organisations in recent months?

Lord Wallace of Saltaire: My Lords, I have to say from having met a number of EROs during the past three years that they are a subculture of their own. I think that some of them would jib a little at the thought that they were entirely modern. They are committed to their task, which they find increasingly difficult. Gated communities and rapid turnover of people in rented housing make their lives more difficult.

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The refusal of people to answer letters when they are canvassed and the difficulty of canvassing on a house-to-house basis are all problems that they face, but all the evidence that I have is that most EROs are doing their job extremely well.

Lord Kennedy of Southwark (Lab): My Lords, I declare an interest as the chair of the All-Party Group on Voter Registration. What is so frustrating about the Minister’s responses to these questions is that he repeatedly gives the impression that it is all fine and that there is nothing to worry about. When will the Minister and the Government accept that we have a crisis with people dropping off the register? Just over a week ago, the Electoral Commission reported that 1 million people had gone missing from the register up to 1 December last year. The closing date for registration is 20 April. The Government have about six weeks to do considerably more than they are doing at present. They have the power; they need to get working on it straightaway.

Lord Wallace of Saltaire: The Government are not complacent: we do not have a crisis. The figures for last December show that, under the transition, we are roughly at the level that we were at three years ago. That is not good enough—there were already 7.5 million people missing three years ago. We are continuing to work, and everyone here should be continuing to work, to encourage people to register. I saw in this morning’s Daily Mirrorthat it is running its own its own campaign with a bus, the cast of “The Only Way is Essex” and various others to encourage particularly vulnerable groups to come on board. We all have to work on that, and I am still confident that many of the missing young people will actually use their mobile phones to register online in the last two or three weeks before the deadline.

Lord Cormack (Con): My Lords, whatever the case may be against compulsory voting—and frankly, I am moving in that way myself—what is the case against compulsory registration?

Lord Wallace of Saltaire: My Lords, we are asking some large questions about the relationship between the citizen and the state. The noble Lord, Lord Cormack, might stand shoulder to shoulder with the noble Lord, Lord Maxton, on a number of these issues.

Lord Rooker (Lab): In one of the Minister’s earlier answers—I think it was in answer to his noble friend—he used the phrase “much to my surprise”. Will he tell us what evidence he has that caused him to have such a surprise?

Lord Wallace of Saltaire: I apologise if there was a slip of the tongue. We are, of course, very concerned that this process should go through successfully, and we have been working very hard to make it go through successfully. I pay tribute to all those involved in National Voter Registration Day, which led to nearly half a million registrations coming in in one week. We all have to work extremely hard. I suppose that the origin of my surprise is that I meet—as I am sure we all meet—a great deal of voter disengagement and unwillingness to engage with politics. Those are the

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people who do not register to vote. We have to get out there and persuade them to vote. I trust that all parties, and all of us as campaigners—those Peers who go into schools and into universities—are getting this message across all the time.

Electrically Assisted Pedal Cycles (Amendment) Regulations 2015

Motor Vehicles (Wearing of Seat Belts) (Amendment) (No. 2) Regulations 2015

Renewable Transport Fuel Obligations (Amendment) Order 2015

Crime and Courts Act 2013 (Consequential Amendments) (No. 2) Order 2015

Motions to Approve

3.07 pm

Moved by Baroness Kramer

That the draft regulations and draft orders laid before the House on 14 and 16 January be approved.

Relevant documents: 20th and 21st Reports from the Joint Committee on Statutory Instruments, 25th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 24 February.

Motions agreed.

Child Exploitation in Oxfordshire


3.07 pm

The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, with the leave of the House, I shall now repeat, in the form of a Statement, the Answer given by my right honourable friend the Secretary of State for Education to an Urgent Question in another place earlier today concerning a serious case review of child sexual exploitation in Oxfordshire. The Statement is as follows:

“No child should have to suffer what the victims of child sexual exploitation in Oxfordshire have suffered. The serious case review published today by Oxfordshire Safeguarding Children Board is an indictment of the failure of front-line workers to protect extremely vulnerable young people over a number of years. Reading the details of what happened to them has been truly sickening. The serious case review makes clear that numerous opportunities to intervene to protect these girls were missed, as police and social workers failed to look beyond what they saw as troubled teenagers, to the frightened child within.

I welcome the publication of the serious case review. It is only by publishing such in-depth accounts of what happened, what went wrong and why, that children’s social care systems locally and nationally can address the failings that have betrayed some of our most vulnerable children. That is why the Government have

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insisted that serious case reviews be published and in full. The Minister for Children and Families has also written today, with Ministers from the Home Office and the Department of Health, to request from Oxfordshire Safeguarding Children Board a further assessment of the progress being made, and we will send an expert in CSE to support it in this month.

Sadly, Oxfordshire was not alone in failing to address the dangers of CSE. We now know from the report of Professor Alexis Jay and Louise Casey on Rotherham, and Ann Coffey’s report on Manchester, that child sexual exploitation has been a scourge in many communities around the country.

This Government have been determined to do everything in their power to tackle CSE. That is why, today, we are publishing an action plan setting out the action we have already taken to strengthen our approach to safeguarding children from sexual exploitation, and the further steps we think are necessary to address the culture of denial, improve joint working, stop offenders, support victims and strengthen accountability and leadership. We are setting up a national centre of expertise in tackling CSE to support local areas around the country. There will be a new whistleblowing portal so that anyone can report concerns about CSE. We have prioritised CSE as a national threat so that police forces will now be under a duty to collaborate across force boundaries. We will consult on extending the criminal offence of wilful neglect to children’s social care, education professionals and elected members.

This afternoon, I will join the Prime Minister, the Home Secretary and other Secretaries of State in Downing Street to discuss with local and police leaders how we will collectively take forward the actions set out in today’s plan. The experiences of the children set out in this serious case review should never have happened. We are determined to do everything in our power to stamp out this horrific abuse and to bring perpetrators to justice”.

That concludes the Statement.

3.11 pm

Baroness King of Bow (Lab): My Lords, I welcome the Government’s decision to view child sexual abuse as a national threat—clearly it is one. No one can be unmoved by the horrific sexual sadism inflicted on vulnerable young girls and boys, or, for example, the case of the 12 year-old girl who had to have a back-room abortion after being raped. In one of the trials, a social worker gave evidence that nine out of the 10 professionals responsible for one young girl’s safety knew what was happening but did nothing.

On this side of the House, we believe that stronger laws are needed to protect children. Does the Minister find it strange that just last week his colleagues voted against a new specific offence of child exploitation? Does the Minister feel the Government’s definition of wilful neglect does enough to ensure that individuals report signs of sexual abuse? Lastly but possibly most fundamentally, does the Minister recognise that if we want to stop dealing in disaster we desperately need age-appropriate and compulsory sex and relationship education in schools? Why will not the Government join the cross-party consensus of the Labour Party,

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the Liberal Democrats, the Education Select Committee and all the professionals in the field, and agree to introduce this immediately?

Lord Nash: As I have already said, we will consult on widening the offence of wilful neglect. I am sure that, as a result of that consultation, we will look again at all possible legislation and offences that we could bring into the piece. As no doubt the noble Baroness heard me say, sex and relationship education must be taught in all maintained schools and is taught in virtually all academies. We welcome the supplementary advice, Sex and Relationships Education (SRE) For The 21st Century, issued by the PSHE Association, the Sex Education Forum and Brook. They produce some excellent resources, which are available to all schools.

Lord Laming (CB): My Lords, this is yet another thoroughly dispiriting report. Many of these young people were in the care of the local authority for their protection and safety. Will the noble Lord assure the House that he will continue to do everything that he can to persuade local authorities that when they assume parental responsibility for a child or young person, they have not only a legal duty but a moral duty to be a good parent to those vulnerable children?

Lord Nash: I entirely agree with the noble Lord. In the course of this Parliament, we have sadly intervened already in 50 local authorities. Doncaster’s facilities are going to a trust, as are Slough’s.

Baroness Walmsley (LD): My Lords, my question is about the proposal to extend the offence of wilful neglect because there is evidence to suggest that that will not work. The BBC’s “Panorama” reported a case from the 1990s where a member of staff had sexually assaulted several boys. That was reported to the headmaster but the member of staff left and found another job, where he carried on abusing children. The police officer investigating the case, Alec Love, tried to bring a case of wilful neglect against the headmaster of the first school, but the judge threw it out. Mr Love said it was very hard,

“to prove the person wilfully set about to neglect the child or young person”.

Today, the serious case review report found that the authorities made mistakes and could have acted sooner but it found no evidence of wilful neglect or that the signs of exploitation were ignored. In the light of both these findings, why do the Government think that simply extending the offence of wilful neglect beyond the health service and adult social care will be effective?

Lord Nash: I am grateful to the noble Baroness for her comments. The Government do not think that simply extending this offence of wilful neglect will be effective in and of itself. It is obviously a high bar and, as a result of consultation, I am sure we will be taking advice on whether there is something else that we should do, in addition or instead. We have already committed to consult on the introduction of mandatory reporting.

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Lord Beecham (Lab): My Lords, in Rotherham and in Birmingham the Government instituted an independent inquiry into the local authority and have gone further in Birmingham’s case by requiring all-out elections. Will the Government now institute such an inquiry in Oxfordshire?

Lord Nash: The events and the serious case review took place some years ago, in 2011. Last year, Ofsted found that Oxfordshire was good, but the Children and Families Minister has today written to the Oxfordshire LSCB, asking it to carry out a further assessment of its work on CSE, specifically of work with the police and the health services, and will be sending in an expert on CSE, Sophie Humphreys, to help it.

Baroness Howarth of Breckland (CB): I am the vice-chair of the Lucy Faithfull Foundation, an organisation that has worked in this area for many years. Of course, Lucy Faithfull was a well respected Member of the noble Lord’s Benches. I want to ask about local authority social work departments. How many vacancies are there in these departments? What are the Government doing to encourage social workers, who are feeling extraordinarily oppressed and dispirited at the moment? What do the Government know about the current level of case loads for social workers? How can we encourage local authorities to have the right resource to meet the programme? I have one more small question: what are the Government doing to work with voluntary organisations? The Lucy Faithfull Foundation had a prevent programme, which now runs in Wales, Scotland and Northern Ireland but was cut in England. Those sorts of programmes are essential to prevention.

Lord Nash: The noble Baroness makes some very good points, as one would expect from someone with her vast experience in this area. This Government are determined to try to raise the status of social workers and improve the practice of social work. We have had Sir Martin Narey’s report, as a result of which we introduced the knowledge and skills statement for social workers. We have an outstanding chief social worker in Isabelle Trowler and we are investing heavily in new training methods, such as Frontline, Step Up to Social Work and master’s qualifications for social work. I do not think we can do enough in this area.

