Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 5:50 pm on 2nd December 2014.

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Photo of Lord Hunt of Chesterton Lord Hunt of Chesterton Labour 5:50 pm, 2nd December 2014

My Lords, I welcome this opportunity for Parliament to revise its legislation on small businesses and enterprises and to examine the important implications for employment. It is a pleasure to follow the noble Baroness, Lady Byford, and, in particular, her remarks on rural small businesses—some of which I visited recently in Wales—and on the issue of green energy and its difficulties and opportunities for businesses. Although the Bill is important, it is, as comments made on this side of the House have revealed, quite timid in addressing the need to greatly expand UK business and exports and use small companies to advance technology everywhere.

I have experience of setting up a small high-tech company, in Cambridge. The company has grown slowly—which is not a bad thing—over the past 29 years. A notable feature of the UK since the 1970s is that many professionals, including academics, have found that setting up small companies enables them to apply their knowledge and experience more effectively than would work as a consultant or in a large company. I saw a similar situation back in the 1960s at MIT in the United States. Many people learnt from and were stimulated by what happened there. The Cambridge phenomenon was, of course, supported by the universities, and eventually by all sorts of other people, even colleagues in the Labour Party. There was a rather amusing joke.

People in the Labour Party said, “If you bring high-tech into Cambridge, it will turn Cambridge into an inland Bournemouth”—if you can imagine such a thing. In fact, this whole journey has been considerably more exciting than an inland Bournemouth.

Many of those companies were set up by members of the Labour Party, and the Labour Party broadly supports the principle of the Bill. As was said earlier, however, much more could be done. One remarkable example of doing more is—without referring to people who are still alive—the late Bob Edwards FRS, who was the initiator of test-tube babies and the founder of the Bourn Hall Clinic. He did many other things at the same time: he was chairman of Cambridge City Council’s finance committee, for example. The previous Labour Government introduced financial measures that considerably helped small companies, especially tax relief on research as well as improved maternity and paternity allowances, which are extremely important for small companies. They also improved redundancy payments to employees of dissolved companies.

I would also point out—I think that this view is shared by noble Lords on all sides of the House—that British red tape is as nothing compared with Italian red tape or red tape in some other European countries. I was recently in Rome and heard horror stories about the difficulty of setting up a company in Italy. In this country you have only to put down a couple of quid and off you go. As the process is much easier here, I do not always completely follow all the moaning and groaning about it. Compared with other countries, it is relatively speedy here.

Another aspect of small enterprises which I have not heard mentioned this afternoon is that many small companies are charitable or not-for-profit organisations—which are, of course, also limited liability companies. Those organisations are often very effective in working with Governments, legislators and the public, and the Government frequently use them to promote their policies, often abroad. However, as I and some of my colleagues know, life in such companies is quite precarious. Some of them become insolvent, so the rules of insolvency are relevant to them as well.

Many small companies are based on innovative ideas, services and products, which they provide to government, government agencies and large businesses. That is why it is important that we should consider the question of payments. There are many situations where smaller companies compete with larger companies and even with government agencies. In such situations the large companies sometimes want to get a government contract and will use their powers to do so. Another aspect is that they do not always want to pay promptly. It is important that government departments ensure a level playing field when large and small companies bid for important contracts because small companies do not have the financial resources of some of the larger ones. Sometimes there is also unfair competition between small companies because of differences in the subsidies provided to them. Some small companies are based in public sector organisations or universities while others pay rent in commercial premises. There should be more openness about such information as it is important when government provides contracts.

In Clause 3, the Secretary of State is required to ensure that payments from large to small companies are prompt so as not to stress or even bankrupt smaller companies. Clearly, that should be supported, and it is welcome—but it could go further. The Secretary of State should also ensure that payments made by government departments and agencies—including European and international government departments, such as the European Commission—should be prompt. My experience is that UK departments are rather better than some of those international bodies. However, there are examples of payments on European Commission contracts being delayed by 12 or even 24 months, which has been absolutely devastating for some of the small companies involved. The Government should look into that just as much as they should look into UK practice. The reason that the European Commission has given for those delays is that it deals with many small companies from many different countries and it does not pay out until every company has filled in every dot on every form. That is not necessary. It is equally important that there should be greater clarity from such international bodies about when and how decisions on contracts are communicated to potential contractors, who may be waiting, and have their resources waiting, to participate in projects. Delays and uncertainty can also bankrupt small companies, including non-profit companies.

If the Government want UK small businesses to compete internationally, it is also important to insist on good practice internationally. Clause 10 refers to the growth of UK exports and the fact that the provision of better information can contribute to it. The clause could also be amended to ensure that the Secretary of State and all relevant government departments are more open to foreign customers about services provided by UK companies to the UK Government and their agencies. Foreign customers currently have great difficulty in obtaining objective technical information about the services provided by UK businesses. For large companies, that is not necessary; but small companies want to be able to say to prospective customers that the information can be provided by BIS or the relevant departments or agencies. Currently, that is not available. Some information from previous contracts is now on the web but the technical information which clients need is often very difficult to obtain. Indeed, some government agencies are prevented from providing such information. By contrast, the European Commission trade commissions in foreign countries will provide that information when it relates to EC contractors.

My last point concerns the issue of insolvency, an issue which is dealt with at the end of the Bill and is important for high-tech companies. Many high-tech companies are formed and many become insolvent—it is a chronic situation. The need to have Chapter 11-type arrangements here to enable our small companies to avoid insolvency and continue trading has been raised both by the Financial Times and by the noble Baroness, Lady Wheatcroft, in our discussions yesterday. I recently saw how such arrangements worked in France, where a high-tech company which provided high-level environmental services to most cities in France became overextended. Such a situation in Britain would have resulted in the collapse of the company. In France, however, the Government stepped in; arrangements for creditors were arranged for several years; the service continued, and the technology is developing. In the UK I recently visited the law courts, and seeing 70 companies going down every 30 minutes is a pretty sombre sight. With some assistance or investigation some of the value in those companies could be saved. BIS could provide that kind of information.

Finally, Part 10 addresses an important aspect of insolvency, when the employees become redundant. Current legislation makes the compensation dependent on the payment rates of the staff. In some cases where the company descends into bankruptcy, the payments to the staff may well be less than the minimum wage. Surely the redundancy payment by the Government’s Redundancy Payments Service should be based on minimum wages. That is not allowed for in the Bill but I strongly recommend it.