Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 7:20 pm on 2nd December 2014.

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Photo of Lord Mendelsohn Lord Mendelsohn Labour 7:20 pm, 2nd December 2014

My Lords, I draw attention to my entry in the register of interests, which includes my current involvement in small businesses.

We have had an extensive and interesting debate, which has covered most of the aspects of a quite wide-ranging Bill. Our debate was punctuated by a simply outstanding maiden speech by the noble Baroness, Lady Harding of Winscombe. The noble Baroness, Lady Harding, has an outstanding academic pedigree, has had a great career in consulting and has been a tremendous success in business. It is very strange to welcome her to the House given her comments about her strong association with and connection to this House. I have a confession to make: the noble Baroness, Lady Harding, has been part of my life for quite a few years. It dates back to 19 March 1998, when, watching the Gold Cup—I am occasionally attracted to a flutter—I was convinced to back a rank outsider very heavily. Unfortunately, that horse, which was a 14-1 bet, came second to a 25-1 outsider, which led from start to finish—Cool Dawn. Strong Promise turned out to be anything but. However, “strong promise” is what we saw today and I am sure that the noble Baroness, Lady Harding of Winscombe, will make a great contribution to this House.

It is encouraging that there is such strong support across the House for a Bill that covers small businesses, and for a number of employment and other measures to encourage and foster enterprise. As my noble friend Lord Stevenson made clear at the beginning of the debate, we are broadly supportive of the objectives and measures contained in the Bill. We of course have issues with many of the provisions; indeed, in the course of this debate we have seen that there is a strong desire for the Bill to have been far more ambitious. There are also some provisions that will require some careful scrutiny in Committee to ensure that they not only achieve the objectives intended but are sufficiently clear and appropriate to ensure that they do not create merely temporary fixes which can be evaded.

We are strongly supportive of the overall intentions of the Bill. Small businesses are a great engine of economic activity and wealth creation, as well as providing huge levels of employment and essential goods and services to all parts of our country. They also represent a key area of life that ensures quality of life for many; provides motivation, aspiration and ambition; creates fulfilment and a social context for co-operation between people and in families; and is an important springboard for social mobility. It is therefore true that, despite the many important provisions in the Bill that will tackle many of the problems and ills experienced by small businesses and those involved in them—ranging from late payment issues to zero-hours contracts—our country needs a much stronger small business support strategy.

The definition of micro-businesses is welcome. Enterprises with fewer than 10 employees—and most of these entities have far fewer even than five—are frequently placed at a great disadvantage in the market next to other sorts of companies. They get limited opportunities to receive discounts and benefits available to firms with scale. Indeed, on many occasions micro-businesses are at a disadvantage to individual consumers, who have access to better discounts. We support being able to treat micro-enterprises as consumers in certain circumstances and think that this sort of measure would provide great benefit to those that frequently are paying in relative terms considerably more for services in circumstances where cash flow can be very acute.

In addition, echoing the comments of the noble Lord, Lord Kestenbaum, there are imbalances across the country that are not being adequately addressed by the Bill. With approximately 850,000 private sector small businesses, London has more firms than any other region in the UK. The south-east has the second largest number, with around 800,000. Together, these regions account for almost a third of all small businesses. I hope that we will be able to take a closer look in Committee at how we can open up public sector procurement across the country to help expand the opportunity to start and grow new small businesses in every region of the UK.

On the provisions covering transparency relating to ownership, control and direction, we are strongly supportive of the thrust of the Bill. We are also very keen on the provisions on company filing requirements. These are important measures to fulfil our G8 commitments. While these measures address illicit activities, the size of which was outlined by the noble Lord, Lord McKenzie of Luton, and in a powerful speech by the noble Lord, Lord Watson of Invergowrie, we support the thrust of these measures because we believe that employment, wealth and effective markets will be strengthened if they are built on transparency, information and fairness.

In Committee, we will naturally want to scrutinise and ensure that the balance between any particular requirements for privacy—and there are legitimate concerns—can be covered appropriately. In addition, we will want to ensure that overseas companies and those that were established in, or that have moved to, favourable tax regimes or places with limited disclosure requirements are not provided with unfair advantages. But we hope that the Minister will confirm that all these measures cover the complexities of ensuring maximum disclosure, including, for example, from the finance industry and fund structures.