Baroness Hussein-Ece (LD): My Lords, the Minister referred to local authority councillors and how they should be at the forefront of making sure that this sort of practice is mitigated and investigated properly. Is he satisfied that local authority councillors are given proper training and made to understand that they have the responsibilities as corporate parents? I was a councillor in two London boroughs, and had approaches from staff and individuals when they were worried about cases of sexual abuse, and the staff were not doing enough about it, so they came directly to me. I took on the role to make sure that this went straight to the chief executive and that it was investigated properly. But I encountered time and again that a lot of local authority councillors do not understand that they are corporate parents and have responsibilities that they should take very seriously.

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Lord Nash: I am sure that the noble Baroness makes some very good points. Sadly, in my job I meet a lot of local authority councillors in very difficult situations, so I may not have a particularly good cross-section. Her point about proper training for councillors is a very good one, and I will take it back and look at it.

Baroness Kingsmill (Lab): My Lords, I have a small but telling point. Is the Minister aware of how he diminishes this issue by using the acronym, CSE? It is child sexual exploitation and it would be wise if the Minister said that in full, so that we may realise the real horror of what we are talking about.

Lord Nash: The noble Baroness makes an extremely good point, and I will attempt to do that in future.

Baroness Butler-Sloss (CB): My Lords, will the Minister pick up two points made by the noble Baroness, Lady Howarth, about vacancies among social workers and resources? Vacancies and a lack of resources are major problems for social workers dealing with child sexual exploitation.

Lord Nash: I will have to write to the noble and learned Baroness on vacancies. On resources, through the innovation fund, we have funded a number of new methods of social work experiment, and we are investing heavily in terms of money, but I will write on that point, too.

Lord Bichard (CB): My Lords, will the Minister reassure the House that, as a result of this further appalling tragedy, we will not just be placing the blame at the door of a local authority, local authorities or social workers but that government departments and Governments will examine their own conscience, look at their own practices and policies, and play their part in ensuring that, so far as possible, these things do not happen in future?

Lord Nash: I am very happy to give the noble Lord that assurance.

Lord Patel (CB): My Lords, we all agree that we have to protect vulnerable children and young people. The UK is a signatory to the Lanzarote convention. Why has it not ratified it in legislation when 38 other countries, including most European countries, have done so and have brought forward legislation?

Lord Nash: This is slightly beyond my brief. I will have to write to the noble Lord.

Yarl’s Wood Immigration Removal Centre


3.21 pm

The Parliamentary Under-Secretary of State, Home Office (Lord Bates) (Con): My Lords, with the leave of the House, I shall repeat a Statement given in the other place by my honourable friend Karen Bradley.

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“Mr Speaker, detention is an important part of a firm but fair immigration system. It is right that those with no right to remain in the UK are returned to their home country if they will not leave voluntarily, but a sense of fairness must always be at the heart of our immigration system, including for those whom we are removing from the UK. That is why the allegations made by Channel 4 about Serco staff at Yarl’s Wood are serious and deeply concerning. It is why they required an immediate response to address them, and it is why the Government have ensured that this is being done.

All immigration removal centres are subject to the detention centre rules approved by this House in 2001. These, and further operational guidance, set out the standards we all expect to ensure that the safety and dignity of detainees is upheld. No form of discrimination is tolerated. In addition to these rules and standards, removal centres are subject to regular independent inspections by Her Majesty’s Inspectorate of Prisons and by independent monitoring boards, which publish their findings. The chairman of the independent monitoring board for Yarl’s Wood is Mary Coussey, the former independent immigration race monitor.

The most recent inspection by Her Majesty’s Chief Inspector of Prisons found Yarl’s Wood to be a safe and respectful centre which is continuing to improve. The last annual report of the independent monitoring board commented positively on the emphasis placed on purposeful activities within the centre and on the expansion of welfare provision, and raised no concerns around safety.

None the less, the Home Office expects the highest levels of integrity and professionalism from all its contractors and takes any allegations of misconduct extremely seriously. As soon as we were made aware of the recent allegations, Home Office officials visited Yarl’s Wood to provide assurances that all detainees were being treated in a safe and dignified manner. The director general of Immigration Enforcement has written to Serco making our expectations in response to these allegations very clear. We told it that it must act quickly and decisively to eradicate the kind of attitudes which appear to have been displayed by its staff. Serco immediately suspended one member of staff who could be identified from information available before broadcast and suspended another having seen the footage. The company has also commissioned an independent review of its culture and staffing at Yarl’s Wood. This will be conducted by Kate Lampard, who the House will be aware recently produced the lessons learnt review of the Jimmy Savile inquiries for the Department of Health.

However, more needs to be done. The Home Office has made it clear that we expect to see a swift and comprehensive introduction of body-worn cameras for staff at Yarl’s Wood. In addition, we have discussed with Her Majesty’s Chief Inspector of Prisons how we might provide further independent assurance.

This Government have a proud record of working to protect vulnerable people in detention. We have reviewed the Mental Health Act and set out proposals for legislative change as a result. We have held a summit on policing and mental health, highlighting

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the particular concerns of black and ethnic minority people, and commissioned HMIC to undertake a review of vulnerable people in police custody which will be published shortly. That is why, before these allegations were made, the Home Secretary commissioned Stephen Shaw, the former Prisons and Probation Ombudsman for England and Wales, to lead an independent review of welfare in the whole immigration detention estate. We will, of course, invite him to consider these allegations as part of that overarching review.

This country has a long tradition of tolerance and respect for human rights. Detaining those with no right to remain here who refuse to leave the country voluntarily is key to maintaining an effective immigration system, but we are clear that all detainees must be treated with dignity and respect. We will accept nothing but the highest standards from those to whom we entrust the responsibility of their care”.

My Lords, that concludes the Statement.

3.26 pm

Baroness Smith of Basildon (Lab): My Lords, I listened to the Government’s Answer with great care. We are told again that the most recent inspection found Yarl’s Wood to be,

“a safe and respectful centre which is continuing to improve”.

The Minister said, in repeating today’s response:

“As soon as we were made aware of the recent allegations, Home Office officials visited Yarl’s Wood to provide assurances that all detainees were being treated in a safe and dignified manner”.

How could they provide such assurances without an investigation? What was the evidence on which they based such assurances? Serious allegations of abuse are well documented, such as those from women who have had male staff enter their rooms when they are naked, in bed or even on the toilet. We have heard that a pregnant woman suffered a miscarriage without medical treatment and of guards referring to women as “animals”.

The Government’s response today refers to Serco’s response. What about the Government’s response? Yarl’s Wood is the Government’s responsibility. On 28 January, when I raised this issue in your Lordships’ House, the Minister said of the allegations about Yarl’s Wood that,

“if the information is supplied to us, it will be investigated very thoroughly indeed”.—[

Official Report,

28/1/15; col. 197.]

Has such a thorough investigation—which must be independent and specific to the allegation at Yarl’s Wood—started? If not, why not?

Lord Bates: The noble Baroness is right to be concerned and shocked about this. I watched that documentary on Channel 4, and quite frankly I was sickened. I think most decent people will have been sickened by the attitudes that were on display there. That is the reason why we have had that immediate reaction to this, and why there is the Stephen Shaw review into the entire detention estate.

I have to say that this is a story which is not going to go away. There are a number of things coming. The first is the Stephen Shaw inquiry, which is coming

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down the path. The independent monitoring board will be publishing its latest report, and Her Majesty’s Inspectorate of Prisons will be visiting again for an independent review. We have had the very thought-provoking report from the all-party group published just today by Sarah Teather, and there is also the work being done for women refugees, which raises a great deal of concern. So we are very conscious that there is a lot of evidence building, and pressure is mounting on Serco. We are very much on their case and watching them like a hawk. I have to say to the noble Baroness that we are following a process here. Evidence has been produced; we will be acting; and we expect Serco to act in the interim.

3.29 pm

Lord Lloyd of Berwick (CB): Perhaps the Minister is aware that we are the only country in Europe which does not currently have a maximum time limit for detention in immigration cases. Can he comment on the report published only today by the APPG—of which I had the honour to be a member—in which we recommended that the maximum limit should now be set at 28 days? If that were adopted, would it not go quite a long way to solving the sort of problem which has arisen at Yarl’s Wood?

Lord Bates: I listen to what the noble and learned Lord says on this of course. This subject was debated in your Lordships’ House in the context of the amendment to the Immigration Act proposed by the noble Baroness, Lady Williams, in which she sought a cap of 60 days. We have to look at this, but we are making progress. One serious point—I am not making any cheap points here—is that it was not so long ago, in 2008, that children, even disabled children, were held at Yarl’s Wood. We have moved on from that. We are now focusing on pregnant women and the treatment of women there, and I expect us to continue to make progress in the way that we treat people who are in our care.

Lord Bourne of Aberystwyth (Con): My Lords, we will hear from the government Benches next and then from the Opposition.

Baroness Hamwee (LD): My Lords, I hope that the Minister will understand if I say to him gently that there is a sense in this Statement of the Government distancing themselves from responsibility. Will he also accept that there is an underlying issue, not just of practice, but of policy? We are one of very few countries in Europe not to have a maximum time limit on detention. Internationally, there are a lot of good examples of constructive engagement and alternatives to detention rather than a focus on end-stage enforcement. Detention is so often not needed. I was a member of the all-party group inquiry, and the Chief Inspector of Prisons said to us that,

“at least a third, and getting on for half, of all detainees are released back into the community. And this poses the question: if they’re suitable to be released back into the community at that point, why do they need to be detained in the first place?”.

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Lord Bates: The noble Baroness is right. Of course many people who have come here have entered this country clandestinely. We need to establish their identity, which sometimes takes some time to do. In the wider context of the security of the country, we need to make sure that if people come here clandestinely, we check out that they are who they say they are and their reasons for doing that before they are released into the community. I think people expect that. However, again, we need to look at this whole area. That is why we have asked Stephen Shaw to undertake his review. We will be studying the all-party report and, of course, the allegations that have been made against Serco very carefully and will come forward with responses to them.

Baroness Bakewell (Lab): My Lords, I raised the issue of Yarl’s Wood in this House three years ago and was assured at that time by the noble Earl, Lord Attlee, that he would invite representatives of the Home Office to the House to discuss the issue, which he did. Officials came along here, and my noble friend Lady Kennedy and I discussed with them what changes were desired to make the lives of the women tolerable. That was three years ago. A report that came out earlier this year, which I and the Channel 4 programme drew on, was behind the Question I asked last week. In answering, the Minister said that there needed to be a higher quota of women working there. The Minister speaks of process and of more reassuring reports, but could he undertake to tell me how soon, and at what date, we will know that there are more women staff in Yarl’s Wood?

