Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 3:49 pm on 2nd December 2014.

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Photo of Lord Stoneham of Droxford Lord Stoneham of Droxford Liberal Democrat 3:49 pm, 2nd December 2014

My Lords, I join the Minister and the opposition Benches in welcoming the noble Baroness, Lady Harding, with all her industrial and business experience. I am looking forward to her speech. I welcome the Bill with its fourfold objectives: to protect employees from poor employment practice; to ensure that companies are trusted and transparent; to help small businesses gain access to finance, so vital to their growth; and to identify and eliminate ineffective regulation which holds up business growth.

I will look at the employment aspects first. The House should recall that over the past year 693,000 more people are in employment; 244,000 fewer young people are unemployed; and there has been a huge growth in small businesses—330,000 in 2013, with 66,000 employing additional people. This is a phenomenal record and wherever I go in business they talk about how remarkable it is: the fastest growing economy in western Europe, with the highest employment growth rates.

The Opposition have told us, and will tell us in this debate, that it is the wrong type of growth: we are promoting a low-wage economy and not sharing the benefits of recovery. But we know it is the vulnerable who suffer most from unemployment in a recession so the absolute priority has had to be to get employment going again. Although we are in the early stages of recovering from the massive heart attack that hit our economy, we are seeing a huge improvement in outlook, prospects and financial security for people in our communities—much greater than they experienced in the final two years of the Labour Government, and indeed the first two years of the coalition. Recovery takes time to come through and job flexibility has been fundamentally important to that.

We welcome moves to ensure that employers abide by minimum wage regulations, by increasing fines and by naming and shaming companies that fail to do so. We also support the removal of the exclusivity clauses in zero-hours contracts. The Opposition will tell us that we should do more but we should also ask them why they did not do more when the economic prospects were better. They also have to tell us what they would do that would not now stifle employment growth. The Government have given a commitment to raise the minimum wage further but they will do this—rightly so—using the cross-party agreement that we should use the Low Pay Commission so as not to threaten jobs with higher costs, so that the increases that come through from the low pay recommendations are sustainable.

We are right to question zero-hours contracts and their fairness but let us be absolutely clear that, as the economy recovers, zero-hours contracts are not all bad, as some may try to suggest. I know there are some bad examples in the care sector but I raise the example of a British company—which employs my son—easyJet, the UK’s biggest airline, which has grown to 9,000 employees since 1995. I pass over the immigration issue that it was founded by a Greek Cypriot entrepreneur educated at our universities, and I pass over what would happen to that company if we left the EU.

Instead, I go back to 2011, when pilots were coming out of aviation schools with no prospects of jobs and with £75,000 worth of debt round their necks to pay for their training. I was sceptical when my son was offered a zero-hours contract with easyJet, due to the economic uncertainty that he was facing. But easyJet took on several hundred of those pilot trainees to give them enough work to live on. It promised that it would take them on, provide them with a living, give them enough hours, help with their training and, after two years, provided the economic improvement continued, give them a permanent job. It has honoured that promise completely, and, in 2013, young pilots were granted permanent contracts.

A lot of young people are being put on the first step of their careers through zero-hours contracts at a time of great economic uncertainty. We should respect that and recognise that it has great value. Such an opportunity has been a huge relief to the young trainees whom I was talking about in terms of being able to repay their debts and it has given them valuable training. easyJet is going from strength to strength and long may it. There are examples of overly exploitative zero-hours contracts. Those must be exposed, but flexibility is important to recovery and we must not overlook the competitive advantage that we have in our flexible labour markets.

I particularly welcome in the Bill the help given to small businesses. There are a number of major improvements: rooting out late payment, which is a scandal, and encouraging the involvement of small businesses in the procurement of government contracts, which is long overdue.

There is also a commitment in the Bill to greater corporate transparency and openness, so that we know who is controlling companies and where the power lies. If we are to deal with tax evasion, accountability for high salaries, payment schemes and general poor practice, we have to know who owns these companies. The Liberal Democrats have long had a commitment to this and we are very glad to support this initiative in the legislation.

I suspect that we will spend a lot of time on pubcos, so I turn to this issue in my closing remarks. It is a parable of our time. My grandfather was employed in brewing in Dorset and Kent. When he was working there, it was probably a paternalistic industry—there is nothing necessarily wrong with that. There were close relationships between tenants, publicans and the local and regional breweries. There was mutual benefit in providing a market for beer, helping with the improvement of pubs and providing a livelihood for the landlords and the brewers. But in the 1980s, as breweries consolidated, pressure grew to break the link between large brewers and their pubs. Parliament introduced a limit whereby brewers could not own more than 2,000 pubs. The trouble was that it did not prevent other companies doing that, and the loophole was spotted and exploited, not by brewers or by people who really knew about pubs, but by financial engineers, speculators and bankers. They sought to increase shareholder value and they had a great business model. They acquired the pubs; they increased the length of the tenancies; they increased the rents; they raised the price of beer; and they made the tenants responsible for repairs and maintenance. As they did so, they increased the value of the property, sometimes overvaluing it, so that they could then borrow more money to buy more pubs. The companies were making forecasts of practically perpetually growing income from this model, but they became ever more leveraged in the boom that followed and it has become a classic pump and dump operation—some would say that this is almost a type of Ponzi scheme—and eventually it collapsed.

The winners, of course, were the insiders who got out in time; the losers were the publicans, their communities and the pension funds that lost their money, and we are left to pick up the pieces. The tenants are tied into 25-year leases; they cannot buy their supplies from anybody but the owner of the pub; and there is not much chance of investment by these overleveraged companies. Do not believe the rumours that are being put about that the provisions in the Bill relating to pubs will stop investment and create unemployment in this sector; it is already suffering job losses and not getting the investment that it should.

In 1969, the Monopolies Commission recommended the market rent option. That is what the Bill seeks to do. It will enable tenants to have a fair living, increase investment and employment, open up supply markets and lower prices for consumers, particularly helping the small, organic brewers. Just as the industry needs to consolidate and improve its prospects, we have this mechanism, working with the industry to help to achieve that change.

This is a parable of our time. Just as the coalition has been trying to share the burden of austerity, so it must make sure that it remains vigilant as the economy picks up. We must learn the lessons of the last boom and bust, exemplified by the pub industry. Small businesses lie at the heart of our economic recovery and will drive it forward. We must encourage and support them to do so.