Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 4:38 pm on 2nd December 2014.

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Photo of Lord Sugar Lord Sugar Labour 4:38 pm, 2nd December 2014

My Lords, I welcome the noble Baroness, Lady Harding, into the Chamber, and I look forward to hearing her maiden speech. We have worked together in the past on some rather large projects, and I assure noble Lords that she is a very capable business person who will bring a good contribution to the House. She will be about the only person here to recognise the genius in what I am about to say now.

I welcome the opportunity to discuss the Bill with your Lordships today. I start by stating that there are indeed a few positive parts in it. As your Lordships will recall, I was once appointed by the previous Prime Minister as an adviser specialising in SMEs. In that role, I travelled the country visiting many small companies and spoke to thousands of business people at specially organised seminars where the delegates were invited to ask me questions about their businesses or issues of government policy. I used these seminars to try to understand people’s concerns. Unsurprisingly, one of the most frequently asked questions of me was, “What can the Government do to help my business?”.

In principle, we all agree that support for small business and employment is a good thing, but this Bill does not go far enough in offering practical, common-sense solutions for small businesses. That is the test that should be applied to the Bill before us today. What can it do to help small business and enterprise in the UK? The simple answer is: as drafted, not enough. It goes some way to addressing the problems that small businesses face, for example around access to finance, but there are some seriously weak points in the Bill.

One of the biggest issues that came up in my seminars was late payment and how that was crippling the cash flow of some of these companies. Who were the culprits? They were the large organisations which in many cases were executing lucrative government contracts. Here we are, five years later, and the same issues exist. In the matter of late payments, we have an example of this Bill, as drafted, being great on paper but having no real impact where it matters—in people’s factories, offices and, most importantly, in small businesses’ accounts. One of the most crippling things for small businesses is to cope with late payments or, in some cases, no payments at all. It is, sadly, becoming an increasingly common issue, with 60% of UK small businesses reporting that late payments are a real problem for them.

In my early days of business I knew that one needed to build up trust with suppliers. I treated them as I would have treated a tax or electricity bill: they simply had to be paid on time. People who specialise in insolvency have estimated that one in five business failures is simply down to bills being paid late rather than a failed business model. It takes only a few late payments to bring a small business close to the edge. This government Bill will do very little to help solve this problem. It offers no incentive for companies to make payments on time and, more importantly, no deterrent for paying late. The Bill as written only gives powers to the Secretary of State to direct companies to publish certain information on their payment practices. This will have virtually no impact on whether they adhere to these self-published policies. In my opinion, it changes nothing. The onus will still be on the small businesses that are being short-changed to chase the payment.

I often wonder what experience those who draft these Bills have. It is clear in this case that they have no idea whatever of what it is like in the real world—at the coal face, so to speak. Small businesses are hesitant to alienate their suppliers for fear that they will have business taken away from them if they complain too much. We should be using this Bill to remove an environment in which businesses can be paid late. As has been suggested and discussed in the other place, we need the Government to be tougher in showing companies that late payments are not an acceptable part of our business culture. It is totally unacceptable for companies to accrue to their own interest and improve their own cash flow while other smaller businesses suffer. Harsh but fair penalties should have been included in the Bill. Instead of small businesses fighting for payments, causing further financial and reputational cost, late payers should automatically pay interest owed to their suppliers at, I suggest, 8% above the Bank of England interest rate. It is only then that we will see businesses suddenly waking up and starting to pay on time, where failure to do so will hit their bottom line. When you have a Business Secretary and, with respect, a Government who do not really get it—by that I mean what life is really like for the average small business—there is no point in creating legislation if some clever lawyer can find a loophole or where the policies have no impact on businesses or people’s lives.

I would like to draw your Lordships’ attention to the clauses that seek to deal with enforcement of the national minimum wage. We are in agreement on all sides of the House that we want to see more people in work and off benefits, but a staggering number of people currently do the right thing and do not even receive the minimum wage. They have gone out and got themselves a job, only to find that their work does not even amount to the minimum of £6.50 an hour. There are now reports that at least 300,000 people in the UK earn less than the minimum wage, which leaves the door open for unscrupulous companies to exploit inexperienced, desperate and, in some cases, migrant workers, all so that they can undercut firms that are playing by the rules.

The solution that the Bill offers is simply to increase the penalties for companies failing to pay the national minimum wage to their workers, which, on the face of it, sounds very good. It seems a sensible way to tackle the problem, but when one hears that the Government have identified only 25 firms breaking minimum wage law, it is clear that investigation and enforcement are the real problems, not the size of the penalty. The Bill fails to protect those people expected to work for less than the minimum wage and businesses that pay their staff a fair wage from being undercut. As I said before, it would appear that the current BIS Secretary aims to pass a Bill on small businesses without knowing what the real challenges of running a small business are, let alone how to deal with them effectively. The Bill contains some good intentions, but when we legislate to help small businesses, good intentions are not enough if they do not translate to real changes on the shop floor, in the backs of the vans or in the bank balances of our small businesses.