My Lords, I add a very warm welcome to my noble friend Lady Harding. A friend who is a bit of a wag suggested to me that she has been elevated to this Chamber as a person who runs a business called TalkTalk, but through her maiden speech she has shown herself to be a great asset to this House.
I very much welcome this Bill, focusing as it does on small businesses, which, as has been said, amount to some 5 million enterprises employing some 24 million people and with a turnover in excess of £3 billion. In so doing, I draw your Lordships’ attention to the register of interests. Additionally, I am advising a pre-revenue start-up in the crowd-funding space, which will be relevant later on. Having said that, so far it is without any financial reward, but I live in hope and expectation.
I am concerned that progress is made with this Bill. It would be a great shame if it fell away because Parliament ran out of time before the election. The Bill has been welcomed by a large number of business bodies—in particular, the Institute of Directors, which specialises in this space, the BVCA, of which I am an associate member, and the Federation of Small Businesses.
It is pleasing to note, by way of background to the Bill, that in the last four years the number of small businesses has grown substantially and that, since the election, generally employment is up by 1.7 million. This means that since the election the employment rate has risen by 2.8%, while unemployment has dropped by over half a million. That is a great result for the coalition Government.
That has not happened by chance and it is no coincidence that this country has shown a dramatic increase in employment—greater than the whole of the rest of Europe combined. This has been brought about not just by economic success but also, as my noble friend Lord Hodgson of Astley Abbotts said, by changes in legislation to facilitate that growth in employment, such as this Bill and others.
I note that this is the first Bill ever brought forward which focuses on small business, and, as a partner in a small business, I am delighted to see it. My business and professional life has given me an insight into most parts of this Bill, so I apologise in advance if I stretch my remarks over most of it other than the part relating to the pubs adjudicator and the Pubs Code, in which, sadly, I have had no professional involvement.
The noble Lord, Lord Stevenson, whose excellent memory I must commend, will be pleased to hear that I have new areas to highlight and on which to bang a new drum in addition to those that I mentioned last time, but they do not include takeovers, which I believe are satisfactorily regulated by the Takeover Panel.
Looking at the finance side of the Bill, it is clear that, while high-street banks have provided the majority of finance to our businesses in the past, high-growth SMEs need alternative finance—as the noble Lord, Lord Kestenbaum, said—and London has become a world leader in providing it to the whole of the UK. We must make it as easy as possible for SMEs to operate and allow them to get the information that they need to access finance. We must strike the right balance between showing world leadership on transparency and regulation—on which I will say more—while encouraging external investors. I believe that this Bill strikes a sensible balance.
I particularly welcome the proposal for banks to be required to pass information to finance platforms in respect of customers who have been rejected. The Government have been extremely successful in encouraging challenger banks and alternative sources of finance for both debt and equity, and this has helped British businesses to grow. I am, however, concerned that the proposal is simply and only to allow banks to refer customers to software-based finance platforms. Typically, these platforms have a small number of lenders—roughly three or four—who interact with each separate platform, and that obviously restricts the potential borrower. In my opinion, borrowers need advice to access the full range of alternative lenders, which currently number around 130 or more in London alone. More importantly, they need face-to-face advice which clearly would not happen by simply transferring details on to a software platform.
The Bill seeks to give much more freedom to SMEs by forcing incumbent banks to share information fully, if requested by the customer. This would allow other banks, including the new challenger banks, to offer finance more competitively as they have a different view of risk. The more information available to them, the less risk they feel they would be undertaking, and therefore, the better terms they are likely to offer. High-street banks currently have a monopoly on that information. There is a lot of confusion in the marketplace on whether the banks are lending to SMEs. Major banks, such as Lloyds, for example, representing 25% of SME lending in the area of invoice financing, claim that they are lending to 80% of requests. On the other hand, it is very clear from talking to SMEs that in many cases they do not feel they are receiving the finance for which they applied.
This section of the Bill motivates the banks to list all their rejected applications where the applicant consents. That then means, first, that banks will take much more care before rejecting an application, as not only will it have a significant impact on their published success statistics, but by rejecting it they are opening the door to their own competitors. Secondly, the SMEs will now be exposed to many potential sources of finance, which should help them to not only achieve their goal but do so at a competitive rate. The marketplace for lending, combined with a much needed requirement to share bank-held information, could dramatically transform lending to SMEs within the UK. Access to finance is an issue that has been debated in this House many times before. The coalition’s excellent initiative to start the Business Growth Fund, start-up loan schemes, the British Business Bank and other organisations complement the direction of travel of this Bill.
Like my noble friend Lord Flight, one area of interest to me relates specifically to the transparency of companies. Clearly, generally speaking, greater transparency is welcome and the Prime Minister’s commitment to G8 in this respect has to be honoured—in particular, as has been said, in support of crime-fighting initiatives. My concern is that the cost to business of implementing these reforms could be substantial. For a regular business owned by one or two people, it would be easy, but there are many private companies that have been established for years which have ended up being owned by descendants of the original founders, and many of such companies’ shares are held in trust. The costs of establishing exactly who is the ultimate shareholder could run into tens of thousands of pounds per company.
There are wonderful examples in the UK of businesses currently run by the grandsons, great-grandsons and indeed, great-great-grandsons of the founders, and it would be a great shame if these businesses faced unnecessary administrative burdens simply because they have been around a long time and the shareholding has become diffuse.