We are also pleased that these measures assist in strengthening the provisions looking to ensure that director disqualifications have more teeth in order to protect the integrity of the operation of market and the interests of consumers and to ensure better corporate behaviour. We are all too often made aware of the terrible experiences inflicted on some consumers by rogue traders. Of special concern are those who target the vulnerable. Many will have experienced the terrible circumstances caused to suppliers who suffer loss, and in many instances small businesses are disproportionately negatively affected by such losses. We will be looking to Ministers to ensure that people are not just unable to act as directors but unable to continue to act with little consequence in circumstances where the public have a full opportunity to feel reassured that they have access not only to information but to a regulatory regime that can act to protect them.

In relation to the provisions on insolvency, we heard a strong consensus across the House regarding measures looking at pre-packs. We believe that there is a case for pre-packs but we must ensure that we deal with the abuses and the potential negative consequences of introducing them. The speeches of the noble Lords, Lord Bilimoria, Lord Mitchell, Lord Hodgson of Astley Abbotts and Lord Leigh of Hurley, all identified the balances that have to be struck when we are dealing with this issue. I am sure that the comments of the noble Lord, Lord Bilimoria, about Chapter 11, which were warmly received in parts of this House, will come up in Committee, and I look forward to that.

When addressing some of the provisions on finance, the House seemed to have a clear consensus, which we share, that there are wider concerns about failures in the credit markets and that there are many broad problems of lending that we have to deal with. In relation to access to finance, we share the concerns raised by the noble Lords, Lord Bilimoria and Lord Leigh, and the noble Earl, Lord Lytton. The noble Lord, Lord Kestenbaum, made a very powerful speech which evoked some very strong phrases, which we strongly support, such as “long-term patient capital” and looking at measures to create progressive public policy that can support small businesses rather like some of the things we have seen in other countries, such as Israel and Korea, which have really encouraged small businesses to scale.

We are concerned by late payments and share the concerns raised by the noble Lords, Lord Sugar and Lord Mitchell, and by the noble Baroness, Lady Byford. On zero-hours contracts, we agree with the powerful comments made by the noble Lord, Lord Young.

Many noble Lords have used this opportunity to raise a variety of other issues that are slightly outside the Bill. The noble Lord, Lord Wakeham, made some important observations on the impact of the money laundering regulations. The noble Lord, Lord Mitchell, referred to interns. The noble Lord, Lord Hunt of Chesterton, spoke on a range of issues not contained in the Bill. The noble Baroness, Lady Byford, also raised issues around rural communities and agriculture, where there is a high concentration of small businesses. The noble Earl, Lord Lytton, raised the possibility of introducing different forms of dispute resolution to assist SMEs.

The noble Earl, Lord Lindsay, addressed provisions that are in the Bill on regulation and expressed strong support for the appointment of small business champions in non-economic regulators—something which we, too, support and look forward to scrutinising in Committee.

It is useful to outline our approach to the measures set out in Part 4 of the Bill relating to the Pubs Code and the Government’s announcement today. We remain concerned by the unintended consequences mentioned by the Minister in her opening remarks and are concerned that this is a partial view of the state of the current market and of the impact of the changes on it. We would encourage a broader view to be taken of the consequences to take account of what is happening. The noble Lord, Lord Stoneham of Droxford, gave an astute analysis of the market and argued powerfully that the fears being expressed to us are designed to prop up strategic errors that ultimately and disproportionately disadvantage publicans.

The noble Lords, Lord Cope of Berkeley, Lord Bilimoria and Lord Snape, spoke of the consensus on continuing to push with great force for the market rent only option in Committee. It is our view that the industry is in a process of change and that tenants need more flexibility to operate in the changed environment. We are very pleased by the Minister’s confirmation that the Government will now adopt the will of the other place and develop an effective market rent only option. We will work constructively with the Government on this measure in Committee. We accept that there is work to do to make Part 4 consistent and coherent, and we will be happy to co-operate to ensure that the Government shape a Bill consistent with their new undertaking. In addition, our deliberations will be an opportunity for us all to look collaboratively at how we can add a strong dynamic to the pub sector. There will now be an opportunity for us to look at additional measures to boost the position of publicans.

This Bill could have benefited from pre-legislative scrutiny. However, the debate today has demonstrated how strong the support is for its core principles and how productive the Committee stage is likely to be. That is, of course, after we all do our bit when we face our first challenge—how we perform on Saturday, which is Small Business Saturday.