Lord Bates: There were to be 66%. Under its contract, Serco has to deliver that by 2015. We will make sure that it brings that forward. In addition, it has moved to ensure that there are body-worn cameras there, which can catch any incorrect activity and record it. That is a very good step. I will also take this opportunity to clarify something during that exchange on the Question the noble Baroness asked last week. The noble Lord, Lord Hylton, asked about the number of suicides and self-harm, but I heard it to be a question about suicides and said that there were none. Sadly, there are of course instances of self-harm, which are deeply regrettable and need to be investigated. I apologise for getting that wrong.

Lord Morris of Handsworth (Lab): Can the Minister say what action is being taken to ensure that the children of detainees get a rounded education and are being treated fairly and properly?

Lord Bates: Children are of course not held at Yarl’s Wood but at a family detention centre, often the Cedars, which is run by Barnardo’s, where they receive education. However, I agree that it is very important that children in particular are carefully looked after in this respect.

Lord Elton (Con): My Lords—

Lord Avebury (LD): My Lords—

Lord Ramsbotham (CB): My Lords—

Lord Bourne of Aberystwyth: It is the Cross Benches next, and then if there is time, the government Benches.

3 Mar 2015 : Column 106

Lord Ramsbotham: When I was Chief Inspector 15 years ago, there was something wrong and rotten in the culture at Yarl’s Wood. I remember looking into it then and strongly recommending that the Home Office install a regular system of oversight of what was going on, no matter who was carrying out the contract. I understand that system of oversight still does not exist, and we still have complaints about Yarl’s Wood. When is that oversight going to be installed?

Lord Bates: I will look again at what the noble Lord said at that point. There is of course the independent monitoring board, which is headed by Mary Coussey, a former Independent Race Monitor. The immigration monitoring board has the keys to Yarl’s Wood and can go in and out at any point in time. Obviously, it will need to look very carefully at how it has undertaken its responsibilities, and the conclusions which it has drawn from its activities.

Lord Avebury: My Lords—

Lord Elton: My Lords—

Lord Bourne of Aberystwyth: We have heard from the Liberal Democrats, it is for the Conservatives next.

Lord Elton: My Lords, it has happened more than once in this and related fields that a monitoring body reports all is well, and shortly afterwards it is revealed that all is very far from well. Is it not an occasion for a rigorous examination and consideration of the methods used by the monitoring body itself? How often is that done?

Lord Bates: We need to look very carefully at that. We have had a report from HM Chief Inspector of Prisons and we have the independent monitoring board. I recognise that there are huge concerns, rightly so, in your Lordships’ House about the allegations which have been made and about what has been done up to this point. I also recognise that because of the limitations of time it is not possible for all noble Lords to get in. I am very happy to arrange an opportunity—perhaps in the next week—to meet with colleagues and to bring some Home Office officials, so that we can hopefully provide some additional information about these very distressing concerns.

Small Business, Enterprise and Employment Bill

Small Business, Enterprise and Employment Bill

Report (1st Day)

3.37 pm

Clause 3: Companies: duty to publish report on payment practices

Amendment 1

Moved by Lord Mendelsohn

1: Clause 3, page 4, line 1, after “policies” insert “and performance”

Lord Mendelsohn (Lab): My Lords, I shall speak also to Amendment 2, which is consequential to Amendment 1. I also ask the House to note the register of interests, which lists my interests in small businesses as an owner, worker and occupier and in other connections.

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These amendments provide that companies must produce a quarterly statement that lists all the payments to suppliers which have been paid more than 30 days after the suppliers’ agreed payment terms without a formal query having been made. The amendments also confirm that in all those instances interest equalling the Bank of England rate, which is the base rate, plus 8% has been paid to compensate the supplier. Where interest has not yet been paid, it sets out a payment plan to ensure that compensation is promptly paid. The obligation is on the payer to pay. Finally, we are seeking assurances from the relevant auditor that the company is maintaining accurate and honest financial records and statements.

We are pleased that the Government have attempted to address late payments but unconvinced that their current approach is sufficient. The central thrust of government policy is to change the culture of late payments and to believe that that culture change will lead to a significant and speedy change in what has become current business practice. This is achieved principally through the Prompt Payment Code.

We support the measures in the Bill requiring large unlisted companies to publish information about payment performance and practices and to strengthen the Prompt Payment Code, which commits signatories to pay within agreed and clearly defined terms. However, late payment legislation already provides for a maximum 30-day period in which to quibble after receipt. Many shareholders are unsure that the additional legislation will achieve any real change. Small companies fear that they will be pressured into not levelling their potential claims or will be squeezed in other ways. One reason why we suggested in Committee that dates be introduced—and I see that the Government have responded to that in the Prompt Payment Code, which is to be welcomed—is that we already have a statement of dates. We were also encouraged that the Minister, at our urging, wrote to the FTSE 350 companies to suggest that they become members of the Prompt Payment Code. Our concern was, as expressed in the letter, that this was really about reputation, corporate social responsibility and obligations, which are all important in dealing with culture changes, but insufficient. This approach is not enough.

Our approach is to ensure that payments are made by placing the onus on the person paying and not the person chasing; it is not fair for the smaller supplier to be coerced or pressured or even to have to face potential consequences to make sure that they are paid on time. We asked for our alternative approach to be considered in the consultations on the duty to report and enforcement, which we believe were drawn too narrowly. As Henry Ford always said, if he had asked his customers what they wanted, he would have designed a faster horse. We do not need a faster horse; we need to invent something that is relevant, like the motor car, which deals with the problem.

Why do we believe that an alternative approach is essential? There are a number of reasons. The first is the sheer scale of the problem. In 2008, there was £18.6 billion outstanding in late payments; in 2014, according to many reports, the number had grown to £46.1 billion. In Committee, we had a number of

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estimates in excess of £50 billion and, today, estimates say that we are moving very close to going through the £60 billion mark. That is an extraordinary growth. Since the 2011 EU directive on late payments, which became law in this country in 2013, other reports that we have received suggest that the number has got even higher, even quicker. So these large rises have taken place even during the time when we have said that we are dealing with the problem. I fear that the large problem of late payments will not be addressed by the Prompt Payment Code, which has been co-signed by 1,700 firms. It needs a much more fundamental attack, and we argue that contracts should be void if they specify more than 60 days in the terms.

Although the Prompt Payment Code is of course a good thing, there are considerable limits to it; so the measures to strengthen it are positive. However, policy is too reliant on it. As I said, the code has approximately 1,700 signatories, made up of companies and public authorities. The number of large businesses—defined as those with more than 250 employees—stands at 7,000, so 1,700 signatories sounds like a jolly good number. However, companies employing between 50 and 250 employees add another 32,000, while those employing between 10 and 49 add another 195,000, with micro-businesses increasing the number by more than 5 million. Micro-businesses, which employ fewer than nine people, are included in this code. Out of a universe that is now in excess of 5 million companies, we have 1,700 signatories. I do not believe that this will ever grow sufficiently large to change the culture. Given that the code also includes public authorities, it is very hard to see how it can gain that scale.

Moreover, the stated intention of the code is to ensure that it remains a gold standard. If it is a standard for some to aspire to, that inherently means that others will not meet the standard and will therefore be excluded—and the culture will not inherently be transferred to them. To be perfectly honest, for those companies that see it as a badge of honour, you are dealing with suppliers that may think that the badge of honour is an important consideration; but I suspect that whether they have a serviceable need that a business addresses, or a route to market, is probably far more significant.

3.45 pm

It is also the case that some of the signatories are part of the problem. There have been significant news reports about a number of the people currently on the code in terms of their extended payments and late payments. The changes to the payment code which have been suggested—reducing the number of days and having the means to remove people from the code—have certainly not yet been adopted by all the members of the code. They are being written to, but all the responses have not come through.

I therefore suggest that the code is limited not only in its design but even in addressing its own recommendations on how to change the culture. I think I have been diligent in trying to make sure that I got to know as much as possible about the Prompt Payment Code. I looked at its website. As I say, we support the Prompt Payment Code. I appreciate that it

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identifies that co-signatories undertake to pay suppliers on time, give clear guidance to suppliers and encourage good practice.

I looked at those things. I looked at the clear guidance to suppliers because I thought that that was very relevant. It says that you must provide,

“suppliers with clear and easily accessible guidance on payment procedures”,

and that you may click to see the “Treating Suppliers Fairly” guide. Naturally, I clicked to see the guide. When I did, I was taken to the site of the organisation that runs the code, the Chartered Institute of Credit Management, and it says:

“We can’t seem to find the relevant information, you may be able to find the information you require using the menu above”.

I could not find it in the menu. I put it into the search mechanism and came back with two results:

“Business leaders believe late payment can be overcome”;


“Credit managers urge Sir Alan to act promptly on late payments”.

That related to a statement made by my noble friend Lord Sugar in 2009, in his previous job as the enterprise champion, to address late payments. I do not think I need to say any more about the way in which this has been adopted.

We are relying on a code. Other countries in Europe have relied on legislation and have had much more success. We have a problem in that there is no evidence that the code will be able to address the ever increasing sophistication of the extended payment problems and the mechanisms used by companies. It is insufficient in its own right.

Finally, I shall give another reason why I think it insufficient to rely on a code. We all agree that growth in the economy is essential, that supporting small businesses is essential and that cash flow and the velocity of money in the economy are very important. As a measure to help trigger a more dynamic UK domestic economy, this is essential. Overseas suppliers who rely on letters of credit with guaranteed bank payments are better served than UK businesses as matters currently stand.

It was reported at the weekend that the Groceries Code Adjudicator was in receipt of complaints that Lidl has now extended its payment terms to 120 days. It was reported that that was in great contrast to the 30 days that it uses to pay in its home market of Germany. It is time to get serious in tackling late payments and in not placing UK small business behind others. We accept and support the code, but it is insufficient. We need to move much more in establishing that the payers need to pay on time and that late payments need to come down, since these take place on an enormous scale and are a huge drag on our economy. I beg to move.

Lord Lea of Crondall (Lab): My Lords, I support this amendment and will take the illustration of the insurance industry. There are special features connected with the insurance industry. Hence, it has its own legislation. However, the Minister dealing with what was then the Insurance Bill, the noble Lord, Lord

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Newby, indicated that other steps and avenues would be pursued to see that the insurance industry could be brought within the scope of some statutory obligations on late payment.

The history of this, briefly, in the insurance industry is as follows. Lloyds of London has unilaterally been able to veto a strong recommendation from the Law Commission which was accepted by everybody else in the industry, including all the main insurance companies, that there be such a statutory duty in that sector so it could be brought into line.

