Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 7:33 pm on 2nd December 2014.

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Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Parliamentary Under-Secretary of State for Business, Innovation and Skills 7:33 pm, 2nd December 2014

My Lords, I thank all speakers for their contributions, which have helped highlight and distil some of the main issues that we look forward to discussing further as the Bill moves through the parliamentary process. I am grateful to the noble Lord, Lord Mendelsohn, for so elegantly summarising the views of noble Lords, which I shall try not to repeat too closely.

Perhaps I may start by joining all noble Lords in congratulating my noble friend Lady Harding on her maiden speech. I was looking forward to it, and it was certainly a tour de force. We used to work together, and I always told her that she would end up in politics. She brings an extraordinary mix of experience, judgment, intelligence and charm to our House and her presence will lead to some great racing jokes. The noble Lord, Lord Young of Norwood Green, was the first to give us a great joke, so I thank him for that. I welcome the support expressed by my noble friend for the measures on zero-hours contracts. Her point was very well made that these can be helpful, especially in dealing with peak business in the run-up to Christmas.

Noble Lords have emphasised the critical role of small businesses in the UK economy, which the Government fully endorse. The purpose of this legislation is to adopt specific measures that recognise that reality. There are different views as to how best to take this forward, but that should not obscure the fact that there is great common ground across the House, not least on the importance of tackling late payment. Small businesses are the bedrock of our economy, so it is essential that they are supported and promoted to give them every chance of success. I am glad that the noble Lord, Lord Mendelsohn, mentioned Small Business Saturday, which takes place this very Saturday. This yearly event has been established to support, inspire and promote small businesses and encourage consumers to shop locally, which I hope we will all do.

In that regard, I was glad to hear my noble friend Lady Byford comment on the benefits of the Bill in rural areas. As she knows, I was brought up on a farm and so have business in my blood, even though, like many small businesses, it faltered and my father had to sell up—a useful experience in the context of this Bill. That was probably at about the time that my noble friend Lord Wakeham was starting out on his more successful career in small business. I was also glad to hear my noble friend Lady Byford asking about broadband coverage, a matter on which I, too, used to campaign. Progress has been made. I shall not delay the House this evening, but I will update her and anyone else who is interested by letter on the latest position on broadband.

I reassure noble Lords that the Bill will open up new opportunities for small businesses to innovate, compete and secure the necessary finance to create jobs and to grow. It builds on previous initiatives that we have implemented to support small business. More of them are getting access to the finance that they need; they are paying the lowest corporation tax in the G20; and have better access to support and advice. Evidence that these initiatives are working can be seen in figures from the Global Entrepreneurship Monitor, stating that in 2013 7.3% of adults were involved in starting or running a business in the UK. That compared to only 6.3% in Korea and 5.3% in Finland, which the noble Lord, Lord Kestenbaum, cited as best practice. We should be proud of our track record in this country. When I travel overseas, people are fascinated by the success that we have had over the years in creating small businesses and, latterly, of cutting employment. This Bill will further enhance what we have done and provide more support to small businesses. To suggest that it is timid is to do it a disservice. It will ensure that the UK continues to be recognised globally as a trusted place to start and grow and do business.

We have heard from a number of noble Lords on pubs and I was glad to hear of the widespread support for the goal of ensuring that tied tenants are treated fairly and are no worse off than free-of-tie tenants. My noble friend Lord Stoneham spoke in favour of the market rent only option, while the noble Lord, Lord Bilimoria, and my noble friend Lord Cope of Berkeley supported the Government’s decision to accept the strong will of the other place to include this option in the Bill. I also noted the arguments advanced by the noble Lord, Lord Hodgson of Astley Abbotts, and look forward to debating with him in Committee. I agree with him on one point: that to save our pubs, we should all use them and not stay at home watching the TV—in fact, we could start tonight.

The noble Lord, Lord Snape, gave us some real examples of the difficulties that tenants can face, and I was very sorry to hear of the problems which his daughter and son-in-law seem to have experienced. These are exactly the sorts of issues that we are committed to address in these measures to ensure that tenants are treated fairly.

I reassure my noble friend Lord Wakeham that we will be looking at the market rent only option in detail to ensure that it is workable and that we minimise any potential unintended consequences. I also assure the noble Lord, Lord Snape, that officials and Ministers have been meeting and will continue to meet tenants’ organisations, pub-owning companies and their representatives to discuss those issues.

The noble Lord, Lord Young of Norwood Green, brought us down to earth. I agree with him on the importance of British real ale, and I am glad that we are doing better than the Belgians. I am grateful to the noble Lords, Lord Stevenson and Lord Mendelsohn, for their commitment to work with us to ensure that the measures deliver and that the thousands of tied tenants across England and Wales are treated fairly.