It also seems to me that this is another example of the UK leading the way, possibly to our cost. I note that the disclosure regime is not extended to foreign companies operating in the UK, as has been noted by my noble friend Lord Flight and the right reverend Prelate the Bishop of Peterborough. As a result, the rest of the world can choose to preserve privacy while doing business in the UK, which is, of course, a significant loophole in trying to ensure transparency.
I would like to say a few things about persons of significant control and the PSC register. In particular, my concern is that all investors should be treated equally when it comes to being required to disclose. For example, in the case of private equity, it is clearly the GP—the fund itself—that exercises control over the businesses it invests in and, as such, stakeholders have a right to demand information from them. However, the investor base, possibly numbering in the hundreds or even thousands does not, and mandating disclosure there would be unnecessary, misleading and unhelpful for those stakeholders interested in finding out more about those who control the business. Thankfully the Government understood this position and have amended the Bill in the other place so that those investing in English limited partnerships do not have to make that sort of disclosure. However, I believe that it is crucial to extend this amendment to include other limited partnerships, in particular those established under the Channel Islands law, which is the conduit for most overseas investments into the UK.
Ensuring the continued attractiveness of investing through such partnerships for international investors will continue to encourage more capital to flow into the UK. While I can see that this information might be needed to fight criminality, I am not clear why it has to be available to a company’s competitors, customers and all sorts. Concerns have been expressed, with which I agree, that shareholder lists could be open to abuse if they are in the public domain in an unintended manner. I ask my noble friend the Minister to consider that any such register should not be made public initially, with information restricted to law enforcement bodies and then possibly to open the register fully to the public at a later time, once matters have settled down.
I have to say that I do not have quite the same experience as the noble Lord, Lord Bilimoria, in respect of insolvency. I am pleased to say that I have had limited involvement with the insolvency profession, but from time to time I have seen it in my professional career and I welcome the Government’s approach to bring a spotlight to this area. Generally, the direction of travel to provide greater competence to unsecured creditors is very welcome. I am not sure that abolishing the creditors’ meeting carries us in that same direction and I note that some amendments in the other place have led to the beginnings of a rethink. I certainly welcome mechanisms that compensate creditors for director misconduct, and I am pleased to see that administrators have been given the same powers as liquidators in certain circumstances.
It is, of course, appropriate to consider regulation of the insolvency business. I believe that the current system works quite well, but having the reserve power to establish a sole regulator if there are instances of abuse seems to be the right approach. Christmas, which will shortly be upon us, is traditionally a great time for retailers but also a time when many go to the wall. The experience of a well known electrical retailer two years ago has raised some valid questions about some professional practice in this area.
Similarly, the Government’s approach in respect of pre-packs is very welcome. To put it into perspective, every year some quarter of a million businesses disappear from the register of Companies House. Of those, 20,000 go into insolvency procedure, and of those, only about 600 to 700 are through a pre-pack. So the numbers are relatively small, but the public are right to be concerned when very quick deals take place and the subsequent owners of the business turn out to have been the same people who ran it into the ground only a few days before. I believe that the direction of travel of the BVCA’s turnaround code of conduct and, in particular, the Graham report, is the right direction. There are some specifics in the report which are, of course, not mentioned in the Bill, such as the requirement for a pre-pack pool. I have reservations about how that would work in practice. Other ideas, such as the requirement for the proper marketing of a business within a pre-pack process, must be right.
I appreciate that the Government want to see the impact of the Graham report before putting new legislation in place. Indeed, as the author of the report herself says, nobody wants unnecessary legislation, so again the creation of a reserve power to make regulations if things do not work out seems to me to be the right approach. A major concern to me is that the pre-pack proposals, while seeking to protect against abuse, fail to give employees, customers and creditors any comfort about the ongoing viability of the business itself. One idea for my noble friend would be, as part of a pre-pack, and possibly other insolvency situations, for a turnaround professional to be charged with the role of reviewing the business before administration and that professional ensuring that the management of the business is undertaken as intended after the pre-pack for the greater good and not just for themselves. To date the focus has been on Old Co., and I would like to look at New Co.
There is an extremely welcome section on employment. As I mentioned earlier, employment has grown dramatically in the UK and employers, in particular small businesses, must be given every assistance in feeling encouraged to take on more people. They will do so only if they are confident they can let employees go without huge penalties. No one likes letting people go, particularly in a small business, but it is sometimes essential for the health of the rest of the business. The employment tribunal system in the UK has dramatically improved through the changes made by the coalition Government, but a tightening up is needed to cut the costs and, in particular, reduce the delays, as envisaged in the Bill.
Similarly, the only way in which employers will seek to take on more people is if they are given the flexibility to employ people in a manner which suits their business, rather than the old-fashioned nine-to-five, 35-hours-a-week approach, which is simply inappropriate in the current workplace for most employers. I strongly encourage the Government to give employers and individuals the opportunity to take advantage of the flexibility of zero-hours contracts, while, of course, stopping any obvious abuses. It also seems fair to allow employees to work flexibly for a number of organisations—not just one—and I welcome the proposed changes.
Finally, it is interesting to compare the coalition Government’s approach to small business in the UK, which has been so successful, with the approach taken by the left-wing Government in France, which actually led to a demonstration by some 8,000 business owners on the streets of France yesterday in protest against their policies. That is unimaginable here but a stark warning to us all. I congratulate and pay tribute to the Ministers who have produced a Bill with so much that could help our economy grow. I wish it a speedy outcome.