Evidence from other sectors, including overseas parts of the industry, shows that the present arrangement, whereby London has no such guarantees against late payment, is doing serious reputational damage to that major industry. However, the rubric has it that one actor in that industry, namely Lloyds of London, which represents maybe 25% of the industry, which we all agree is not insignificant, can cast such a veto in its own interests against public policy, government legislation, simply by stating—this is the astonishing point—that it finds such a clause, recommended strongly and unanimously by the Law Commission, “controversial”. In other words, to deem a clause such as that to be controversial means that the Bill would fall.

Therefore, in Committee, some noble Lords who supported the amendment generally did not want to take that risk. However, the Minister in that context, in seeking the withdrawal of the amendment, undertook to pursue the issue on the basis that it was not going to be left there and that other means—other legislation—would be explored and pursued. This amendment is a good exemplar of how that commitment should be honoured.

Baroness Harding of Winscombe (Con): My Lords, I rise to speak against these amendments. I must first declare an interest because I run a large public company, TalkTalk, which would clearly be subject to this legislation.

I agree with the Government’s prompt payment proposals, and it is worth us pausing to recognise how robust they are and how tough a reporting requirement this will be. To report quarterly in detail on your payment performance and policies is more detailed than the report I have to make on the financial performance of my company. I have an obligation to report in full on a half-yearly basis. I would not underestimate the power of transparency—of having to report this publicly and clearly. We see this in a whole range of compliance areas in business. Having to explain publicly to your customers as much as to your suppliers what you are doing acts as a strong brake on bad behaviour and is the beginning of the culture change in payment policy that I am sure that all sides of the House want to see.

I am not persuaded, however, by the Opposition’s amendments. There is a real danger that we try to overcomplicate and second-guess how businesses will wish to negotiate with each other. There are also a lot of unintended consequences—I am sure that they are genuinely unintended—in the Opposition’s amendments that will simply lead businesses to avoid the provisions and will create the very problem that they are seeking to avoid, which is the negotiation of much longer

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payment terms that meet all the requirements of a much more tightly defined code but actually do not enable small businesses to be paid faster.

It is therefore important that we support the Bill and the improvement in publicising and shining a light on poor payment policies and performance. But we in this House must not think that we can create culture change by specifying in ever more precise detail what businesses can and cannot do. That would have the opposite effect on the culture that we are trying to change.

Lord Mitchell (Lab): My Lords, I start by coming back at what the noble Baroness, Lady Harding, has just mentioned. I know that she runs an exceptionally good company; I do not know what TalkTalk’s payment terms are, but I bet that they are good and that it pays on time.

However, there are many people out there, including many large companies, whose behaviour is quite disgusting. We have seen in the past few months egregious examples of big customers stuffing their suppliers. I will give a few examples. Diageo, the owner of Guinness and Johnny Walker, recently informed its suppliers that it would extend its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms—I wanted to say from Heinz 57 but it is not quite that—from 45 to 97 days, and the list goes on to include Monsoon, GlaxoSmithKline and Debenhams, to name just a few more. It is a common theme. These companies put the squeeze on their suppliers for two reasons. First, they want to accumulate as much cash as they can. That is understandable as they want to boost their balance sheets. More perniciously, they do it simply because they can. It is bullying.

Many of us have run small businesses and we know all too well the perils of cash flow management. We know what it is like to sweat while waiting for our big customer to make the payment. That is what keeps us up at night and what this amendment aims to rectify. According to the Institute of Directors, two-thirds of its members with fewer than 250 employees suffer from late payments. It is estimated that payments delayed over and above the contractual terms total—well, in my notes I have £40 billion but my noble friend Lord Mendelsohn says £60 billion. Whatever it is, it is a very large number. It is not just the supplier who suffers; it goes to the supplier’s own suppliers and to all the families who work with these companies that are now at risk. It permeates everything.

In this amendment we seek to introduce a radical change. Where a late payment occurs, an automatic interest rate penalty will kick in at the Bank of England base rate plus 8%. I can promise that if there is an outstanding payment with interest rates clicking up at 10% or 11%, it will gain everybody’s attention and will be paid.

I should like to make one more comment. Later this afternoon we are going to be addressing the issue of government schemes to improve finance for small business. I have no doubt that the best way to improve SME finances quickly and effectively would be to improve cash flows.

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Lord Stoneham of Droxford (LD): My Lords, I support the thinking of both the previous speakers because there is a problem with late payment. I know that the noble Lord, Lord Mitchell, has a lot of business experience of this, particularly working with small businesses—and the noble Baroness, Lady Harding, also has a lot of experience in the business world. The argument here is really that the Bill is a move forward. It is trying to open up the issue of what terms companies are offering and attempting to make sure that they are properly reported.

However, the Labour amendment is unduly prescriptive and there will be a lot of unintended consequences if companies are forced down from their current credit terms of 60 or 90 days to 30 days. There would be the bureaucracy of quarterly payments and quarterly reporting and the information that would have to be provided on what is in those quarterly reports. We have to be clear that this is a very prescriptive amendment, which to be properly considered would need a great deal of consultation with business, particularly small businesses, on its consequences—because they could be quite dramatic.

I suspect that first there would be a big jump in the number of invoices being queried; that would be bound to happen. This would inevitably damage the legislation’s attempt to make companies more accountable and for the first time properly report publicly what they are doing—instead of having the information just drift out as a result of complaints from suppliers. People will be able to see what companies are doing, and the companies can be held accountable. It seems that that is the first stage. If there are consequences we want to look at, it would be better to deal with them gradually, so that we get genuine improvement on payment terms, rather than setting up a very bureaucratic and prescriptive solution that could damage a lot of companies and even deter business.

4 pm

Lord Cope of Berkeley (Con): My Lords, I also have doubts about the terms of the amendment, both for the reasons that my noble friend has just given and because we have to consider who is laying down the payment terms. The amendment refers to the supplier’s payment terms as though the supplier—the small business that we are thinking of—is able to say that it wants payment within a certain time. However, in the instances that the noble Lord, Lord Mitchell, gave just now of large companies extending the terms in which they make payments, it is of course the customer who lays down the terms. If you do not like those terms—the extension to a larger number of days—then you do not supply. A big company in a powerful position in its market will be able to lay down its terms and that will drive a coach and horses through the amendment. Therefore, I do not think that this is the solution.

I do not for a moment say that there is no problem—of course there is. I entirely accept what was said earlier and in Committee about the difficulties of late payment, and these are not new difficulties; we have had them for years. I think that the amendment to the existing law proposed in the Bill is a step forward. I would like to see that come into law rather than the more prescriptive version suggested by the Opposition.

3 Mar 2015 : Column 113

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con): My Lords, I thank the noble Lord, Lord Mendelsohn, for his amendments on the important matter of late payment and for the general support that he has given to the Bill’s provisions. I also thank him for his diligence and interest. I am grateful, too, to the noble Lord, Lord Lea, to my noble friend Lady Harding, and the noble Lord, Lord Mitchell, with their business experience, to my noble friend Lord Cope and to my noble friend Lord Stoneham for his perceptive and practical comments about the risk of unintended consequences—gleaned, I think, from his very careful study and attendance every day in Committee.

Before turning to the amendments, I want to reassure the House about the Government’s unwavering commitment to tackling late payment. The measures we are taking forward in the Bill form part of a comprehensive package of measures to bring an end to the UK’s late payment culture. The Government are absolutely clear that large companies should lead by example and pay their small suppliers within 30 days. We need to shake up corporate culture to drive home our message—that it is not fair and not right to pay your suppliers late or use unfair payment terms.

That is why we are taking action in the Bill to require the UK’s larger companies to report on their payment practices, and we have already consulted on the detail of what this might look like. We proposed that companies report quarterly against a comprehensive set of metrics, including the proportion of invoices paid beyond 30, 60, 90 and 120 days and the average time taken overall to pay invoices. Therefore, there is a real incentive to show that you pay promptly and on time, and an opportunity for companies to explain if payment is late. It is a strong brake on bad behaviour, as my noble friend Lady Harding suggested.

This reporting will be rigorously monitored, with a company director required to sign it off, and breaches will be sanctionable by a criminal offence. Importantly, we will require companies to make this information public, so there will also be the power of transparency. The new reporting requirements will mean that poor payment practices are exposed, and it is this transparency that will drive a fundamental change in corporate behaviour. I also highlight that on Monday the Government published a summary of responses to our consultation. While the Government are still considering the evidence received, I am pleased that a clear majority of stakeholders agreed with our overall approach, although there were concerns about some aspects, including our very rigorous reporting requirements.

Last week, my right honourable friend Matthew Hancock MP also announced significant changes to the Prompt Payment Code. I know that the noble Lord, Lord Mendelsohn, and others have encouraged us to strengthen this, and the code will now promote 30-day payment terms as standard and enforce maximum 60-day terms. The change will be rigorously enforced by the new code compliance board, which will include people from business representative bodies who will investigate challenges made against signatories to the code by their suppliers. The compliance board will remove signatories found to be in breach of the code’s

3 Mar 2015 : Column 114

principles and standards. This will shine further light on poor payment practices. The Government are also seeking views on how to provide business representatives bodies with additional legal powers to challenge grossly unfair contractual terms or practices, which will build on existing protections for small businesses.

The noble Lord, Lord Mendelsohn, highlighted the issue of Lidl. The Government are clear that large companies including Lidl, which is a leading German supermarket chain, should lead by example and pay their small suppliers within 30 days. It is neither fair nor right to use unduly long payment terms. As I said earlier, we are already taking action in the Bill to require such companies to report on their payment practices through very tough requirements, including the detailed metrics that I have already described.

The noble Lord, Lord Lea, talked about the situation in the insurance industry and I will certainly look at the points that he raised. The noble Lord, Lord Mitchell, gave us a list of companies reported to be squeezing suppliers. This is further evidence, frankly, of the need for change and the action we are taking in this Bill and in the regulations made under it. He mentioned Diageo, which is already being investigated by the Prompt Payment Code administrator. The Government are being tough for small business, and we will take the necessary steps to stamp out poor practices.

I turn to the specific amendments. I recognise the strength of feeling that has been expressed and I am pleased to say I have been persuaded by some of the noble Lord’s arguments. I can confirm today that we will table amendments at Third Reading to insert the word “performance” into Clause 3, which was a concern that the noble Lord pressed in Committee to which we have listened. I also commit that we will use this power to require companies to report on the amount of interest owed on late payment because we agree that this will help to exert the necessary pressure on companies to make sure that their suppliers are fairly compensated. We will make express reference in the Bill to interest owed and paid. We will introduce amendments on both these points at Third Reading.