Turning to finance, I welcome the support of my noble friends Lord Wakeham and Lord Cope for the access-to-finance measures. I assure the noble Lord, Lord Kestenbaum, that the Government are very ambitious in that regard. I look forward to his scrutiny on this point in Committee.

It was good to hear from the noble Lord, Lord Sugar, and I pay tribute to his work to raise public awareness of entrepreneurship. I hear that he wants the Government to go further, but at least he did not tell me that “I am fired”—so far. The noble Lords, Lord Sugar, Lord Watson of Invergowrie, and others, talked about late payment, to which we will certainly come back. I fully agree that we need to do more on late payment; that is why we have made it a central feature of the Bill

Our legislative proposals will help a lot, but of course legislation is not the only answer. Existing remedies are not being used, largely because smaller suppliers do not want to risk relationships with bigger companies, as the noble Lord said so eloquently. We therefore need to effect a culture change by making it unacceptable to pay late. I look forward to discussing how to do that—probably mainly outside the legislative process.

The noble Lord, Lord Bilimoria, talked about the burden of the failure of prompt payment on medium-sized businesses. We are currently consulting on which companies should be subject to the prompt payment reporting requirements. I have heard concerns that its scope covers too many medium-sized companies, and we will consider his comments during the consultation.

The noble Lord, Lord Mitchell, was, I think, a little unfair about what we have done to help small businesses. Take Funding for Lending, for example. Funding for Lending has played a part in improving the willingness of large banks to lend, but we need to increase the sources of funding available to SMEs. Therefore, we welcome the rapid growth of challenger banks for business lending, such as Aldermore and Handlesbanken, and the growth of peer-to-peer lending and crowdfunding, which we have brought into the regulatory framework for the first time. By providing the data that those lenders need, the Bill will help to transform the lending landscape.

The noble Earl, Lord Lytton, asked about electronic cheque imaging. I am glad to say that the industry will be able to put in place a number of measures to mitigate any fraud and security risks. In a number of respects, cheque imaging provides an opportunity to address security risks that currently affect cheque users. The industry will be adopting proven technology that has been in operation in the USA for 10 years. The US banking industry has told us that it has no significant concern about fraud risk associated with cheque imaging. I hope that that will reassure the noble Earl.

My noble friend Lord Leigh gave a comprehensive contribution. I am very grateful for his support on the Bill. I echo his point about comparisons with Europe: when compared to France, our unemployment rate is more than 6% higher. On his concern about finance platforms, in which I think that the noble Lord, Lord Stevenson, was also interested, I am pleased to be able to reassure him. The platforms designated by the Government will be required to give fair access to financiers that request it. That requirement will be enforced by the Financial Conduct Authority. When designating a platform, the Government will certainly consider and take into account the ability of that platform to open up opportunities across financing markets for small and medium-sized businesses.

Turning to regulatory reform, I welcome the support of the noble Lord, Lord Curry of Kirkharle, for the measures in Part 2. I know that his comments draw on very long experience of better regulation. I completely agree that the measures in Part 2 will make life easier for millions of businesses, many of them small businesses. The measures build on the UK’s continued success in delivering regulatory reform and will help to embed our leadership internationally. I also thank the noble Earl, Lord Lindsay, for supporting the regulatory reform measures and for the work he has done.

I also listened with great interest to my noble friend Lord Eccles, because of his long experience. I know that there are a significant number of delegated powers in the Bill, but we are trying hard to issue consultations on the SIs concerned in parallel to our discussions. The key such consultation on prompt payment was issued last week.

I can assure my noble friend Lady Byford that the Government consider the timetable for delivering the target in Clause 15 of streamlining company registration to be achievable. We recognise that it will be a complex IT project, and the timetable allows for thorough engagement with businesses to ensure that they are an integral part of the solution. That is very important.

On public procurement, the noble Lord, Lord Hunt of Chesterton, talked about paying suppliers promptly in the private sector. We agree that it is important for all suppliers to be paid promptly, and that the public sector should lead by example. That is why the Bill supports a simple and consistent approach, and we will be requiring contracting authorities to mandate prompt payment terms of 30 days across the entire public sector supply chain early in the new year.

