Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 4:57 pm on 2nd December 2014.

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Photo of Lord Mitchell Lord Mitchell Labour 4:57 pm, 2nd December 2014

My Lords, last week I had the pleasure of having a drink with the noble Baroness, Lady Harding. We barely knew each other, but since we are both in the digital sector it seemed to me a good idea to get to know her. To me it was immediately evident that the noble Baroness was going to make a major contribution to your Lordships’ House and I knew instinctively that her maiden speech would be a tour de force. On both counts, I have not been disappointed. What she said today has given us all the hints we need to know that we are all the better for her having joined us.

The noble Baroness has an MBA from Harvard Business School. As a graduate from Columbia Business School myself, it takes some effort for me to admit that Harvard is as good as it gets. She has had a meteoric rise in the UK corporate sector, from McKinsey to Thomas Cook to Woolworths to Tesco. Today, as she said, she is CEO of TalkTalk, and as one of her customers I can attest to the quality of her company’s products.

This afternoon I will be addressing four policy issues: first, late payments; secondly, pre-pack administration; thirdly, the scaling-up of small and medium-sized businesses; and finally, the abuse of employing unpaid interns. I am nothing if I am not a serial entrepreneur, and nothing if I cannot speak about the joys, pains, thrills and disappointments of founding one’s own business. In my time, I have started three companies from scratch, all in the IT services area. On each occasion, it began by sitting around a table and asking the inevitable question, “Wouldn’t it be a good idea if?”. Three times I have been successful and the companies I started grew from nothing to become national and, in some cases, international market leaders. But I have also had my fair share of spectacular failures: the hugely costly Soho restaurant, the coolest place in town which attracted the young and the famous, but it haemorrhaged money and died an inglorious death. I founded a sophisticated asset finance company designed to lease intellectual property and brands. It also hit the buffers. There was the venture in Oxford to sell high quality souvenirs with “Oxford University” engraved on the items. It, too, bombed. And then there was the iPad app that was going to revolutionise mobile computing. Sadly, it did not. I know about the sleepless nights when you worry whether you will meet the monthly payroll. I have been to the meeting with the bank where a negative answer to a request for funds would be catastrophic. I have had an investment bank pull out of an initial public offering a week before impact day, only to recover and put the flotation to bed with another bank some three months later. Luckily for me, I have had more winners than losers.

I must make one declaration of interest. I am an investor in and director of a new company called Instant Impact. This company is involved in graduate recruitment and the placement of paid interns. My declaration is particularly pertinent because in this speech I will be addressing the issue of the mistreatment of unpaid interns. We on these Benches welcome this Bill but I think the Minister will get the message that we think it is timid where it should have been hard-hitting and much more encouraging.

The Labour Party is in no doubt that small business holds the key to our country’s economic success. We understand that the public sector has seen its employee base collapse under this Government and, to be honest, we see no reversal of that position for many years to come. It is similarly true that large companies are seeing little growth in their employee base. The real growth in employment, as many noble Lords have said, is coming from the small and medium-sized sector and that is why Labour is committed to providing a framework to ensure that this growth continues.

In my time, I have asked Ministers questions about the financing of the SME sector. I have pleaded with the Government to stop fooling themselves that Funding for Lending is working. I have said that it is a flop, that the money the Government have provided to banks has found most of its way into domestic mortgages and helped to fuel a boom in real estate that has been of little use to business. Nothing would improve the lot of small companies more than a commitment to eliminate late payment. It is endemic that big companies put the squeeze on small companies for no other reason than that they can. It is wrong and I am pleased to see that the Bill partially addresses the issue. Shaming late payers will be a start. Many of them are public sector organisations which pay late often because they have no motivation to do otherwise. They need to know that we simply will not tolerate any behaviour like this. I speak from experience. I have been involved in small companies which have diced with death simply because moneys due were delayed for spurious reasons. In these days of electronic payments, living off your creditors is simply unacceptable.

Pre-pack administration has always struck me as an odious concept. In effect, it occurs when a company is in severe trouble and is faced with administration or worse. It is abused where the directors, owners and the administrator conspire to put the company into administration and then—surprise, surprise—for there to be sitting on the sidelines a new company which quickly buys the assets and leaves the liabilities behind. On Friday, the company is Smith and Jones, and on Monday, the new company is Jones and Smith. It is true that jobs may be preserved and a business will continue, but to me it is all wrongly focused. I come from a background that says that the shareholders of a business are the ones who prosper if it does well and suffer when it fails. To see shenanigans where the creditors are dumped, legal cases are abandoned and other liabilities are tossed into the delete bucket cannot be right. I know that the Graham review into pre-pack administration argues in favour of pre-pack deals, but in my view the basic proposition that shareholders lose all when a business fails is not addressed strongly enough. I agree with the noble Lord, Lord Bilimoria, that we should replicate the US Chapter 11 option.

One report that has made a great impression on me recently was published in October by the serial entrepreneur and angel investor, Sherry Coutu. The Scale-Up Report on UK Economic Growth makes a very clear proposition: the game is not about creating companies, laudable though that may be; the real game is about scaling up our successes. As Reid Hoffman, the co-founder of LinkedIn, put it:

“First mover advantage doesn’t go to the first company that launches, it goes to the first company that scales”.

A “scale-up” is an enterprise with average annualised growth in employees or turnover greater than 20% per annum over a three-year period and with more than 10 employees at the beginning of the observation period. Why do we lag behind the US in companies being able to scale up? There are five reasons: the skills gap; leadership capability; accessing customers in other markets; accessing the right combination of finance; and navigating infrastructure. There is no reason why the UK has not produced its own Google or Amazon, but we must make it easy for our successful companies to scale up quickly.

Finally, I wish to address the issue of unpaid interns. I am prepared to bet that even in these Houses of Parliament there are many young people working for nothing. It is outrageous. Certainly, up and down the country many young hopefuls are forced into taking unpaid internships just so that they can enhance their CVs or in the hope that someone might notice them and offer them a full-time job. There is a word in English that defines forcing people to work for nothing—“slavery”. Indeed, the Modern Slavery Bill is currently going through your Lordships’ House. Unpaid internships are another form of slavery. For the rich kids, for those whose mummies and daddies can open doors, unpaid internships are a sure-fire way to get a good job. But what about the poor kids whose families cannot afford for them to work for nothing and whose parents have no such contacts? I hope the Government will back me in this. They should do if they are in favour of equal opportunity. But if they do not, I am determined and confident that Labour will support me. Certainly, I will be introducing amendments at later stages of the Bill to right this wrong. Quite simply, unpaid should become paid.

I have taken a smorgasbord of issues that I aim to address as the Bill goes through your Lordships’ House, and I look forward to our debates in Committee.