I now turn to the proposal to require companies to prepare a compensation plan on each instance that they fail to pay late payment interest. I am afraid that, on this point, I continue to believe that introducing this measure would lead to unintended and undesirable consequences. For example, businesses could lengthen their payment terms to avoid accidently having to pay out. If they do get caught by the requirement, there could be debates about whether payment plans provided cover for delaying tactics. While we are committed to tackling late payment, we are equally committed to trying to incentivise prompt payment with as little bureaucracy as possible. The discussions that we had with stakeholders indicated support for this view. These discussions reinforced the findings from our 2012 consultation that introducing further penalties would not tackle the problem of late payment. Instead, respondents called for greater transparency on payment practices, which this Bill delivers.

The noble Lord gave us some interesting feedback on the website. He will be glad to hear that BIS has just awarded the Chartered Institute of Credit

3 Mar 2015 : Column 115

Management £50,000 to improve that very website, so he is on the money. The improved website will go live later this month and I can only thank him for identifying this issue and sharing it with the House. I shall take it away and ensure that it is addressed urgently.

It is clear that the noble Lord and I are united in our mission to tackle late payment, but we must make sure that any interventions will work to the benefit of the very small businesses that we seek to protect.

I turn to the question of ensuring the report’s accuracy. Our consultation proposed that the reporting frequency be quarterly, as companies’ ability to pay or practices in paying trade creditors can change quickly. Therefore, we are not proposing that companies report in their annual report. Instead, we propose that the report should be signed off by the company’s director, with breaches sanctionable by criminal penalties, using the power in the Bill to mandate reporting. The summary of responses we have published shows broad support for this proposal. Respondents clearly feel that these measures would suffice to ensure the report’s accuracy and I therefore do not agree that we should require further assurances from an auditor.

I am grateful to noble Lords for their significant contribution to the scrutiny of these provisions. We have considered very carefully the proposals set out in the amendment and I hope that, with my commitment to bring back some changes at Third Reading, the noble Lord will feel able to withdraw the amendment.

Lord Mendelsohn: I thank the Minister for her extensive response to these amendments. I shall go through a few issues and then come back to them. In general, I thank the Minister for her very constructive and open approach throughout to these issues and to making improvements to the Bill. We share a great interest in and concern for helping to develop small businesses and doing what we can for them.

I am very grateful to the noble Baroness, Lady Harding. I had the great pleasure of talking about her, and our close connection, when she made her maiden speech. She is a remarkable business figure and I will address a number of the issues that she raised. The criticism has been made that we are trying to change culture through legislation. That is not our approach; it is the Government’s. The noble Baroness talked about the limitations of this. I have no doubt there are benefits to it, which I support, but I do not find myself on the same side of the argument as her on that one. We are adding duties and obligations because we have come to the conclusion that that is the way to address the size and scale of the problem. It is certainly true that legislation rarely changes the heart but, as the phrase goes, it can restrain the heartless. There are times when you have to use legislation as a lever to make things happen. I agree that the reporting requirements are an obligation, but they are a necessary one, and I hope that her support for them is heard by many other people in business.

I do not think that the issue of how customers and suppliers contract with each other comes up until the next set of amendments. They are slightly more complex so I will address that issue then. I want to say to the

3 Mar 2015 : Column 116

noble Baroness that I have become a bit of a junkie on the website. I am grateful that it is to get a £50,000 refresh, and perhaps even an app. Having looked through the Prompt Payment Code, I noticed that TalkTalk is not a signatory to it. We are talking about changing the culture, but if someone sitting in this House does not yet have a sense of how that culture should change, it is an issue when we come to address business at large. It is my feeling that culture change is insufficient in and of itself.

The noble Lord, Lord Stoneham, talked about being overly prescriptive, and he raised those concerns in Committee. I listened carefully to what he said and I have done my research on it. I felt at the time that the point was insufficient because of the scale of the problem and the way it is growing. When we look at how other countries with far less significant economic problems, or even problems in how to deal with this issue, we can see that they are the ones that have been infinitely more prescriptive. We can look at Ireland, while legislation in Germany passed just last year shows how that country has moved forward. It is only by being more prescriptive that we get clarity and avoid unintended consequences, which are more likely to arise in circumstances where a variety of alternative payment terms or arrangements are allowed to be put in place.

The noble Lord, Lord Cope, raised similar issues in Committee. Again, I listened carefully to him and I decided to take my cue from the GOV.UK website on the question of how we look at the dates. The website explains when a payment becomes late. It states:

“If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either: the customer gets the invoice”,


“you deliver the goods or provide the service”.

That is how we reach the point where this can be tested.

I am grateful to the Minister and we are encouraged by some of the changes that have been made. We feel that the areas of performance and being able to identify the interest payments are useful steps. However, I am bound to say that my noble friend Lord Mitchell made a powerful speech, going through yet again those companies that have good records in a variety of areas but allow themselves to do what has become far too natural and far too easy in the context of the UK. We stand out from others because we are not as strong as we should be on dealing with prompt payment and people who get into late payments. The prize is there. We are talking about close to £60 billion, so putting even a small proportion of that sum into the economy will have a huge accelerating impact. We on this side think that being on the side of small businesses means getting more money racing through the economy. The need to increase employment prospects requires us to press the amendments and push to see whether we can get the economy moving by getting these late payments to small businesses sorted out much sooner than would otherwise be the case. Therefore, I wish to test the opinion of the House.

3 Mar 2015 : Column 117

4.16 pm

Division on Amendment 1

Contents 187; Not-Contents 256.

Amendment 1 disagreed.

Division No.  1


Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Allen of Kensington, L.

Alli, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Armstrong of Hill Top, B.

Bach, L.

Bakewell, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Bew, L.

Billingham, B.

Blackstone, B.

Blood, B.

Boateng, L.

Boothroyd, B.

Borrie, L.

Bradley, L.

Brennan, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Campbell-Savours, L.

Cashman, L.

Chandos, V.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Collins of Highbury, L.

Crawley, B.

Davidson of Glen Clova, L.

Davies of Coity, L.

Davies of Oldham, L.

Dean of Thornton-le-Fylde, B.

Desai, L.

Donoughue, L.

Drake, B.

Dubs, L.

Elder, L.

Elystan-Morgan, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Foster of Bishop Auckland, L.

Gale, B.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Grey-Thompson, B.

Grocott, L.

Hannay of Chiswick, L.

Hanworth, V.

Harris of Haringey, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hay of Ballyore, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Chesterton, L.

Hunt of Kings Heath, L.

Hutton of Furness, L.

Hylton, L.

Irvine of Lairg, L.

Jones, L.

Jones of Moulsecoomb, B.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kennedy of The Shaws, B.

Kerr of Kinlochard, L.

King of Bow, B.

Kingsmill, B.

Kinnock, L.

Kinnock of Holyhead, B.

Krebs, L.

Laming, L.

Lawrence of Clarendon, B.

Lea of Crondall, L.

Leitch, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

Low of Dalston, L.

McAvoy, L.

McCluskey, L.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Mallalieu, B.

Manningham-Buller, B.

Mar, C.

Martin of Springburn, L.

Massey of Darwen, B.

Maxton, L.

Mendelsohn, L.

Mitchell, L.

Monks, L.

Moonie, L.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Aberavon, L.

Morris of Yardley, B.

Moser, L.

Norwich, Bp.

3 Mar 2015 : Column 118

Nye, B.

Pannick, L.

Patel, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Paul, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Prescott, L.

Prosser, B.

Radice, L.

Ramsay of Cartvale, B.

Rebuck, B.

Rees of Ludlow, L.

Richard, L.

Rooker, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

St John of Bletso, L.

Sandwich, E.

Sawyer, L.

Scott of Foscote, L.

Sherlock, B.

Simon, V.

Singh of Wimbledon, L.

Skidelsky, L.

Smith of Basildon, B.

Snape, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Stone of Blackheath, L.

Sugar, L.

Sutherland of Houndwood, L.

Symons of Vernham Dean, B.

Taylor of Bolton, B.

Thornton, B.

Tomlinson, L.

Touhig, L.

Triesman, L.

Truscott, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Wall of New Barnet, B.

Walpole, L.

Watson of Invergowrie, L.

West of Spithead, L.

Wheeler, B.

Whitaker, B.

Wilkins, B.

Williams of Baglan, L.

Williams of Elvel, L.

Winston, L.

Woolmer of Leeds, L.

Worthington, B.

Young of Norwood Green, L.


Addington, L.

Adebowale, L.

Ahmad of Wimbledon, L.

Ashdown of Norton-sub-Hamdon, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Avebury, L.

Baker of Dorking, L.

Bakewell of Hardington Mandeville, B.

Balfe, L.

Barker, B.

Bates, L.

Benjamin, B.

Best, L.

Bilimoria, L.

Black of Brentwood, L.

Blackwell, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Bottomley of Nettlestone, B.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Brady, B.

Bridgeman, V.

Brinton, B.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Browning, B.

Burnett, L.

Byford, B.

Cameron of Dillington, L.

Campbell of Surbiton, B.

Carrington of Fulham, L.

Cathcart, E.

Cavendish of Furness, L.

Chester, Bp.

Chidgey, L.

Chisholm of Owlpen, B.

Clancarty, E.

Clement-Jones, L.

Colwyn, L.

Cooper of Windrush, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Coussins, B.

Craigavon, V.

Crathorne, L.

Crickhowell, L.

Cullen of Whitekirk, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Dear, L.

Deighton, L.

Denham, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Dundee, E.

Dykes, L.

Eaton, B.

Eccles, V.

Eden of Winton, L.

Elton, L.

Empey, L.

Evans of Bowes Park, B.

Falkland, V.

Falkner of Margravine, B.

Farmer, L.

Faulks, L.

Fearn, L.

Fellowes, L.

Fellowes of West Stafford, L.

Fink, L.

Finkelstein, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

3 Mar 2015 : Column 119

Freud, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Geddes, L.

German, L.

Glasgow, E.

Glenarthur, L.

Glentoran, L.

Goddard of Stockport, L.

Gold, L.

Goodlad, L.

Greenway, L.

Grender, B.

Griffiths of Fforestfach, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Harding of Winscombe, B.

Helic, B.

Henley, L.

Higgins, L.

Hodgson of Astley Abbotts, L.

Hogg, B.

Hollins, B.

Holmes of Richmond, L.

Home, E.

Hooper, B.

Horam, L.

Howard of Rising, L.

Howe, E.

Howell of Guildford, L.

Humphreys, B.

Hunt of Wirral, L.

Hurd of Westwell, L.

Hussain, L.

Hussein-Ece, B.

James of Blackheath, L.

Janke, B.

Jenkin of Kennington, B.

Jolly, B.

Jones of Birmingham, L.

Jones of Cheltenham, L.

King of Bridgwater, L.

Kinnoull, E.

Knight of Collingtree, B.

Lang of Monkton, L.

Lawson of Blaby, L.

Lee of Trafford, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Lothian, M.

Luce, L.

Ludford, B.

Luke, L.

Lyell, L.

McColl of Dulwich, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Manzoor, B.

Marland, L.

Masham of Ilton, B.

May of Oxford, L.

Meacher, B.

Mobarik, B.

Montgomery of Alamein, V.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newby, L. [Teller]

Northbrook, L.

Northover, B.

Norton of Louth, L.

O'Neill of Bengarve, B.

Oppenheim-Barnes, B.

Paddick, L.

Palmer of Childs Hill, L.

Palumbo, L.

Parminter, B.

Perry of Southwark, B.

Phillips of Sudbury, L.

Pinnock, B.

Plumb, L.

Popat, L.

Purvis of Tweed, L.

Quirk, L.

Ramsbotham, L.

Rawlings, B.

Razzall, L.

Redesdale, L.

Renfrew of Kaimsthorn, L.

Rennard, L.

Ribeiro, L.

Ridley, V.

Roberts of Llandudno, L.

Rogan, L.

Rowe-Beddoe, L.

Scott of Needham Market, B.

Scriven, L.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Sharkey, L.

Sharp of Guildford, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shipley, L.

Shrewsbury, E.

Shutt of Greetland, L.

Skelmersdale, L.

Slim, V.

Smith of Clifton, L.

Smith of Newnham, B.

Spicer, L.

Steel of Aikwood, L.

Stephen, L.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Strathclyde, L.

Suri, L.

Suttie, B.

Swinfen, L.

Taverne, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L. [Teller]

Tenby, V.

Thomas of Gresford, L.

Thomas of Swynnerton, L.

Thomas of Winchester, B.

Tope, L.

Trefgarne, L.

Trenchard, V.

True, L.

Tugendhat, L.

3 Mar 2015 : Column 120

Tyler, L.

Tyler of Enfield, B.

Verma, B.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Warnock, B.

Warsi, B.

Wei, L.

Wheatcroft, B.

Wilcox, B.

Williams of Trafford, B.

Wolf of Dulwich, B.

Wrigglesworth, L.

Young of Hornsey, B.

Younger of Leckie, V.

4.33 pm

Amendment 2 not moved.

Amendment 3

Moved by Lord Mendelsohn

3: After Clause 3, insert the following new Clause—

“Companies: dealing with suppliers

(1) The Secretary of State may make regulations—

(a) imposing a limit on the number of days after receipt of a supplier’s invoice a company can seek to challenge that invoice,

(b) prohibiting the practice of a company seeking to change the payment terms of a supplier company unilaterally, and

(c) prohibiting a company from requiring a supplier company to make a payment in order to join that company’s list of suppliers.”

Lord Mendelsohn: My Lords, I will also speak to Amendment 4. Our amendments deal with an entirely connected element of late payment and other sorts of payment practices. Amendment 3 addresses concerns about companies exceeding payment agreements, discounting for prompt payment and retrospective discounting. This proposed new clause gives the Secretary of State new regulation-making powers to impose,

“a limit on the number of days after receipt of a supplier’s invoice a company can seek to challenge that invoice”,

and to prohibit companies from,

“seeking to change the payment terms of a supplier company unilaterally”,

or requiring supplier companies to pay to join that company’s list of suppliers or remain on it. Amendment 3 takes forward some fairly straightforward measures on what I would describe as abuses but on which I think there is a fair degree of consensus. Amendment 4 is perhaps slightly more exotic. It makes provision for the Secretary of State to,

“make regulations prohibiting the practice of a company seeking to reverse fixed payments and apply retrospective rebates and charges to a supplier company”.

Companies looking to extend their payment terms still could be on the right side of a prompt payment code if they use a variety of other practices to provide extended payment and credit terms to themselves. They can also add unfair terms using the asymmetry of power and information. Across much of the rest of the Bill the Government’s proposals have done a somewhat reasonable job to start addressing that issue, which afflicts small businesses, but companies can still change terms unfairly or even force unfair terms on weaker companies. “Pay to stay” must be the most egregious such practice but it is certainly not the only one. A weak approach to late payments coupled with no action on unfair practices or terms will mean that

3 Mar 2015 : Column 121

small businesses are unlikely to gain much from this Bill, which will seriously affect their cash flow or make their ability to fund and finance themselves not as strong as we really need with our current economy.

I have also witnessed at first hand the inventiveness of large companies to obfuscate and stop meeting their obligations on other payments. I have even had the misfortune with one particularly large supplier of meeting someone called “supplier disputes resolution”; this really means that they are a lawyer from the legal team, there to cause more problems rather than resolve anything.

I must thank the many small businesses and their advisers and representatives who are providing us with information on this. They have told us strongly, chiming with my own experience, of just some of the wariness that they feel is associated with raising the problems of poor practices of other companies, and of the nature of some of the pressures that they are under. These problems could include larger companies withholding payments, imposing fines or even creating retrospective payments or charges.

One has only to talk to small businesses for a short period to understand the iconic nature of the Premier Foods controversy, where it was forcing suppliers to pay to stay on its supplier list, which is perhaps one of the more appalling practices. Others force businesses to pay to go on the supplier list, which distorts competition and tries to use market power against smaller companies. Our measures will ensure that the problems of late payments are not transferred to other practices. The amendments also have the benefit of addressing legitimately some of the terrible and detrimental practices that small businesses suffer from large companies which exceed their agreements and act retrospectively, leading to tremendously bad consequences for other companies.

Withholding payments or arranging debits on control invoices can be caused by disputes or by issues about quality. These should rightly be raised prior to any unilateral fine, debit, discount or withholding of payment, and swiftly resolved between the parties. We agree with the Government that when there are disputes the most important thing is to resolve them as swiftly as possible. These amendments give the Secretary of State new regulation-making powers to address these issues.

There are cases where businesses retrospectively, at the end of the year, impose cuts to meet the previously agreed supplier prices to meet their margins, with no regard for the established contract. This is levelled against many plcs. Recently, we saw Debenhams unilaterally conducting a 2.5% discount on supplier prices as a last-minute attempt to boost its failing profit margins. Sending retrospective debit notes is on the basis of investments made to provide benefits to suppliers—very supposed benefits indeed. This is not to say that they do not make for a plausible argument; but the manner in which these can be applied and that they rarely have any performance-reporting, a direct correlation to those benefits or even requirement of proof that they were spent on this show the ways in which companies also impose egregious practices.

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The contract terms, conditions and price negotiations are really up to the parties. Commercial terms, such as marketing discounts, early-payment discounts, stock write-downs, rebates and charging for central distribution costs appear to affect more the long-term performance of the companies operating them, and distort their price negotiations. But those are within the gift of companies if they decide to use those sorts of practices and the matter is clearly up to them. These terms can be entered into by parties, but it should not be possible to impose them retrospectively or coercively by means of threats or market power.

I am looking forward to the Minister’s response to these amendments. In Committee, the Government understood some of the concerns and they have not been deaf to the many stories that they have heard about the application of practices of this sort and the problems they create. They also seemed to acknowledge that their initial responses were not sufficient. In Committee, their view was that in practice requests for changes of payment terms are not imposed unilaterally and that they are made with the agreement of both parties, even if the smaller party may feel that it has no option other than to agree. We patently know that that is not the case. We have seen many examples of where changes have been made unilaterally.

The late payment directive is explicit that unfair contractual terms and practices are not acceptable. I spent some time looking at the late payment directive, which I was assured had significant UK participation in its drafting. I have to confess that it is rather good. It talks about the way in which these sorts of changes are not acceptable and should not be acceptable and says that, even in circumstances when they are imposed on the smaller party, they should not be.

The Government argue that concern about doing something about “pay to stay” may have the unintended consequence of stopping supplier lists, which may be a good thing. We agree with them. This is not meant to stop supplier lists. It is important for companies to be able to manage supplier lists. The problem is the terms on which people join those lists. We suggest amendments which give the Secretary of State the ability to make those changes. We are not being prescriptive. We are broad in defining what they can address. It remains for future consultations, regulations and other things to implement them. What we are trying to get at is clear. It is also clear that we are doing something, which is not too prescriptive. I know that some noble Lords have concerns about that. In many ways we have taken, perhaps for the first time, the argument that the Government presented in Committee that “may” cannot become “must”—so rather than “must” we have said “may”. It is important for the Government to understand that these are some of the issues they should address. Given the scale and size of the problem, we can identify late payments, as opposed to poor and extended payment terms, as somewhere where we need action to help small businesses. I beg to move.

Lord Mitchell:My Lords, “pay to stay” and retrospective terms are examples of thuggish behaviour which large companies use to beat up their suppliers. I listened to what the noble Lord, Lord Cope, said on the previous amendment about suppliers having a

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choice about whether they want to supply large companies. I do not think it is quite that simple. The companies we are talking about—major supermarkets and the like—have tremendous power, and suppliers have no option but to supply them, so this is not a contest of equals but of David and Goliath, and in this case Goliath usually wins.

As my noble friend Lord Mendelsohn said, just before Christmas Premier Foods, the maker of Mr Kipling cakes and Hovis bread, told suppliers that they could lose their contracts unless they made cash payments to remain suppliers. That time, it misjudged the mood. The press took up against it, and very quickly it backed down. Perhaps that is a good example of shaming some of these companies about what they do. However, the practice still exists and our amendment gives the Secretary of State power to prohibit a company requiring a supplier to make a payment in order to join that company’s list of suppliers.

Even worse is the ability of companies to alter the terms of payments unilaterally. I have seen it personally in a family business and with suppliers to big retailers. A supplier fulfils all the terms of the contract and he waits and waits for a payment that never comes. Eventually the company contacts the supplier and says that payment could be made in a couple of days if only the supplier could accept a hefty discount. This is odious behaviour and in this amendment we seek to contain it.

4.45 pm

Baroness Neville-Rolfe: I thank noble Lords for tabling these amendments on unfair practices and the noble Lord, Lord Mendelsohn, for sharing his experience, including points of agreement. Unfair payment terms and practices hit small businesses the hardest and are simply unacceptable. I consequently have considerable sympathy with the intention behind these amendments.

Our intention is to drive a fundamental shift in payment culture—a paradigm shift in UK corporate behaviour to stamp out poor payment practices. Obviously, the key question is how we achieve this. One option is to seek to tackle each and every harmful practice as we spot it, but I suggest that this is futile. As the previous debate suggested, if businesses want to exert undue pressure on their suppliers, they are likely to find ways to do so. Because banning individual practices only tackles the symptoms, it will not drive a change in underlying corporate culture. We are doing something different and using a new transparency to drive change in corporate behaviour. The power of the new reporting requirement should not be dismissed. It will subject companies’ payment practices to full public scrutiny, thereby allowing poorer-performing companies to be named and shamed. In so doing, it will exert significant pressure on companies to move away from unfair practices.

The noble Lord, Lord Mendelsohn, mentioned the case of Premier Foods, which I believe shows that transparency can successfully lead to swift change in practices. Following public scrutiny of its “pay to stay” practice, which the noble Lord, Lord Mendelsohn, rightly described as egregious, Premier Foods moved quickly to simplify its controversial supplier list scheme. The Government are clear that large companies should

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not be using their economic power to place further strains on already hard-pressed small businesses. The Secretary of State has already asked the Competition and Markets Authority to consider the available evidence on “pay to stay” clauses, which I hope will be welcome to the noble Lords, Lord Mendelsohn and Lord Mitchell. The new reporting requirement will also elevate poor payment practices to become a boardroom issue. We have proposed that a company director signs off the report to ensure it is taken seriously at the very top.

We have tested this proposition with stakeholders, and most have shown little appetite for greater regulation on specific practices. Businesses in the UK value the freedom of contract that has been built up over hundreds of years but they strongly agree with the Government that increased transparency will help us to take significant steps to address the current imbalance in economic power which noble Lords have described so graphically. That is why we must focus our efforts on getting transparency right by putting in place a comprehensive, robust reporting requirement for all the UK’s larger companies. Clause 3 is already drafted sufficiently widely to allow the Government to require reporting on the subject of these amendments through secondary legislation.

I turn briefly to the detail of the amendments. Late payment legislation already sets a maximum 30-day period to quibble after the receipt of relevant goods and services. We sought views on this issue during our recent consultation. There continues to be little appetite for legislation. Our stakeholders tell us that they are reluctant to use current avenues to challenge due to fears of damaging relations with customers—a point which has already been made. We also heard concerns that the change, as proposed, could result in unintended consequences, with companies starting to dispute more invoices as a means of gaining time to review them. Our stakeholders have instead called for increased transparency on dispute resolution processes. The Government will therefore require companies to report on these as part of the mandatory reporting requirement.

We also consulted on unilateral changes to payment terms. As a matter of contract law, unilateral changes cannot be imposed on a contracting party after the contract has been agreed. However, in reality, smaller companies, as has been said, may feel that they have no option other than to agree when such changes to an existing contract are proposed by bigger companies. A ban as proposed would not prevent this practice, as it would not prevent bigger companies from seeking changes and would not address the reasons why smaller companies feel unable to resist such changes—while effectively rewriting the core principles of contract law. Instead, therefore, our stakeholders supported increased transparency to shine a light on poor behaviour. I again propose to mandate reporting on this in our reporting requirement.

Charging suppliers to join or remain on supplier lists and seeking to reverse fixed payment and apply retrospective discounts and charges are deeply concerning practices. Although we could put in place a blanket prohibition on these practices, they are but two of the ways in which larger companies can seek unreasonable

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commercial advantage from smaller suppliers. Our stakeholders believe that bans on specific practices would be easy to sidestep.

Once again, increased transparency will help address the economic imbalance involved. Our stakeholders support increased transparency on the use of “pay to stay” clauses. I can commit to requiring companies to report on these practices in the reporting requirement. We also commit to holding further discussions with stakeholders to discuss whether reporting on other practices mentioned, such as retrospective discounts or charges, should be mandated in the prompt payment report—which, of course, we have the power to do. I hope the noble Lord agrees that I have sought to address his concerns through the medium of transparency and, on that basis, will feel able to withdraw his amendment.

Lord Mendelsohn: I thank the Minister for that reply, although I have to say that I remain extremely concerned about part of the approach. I know that the Minister shares a great deal of the concerns about this and that she is a very practical person who has looked at different ways to deal with it. Talking about transparency, culture and the possibility that there will be attempts to sidestep this is rather similar to closing the door after the horse has bolted. We are in that situation now. The Minister says that doing something more prescriptive will obviate what she is trying to do on culture, but I happen to think that it will work, while her approach will not.

I will give the example of a good friend of mine—perhaps they will not be after I have raised this—who is a senior member of a company that uses a method called central distribution charges, which is effectively “pay to stay” by another means. It uses it in the UK, but not in Germany, France or Italy. In the end, that is because it is not allowed to use it, as it is not a proper term. My concern is that we can say, “They will sidestep it”, but we are in that situation now.

Companies come to all sorts of arrangements. We hear great stories from companies such as Next, Dunelm or John Lewis, where the price you pay is the price you pay, but there are far too few of them. Many others use a variety of measures to ensure that they meet a margin way in excess of what they have agreed the contract should deliver. That is our concern. It is wrong to say we can do this using the means of the reporting mechanism, because there are other contract terms you can use to sidestep the reporting mechanisms that we have. A much better and more effective way of doing this and stopping every such method is to create the architecture and a framework to look at what you can stop.

A very famous online company has a 40 to 50-day payment period. At 90 days they send fines, which you then have to contest. There is no individual you can speak to—it has to be done online. Eventually, you will get your payment terms, possibly within 180 days. They extend it through a variety of mechanisms which would not be covered by the existing provisions or by the transparency arrangements. Those are the problems which we are still some way from meaningfully addressing. It is very important for us to consider how we go

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further on these asymmetries and poor practices and to look at the sorts of things which others, using more prescriptive means, have been able to address through legislation or regulation.

There is a strong case for these amendments. I am conscious that the Minister has made some progress, if it is somewhat glacial compared to what I would prefer. However, on the basis that we can get the Government to take these matters seriously and that they are prepared to deal with the most egregious examples and to start dealing with where companies and poor practice ends up, I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

Amendment 4 not moved.

Amendment 5

Moved by Lord Stevenson of Balmacara

5: After Clause 3, insert the following new Clause—

“Payment practices: retention of monies

(1) The Secretary of State may by regulations impose requirements on certain companies to publish information about their policies, practices and performance in holding, safeguarding and releasing sums withheld by, or on behalf of, a payer from monies which would otherwise be due under a contract, the effect of which would provide the payer with security for the current and future performance by the payee of any or all of the payee’s obligations under the contract (“retention monies”).

(2) The regulations under subsection (1) may prescribe—

(a) the companies or type of companies to which the regulations apply;

(b) the information required to be published;

(c) the intervals at which, and format and manner in which, publication must take place; and

(d) the type of description of contractual provision to which the regulations apply.

(3) The restrictions on regulations in section 3(3) shall apply to regulations made under subsection (1) of this section.

(4) The Secretary of State shall arrange a review of the operation of the type of contractual provisions mentioned in subsection (1) after a period of 18 months following the coming into force of the first regulations made under subsection (1), and shall lay a copy of the report of the review before each House of Parliament.

(5) The review provided for under subsection (4) may make recommendations for requirements and obligations to be imposed upon certain types or descriptions of companies in relation to the practice of retaining monies as described in subsection (1).

(6) After public consultation, the Secretary of State may by regulations impose such requirements and obligations on prescribed companies as were recommended by the review, in whole or in part and with such amendments as the Secretary of State believes to be required in order to—

(a) ensure that the practice of withholding retention monies does not give rise to unfair treatment of payees;

(b) provide assurance that retention monies are held securely; and

(c) ensure that the position of a payee company from whom retention monies are being withheld is protected when a payer company becomes insolvent.”

Lord Stevenson of Balmacara (Lab): My Lords, Amendment 5 is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a practising solicitor who deals with

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construction contracts. When we raised this issue in Committee I made the following points. Recent research shows that about £3 billion is outstanding within the construction industry, and only in that industry, by way of cash retentions; that the practice unfairly enhances the working capital of the party deducting them; and that most of those who retained moneys openly accepted that they added cash retentions to their working capital or actually reinvested them. The effect is that bodies that are commissioning work are also in effect borrowing from the small firms that are carrying out the work. This is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.

The key issue is that cash retentions are being deducted from payments already earned. However, there is no statutory protection for the retained moneys that will ensure that they will in fact be available for release if, in the event, there are no uncompleted remedial works that need to be done. There is a good case for any retention funds to be kept separate from working capital, perhaps within an escrow account—as is now used for government contracts—or a separate trust account.

When the Minister responded to the debate, as well as outlining the new but still rather patchy approach to payments being adopted by the Government, she agreed that there were a number of issues of concern with the payment culture in the construction industry. But she said that the current statutory framework governing contractual terms on payment—which was introduced in 2011—with a prohibition on “pay-when-paid” clauses and a right to adjudication, would be sufficient to see out this unfortunate practice. She added that since 2014, the Government have been working with the industry to implement a payment charter that contains 11 commitments, including one specifically aimed at removing the need for retentions, with the intention of moving by 2025 to a position where retentions are no longer necessary.

The noble Baroness pointed out that the powers being taken in the Bill would be sufficient to gather the information needed for a review of current policy, and I take that point. But she was a little unconvincing about why it will take 10 years to gather the information about this issue, even if there were a need to go wider than just the construction industry. If this amendment is accepted, it would have far-reaching benefits for small businesses throughout the construction industry. They would not have to wait another 10 years before this practice is outlawed—but even if they did have to wait that long there is surely a case, which I have outlined above, for action now to require the use of escrow accounts for this type of payment. I beg to move.

Baroness Neville-Rolfe: My Lords, I thank the noble Lord for this amendment and for providing the opportunity for us to look again at the important matter of retention payments. Following Committee we have been busy. We have consulted with stakeholders on payment terms, and it is clear that the practice of retentions is an issue, as we suspected, largely confined to the construction sector. As with other payment issues in construction, issues with retentions go to the

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heart of the industry’s business models. These models are driven by a broad and diverse range of customers—and, of course, there is an extensive reliance on subcontracting. The work is project based and frequently short term, with no ongoing relationships. Typically, low levels of capitalisation mean that the industry is heavily reliant on cash flow.

5 pm

On the amendment, government is already able to include a new obligation to report on retention practices through the powers in the Bill. Since Committee, we have held a round table with key construction representative bodies to discuss how this might be done. We are following that up with a series of bilateral discussions to make sure that we get it right. The amendment would also require government to undertake a review of the practice of retentions. Following debate in Committee, we have held discussions with a wide range of stakeholders in the construction industry, and we found that there were a range of opinions. A proper assessment across the industry of the costs and benefits of the retention system will be vital to get the policy right—and it needs to be done in partnership with the industry.

I am pleased to inform noble Lords that the Government will therefore work with the Construction Leadership Council to undertake an analysis of retention payments under construction contracts. We are currently agreeing the project specification and it is our intention that the final report should be published early in 2016. That will provide an evidence base much more quickly than the 18 months after the coming into force of the reporting requirement envisaged by this amendment. The partnership is also important; an enduring solution to the issues rests in culture change. Legislation on its own is never likely to achieve change. The outcome of the research will inform the discussion about how the industry moves to a position of zero retentions.

Finally, the amendment would require government to take a power to introduce regulations. The Government’s work with the Construction Leadership Council will provide the evidence base for any action needed. Before that review has taken place, and given the lack of a clear consensus in the industry and among its customer base, the Government do not believe it appropriate to take such a power at this stage. We are taking a number of steps which will address the key issues at the heart of this amendment—and, on that basis, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Stevenson of Balmacara: I am very grateful to the Minister for that response. I agree with her that the issue is the business model in play in the construction industry. It is almost certain that the conclusion that will come out of the review that she is talking about is the one that we have been talking about—that there will need to be a new model for how the industry deals with the problem of how it contracts for and pays for the work that has been undertaken on construction contracts. That cannot happen too soon, because there are a lot of issues that need to be picked up in that regard.

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I was very glad to hear of the work that has already been started. It is a good way forward—and, of course, there is an advantage in having a sector group responsible for construction that is well embedded in the department. That should, I would have thought, bring forward some of the issues that she has mentioned.

It is rare for the Opposition to offer the Government a chance to get their hands on an unmoderated handle of power, which they might use on some unspecified future date, because we generally take the view that that is not a good thing to do. We did that in this amendment, but it has been turned down and spurned. I simply regret that—but I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

Amendment 6

Moved by Lord Mitchell

6: After Clause 5, insert the following new Clause—

“Small and Medium Sized Enterprises Access to Finance

(1) The Secretary of State has a duty to conduct a review on alternative forms of finance available to small businesses as defined in section 33(2) and micro businesses as defined in section 33(3).

(2) The review should include, but is not limited to—

(a) an assessment of how the banking sector is catering to the finance needs of SMEs,

(b) current methods used by the Government and relevant organisations to encourage SME consideration of alternative forms of finance, and

(c) the extent to which alternative forms of finance have been used by SMEs.

(3) The Secretary of State shall release a report on the findings of this review and lay it before both Houses of Parliament within one year of the commencement of this Act.

(4) The Secretary of State may, by regulations, act on the findings of the review.”

Lord Mitchell: My Lords, I have addressed your Lordships’ House many times to take the Government to task for the slow take-up of new schemes designed to provide finance to small and medium-sized businesses. My theme has been constant. There have been so many initiatives over the period of this Government that even I, who really ought to know about these things, am confused. If I do not get it, how can a small business understand the options when they seldom have to deal with them?

I have cited Funding for Lending as an example. I know that the Government think that it has been a resounding success, but that is not what I hear on the coalface. One banker said to me, “What am I to do? The Government throw money at us, and I have a choice: whether to deploy these funds on small businesses, which are risky and difficult and costly to analyse and administer, or else use the cheap funding to build my mortgage business to where I can assess the risk, and it is easy to run”. It is also not what the figures show. More often than not, one quarter followed by the next quarter, the amount of funding extended by Funding for Lending has gone down.

While all these government initiatives have been sputtering along, there has been a very acceptable growth in non-government schemes. The market for alternative finance has exploded, largely as a result of

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the paralysis of the high street banks, and we on these Benches think that that is to be encouraged. Challenger banks have made a very big impression. Metro Bank, Aldermore and others, such as Santander, are changing the landscape. Peer-to-peer lending has taken off and is becoming a major force. We, as I say, welcome these changes. The traditional banks have let down small business, and it is perfect that alternative sources are stepping into their shoes.

We need, however, to know what is happening in the marketplace. So many questions are asked in your Lordships’ House on this issue, and the truth is that no one seems to know the answer. This amendment will place a duty on the Secretary of State to conduct a review of alternative forms of finance available to small business. This review will examine how the banking sector is catering to the finance needs of SMEs and how SMEs are being encouraged to use alternative forms of finance.

We need the facts, and only an obligation on the Secretary of State will give us the information we require. I beg to move.

Lord Cope of Berkeley: My Lords, as the noble Lord, Lord Mitchell, has said, we have debated access to finance and all the various schemes, both government and private sector, on a number of occasions. I agree with him that there is an awful lot going on in this field. A lot of improvements have been made, by the Government’s efforts, these new forms of alternative finance and so on. I go along with the noble Lord, Lord Mitchell, on all that and on the difficulties of assessing quite what is happening and where the best developments are.

Where I get into trouble with Amendment 6 is the last little bit—proposed new subsection (4)—which says that, at the end of this review, when it is laid before Parliament:

“The Secretary of State may, by regulations, act on the findings of the review”.

That is an incredibly sweeping power, which I would be wholly reluctant to give the Government. I heard what the noble Lord, Lord Stevenson, said at the end of the debate on the previous amendment, but this is a very sweeping power indeed, about which I am very cautious.

Lord Myners (Non-Afl): My Lords, I support the amendment of the noble Lord, Lord Mitchell, and will be very surprised if the Government do not see merit in it. The coalition Government have made very serious efforts to address the impact on the economy of a shortfall in credit availability. They have launched multiple schemes, as the noble Lord, Lord Mitchell, indicated. The previous Government, of which I was a member, did likewise, and we found it extremely difficult to stimulate sensible extensions of credit to support business. The coalition Government found that it finally got lending going largely through the mortgage market. Only time will tell whether that has long-term economic benefit.

The Government have encouraged us to leave relatively undisturbed the dominance of the major banks. The market share of our major banks would be sufficient in normal circumstances to have triggered a competition

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inquiry many years ago. The dominance of the major banks is reflected largely in the absence of any differentiation in their products and pricing, and their basic business model is the same. They do not compete aggressively for market share; they do so at the margin but, on the whole, they sit on large legacy books of existing relationships. We know that, statistically, one is more likely to divorce than to change one’s bank.

Therefore, the Government should be encouraged to promote new forms of lending and should see this as an important adjunct to their own policies to support the economy. In those circumstances, I should like to believe that the Government would see real merit in the amendment of the noble Lord, Lord Mitchell, thereby ensuring that we get clarity about how the banking and credit availability system is working. I do not think that Santander is a challenger bank; it is the old Abbey National. Aldermore, Virgin, Metro and Bank One are challenger banks, but not Santander. However, if progress is not made by these banks, that is precisely the circumstance in which the Government would want to reach to independent evidence to show this.

I do not quite share the anxiety of the Benches opposite about the sweeping powers implied by the final part of the amendment. I imagine that they could be exercised only within the powers of existing law. I hope that a Government who are committed to furthering and promoting competition and transparency will not put themselves into contortions to reject the amendment. If they do so, they will stir continued anxiety that sitting opposite are a Government of bankers, for the bankers, rather than for society and our broader economy.

Lord Leigh of Hurley (Con): My Lords, as has been said, we have discussed finance for SMEs at length and it will continue to be a perennial topic. I welcome Clause 5. All the challenger banks—the noble Lord, Lord Myners, named some of them but I was thinking more of the crowdfunding-type organisations—are very excited about what is going to happen in the market. I have talked to some of the big four clearing banks and they are excited. Despite the fact that one might have thought that they would be nervous about the clause, which will almost force them to send their customers to challenger banks, they are keen and excited about, and welcome, this event.

On the surface, the amendment looks sensible, other than—I reinforce the point made by my noble friend Lord Cope—proposed subsection (4), which is open-ended. Business is nervous about this sort of provision. It is worried by some of the pronouncements that have been made by the Opposition. A Labour Party proposal that has not been raised in this House suggests that if a business chooses not to raise finance, or is not successful in raising it, but actually seeks to find a purchaser of more than half its equity, before such a transaction can be completed to a purchaser of the choice of the vendor, the vendor will be required to offer the business to all its employees on comparable terms. That was proposed in a recent speech by the leader of the Labour Party because he wants a John Lewis-type economy. While I understand that direction of travel, it is, of course, totally impractical and destructive

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to business life. That sort of policy might be brought in under subsection (4) of the amendment. That makes me nervous and is one of the reasons why I would not be happy about the proposed new clause.

5.15 pm

Baroness Neville-Rolfe:My Lords, I am grateful to the noble Lord, Lord Mitchell, for proposing the new clause, for his survey of finance for small and micro businesses, and for his welcome for some of the positive innovations that there have been in this sector in recent years. It was also extremely useful to have the comments of the noble Lord, Lord Myners, with his great experience in the City and in government, but I also heard the concern of my noble friend Lord Cope about the sweeping nature of the power. It was good to hear the comments of my noble friend Leigh of Hurley.

The noble Lord has proposed a new duty on the Secretary of State to publish a review on alternative forms of finance available to small and micro businesses within a year of the commencement of this Act. I start by reassuring noble Lords that the Government share their conviction that small and micro businesses need greater access to alternative forms of finance. Lending to small business, as has been said, is still concentrated within the four largest banks, which account for almost 90% of business loans by volume. Overall rejection rates for loans and overdrafts are declining, but still stand at around one in four over the past 18 months. Access to appropriately regulated alternative sources of finance can provide a real counterbalance to the mainstream banking sector.

I fully agree with the noble Lord that we should seek transparency on the availability of alternative forms of finance. I disagree, however, that a new review is necessary as it would duplicate existing publications on small business finance. One of these publications is the British Business Bank’s report on small business finance markets, which was published in December 2014. Its main focus was on the increasing use of alternative forms of finance by small business. I believe that this is what noble Lords are largely seeking from this clause. I can confirm that the British Business Bank intends to publish its small business finance report annually. I am happy to commit today to place this report in the Library of the House when it is published again this year.

The British Business Bank’s publication sits alongside a number of other independent pieces of research into this important subject, including the Bank of England’s quarterly Trends in Lending report, last published in January, the quarterly independent SME Finance Monitor, most recently published last week and Professor Russel Griggs’s report on the banks’ lending appeals process, published this week.

My response to the noble Lord would not be complete without touching on an even more important report—the work of the Competition and Markets Authority, the new, independent competition regulator. The CMA is conducting a market investigation into the retail banking sector, including the provision of banking services to small businesses. It has a wide range of powers available if it finds there are problems in the sector. The existence of this investigation helps to respond to the points

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made by the noble Lord, Lord Myners. The CMA is due to report by April 2016 and I know that it will be of huge interest to this House. The Government will then respond to any recommendations made within 90 days. Any legislation that follows this response would, of course, be subject to parliamentary scrutiny in the usual way. I believe that we should let the regulator do its job and not pre-empt its recommendations with a concurrent review by the Secretary of State of how the banking sector is catering for the needs of SMEs.