The right reverend Prelate the Bishop of Peterborough moved me a lot by what he said about local entrepreneurship—a word that the noble Lord, Lord Bilimoria, rightly asked us to use more—and about micro-businesses helping the young unemployed and people from very distressed backgrounds. I so much agree with him about the value of local support for small businesses. I loved his examples. More importantly, he supported our trailblazing measures on a register of persons of significant control. We recognise the clear advantages of collective global action. That is why we continue to lobby other jurisdictions, notably in the context of the G7, the G20, the EU and through the Financial Action Task Force to take equally ambitious action on transparency of company beneficial ownership—a concern also expressed by the noble Lord, Lord McKenzie. We are also working with the Crown dependencies and overseas territories in this space.

The noble Lord, Lord McKenzie, also asked about anti-money-laundering. The UK is lobbying hard to encourage EU member states to take equally ambitious steps in the sphere of company transparency. It is encouraging that the European Parliament voted in favour of public central registers and that negotiations are ongoing. We hope that that work will conclude soon.

This part of the Bill was also a concern of my noble friend Lord Flight—albeit from a different perspective. He questioned whether the registers should be made public. The UK’s G7 action plan committed to consult on the question of whether the register should be publicly accessible. When we consulted in July 2013, there was strong support for our proposals. That was evident during the public sessions on the Bill in the other place. The FSB, for example, said:

“Trust and transparency are absolutely critical. That is why we fully support other bits of the Bill that deal with some of these areas”.

Allowing public access is consistent with the UK’s commitments to openness and transparency, and builds on the established practice of making information on

UK companies and shareholders available on the public record. The public register will enhance corporate transparency, promoting good corporate behaviour and building trust in UK companies. It will also help to ensure accuracy.

Furthermore, making this information public could assist international co-operation on law enforcement, reducing the time and cost associated with mutual legal assistance requests. I am sure that we will discuss the detail further in Committee, and I encourage my noble friend to read our consultation document on the implementing rules. This is a key plank of the Bill and I am grateful, too, to all noble Lords who supported these transparency provisions.

I assure the noble Lord, Lord Watson, that the Government do not intend to use Section 790O(4) to prevent legitimate access to company registers.

The noble Earl, Lord Lytton, asked about mutuals and co-operatives. As he knows, our reforms apply only to companies and to limited liability partnerships through secondary legislation. However, EU proposals in the fourth money-laundering directive may have a wider application and require mutuals and co-operatives to obtain and hold more information in this area.

The noble Lord, Lord Stevenson, asked what we are doing on takeovers. Following the AstraZeneca-Pfizer discussions, the Government said that they might need legislation to ensure that companies always honour big commitments. The Takeover Panel has now consulted on amendments to the takeover code that would significantly strengthen its ability to ensure that such commitments are honoured. We have therefore accepted its assurance that no further legislative change is needed in the Bill.

The noble Lord, Lord Bilimoria, started the discussion on Chapter 11. We shall talk about this in Committee, as there was quite a lot of interest expressed on it today, but it might be worth mentioning in advance of Committee that World Bank data indicate that the UK regime pays more to creditors, quicker and at lower cost, than the US, France and Germany. Chapter 11 is often criticised for its high cost; hence it is potentially sometimes less successful for small business.

On insolvency, the noble Lord, Lord Mitchell, expressed concern about pre-packs, although my noble friend Lord Hodgson took a different view. The independent Graham review found that pre-packs fulfil a positive and unique role in the insolvency landscape but identified a number of issues with current practice in how pre-packs are carried out. The review recommended a voluntary package of six reforms, which are being taken forward by the profession and the industry. They are making good practice on the recommendations and we hope to see these in place early in 2015. On the point made by my noble friend

Lord Leigh about the future viability of pre-pack businesses, I am sure he would agree that swamping business with increased regulation would be counterproductive. I was glad that he agrees that a reserve power is the right approach.

Finally, I come to the employment measures. There are several new measures, which I will not run through except to emphasise the increased penalties for breach of the national minimum wage legislation and the fact that exclusivity clauses in zero-hour contracts will become invalid and unenforceable, so that no one is tied into a contract without any guarantee of paid work. The noble Lord, Lord Stevenson, asked about the possibility of compensation. Late-notice cancellations are clearly an issue for some individuals. However, a single solution would not be appropriate and could prove very costly to business. It could also lead to employers offering work only at short notice to reduce the risk of cancelling, which could be a step backwards for the individuals. We feel that the issue should be addressed in sector-specific codes of practice on the responsible use of zero-hour contracts.

A number of noble Lords raised the issue of enforcement. The noble Lord, Lord Sugar, seemed to welcome the tougher penalties on the minimum wage but felt that the scale of investigation and enforcement was an issue. HMRC has actually increased the numbers in its team of inspectors who are responsible for investigations on the minimum wage. However, enforcement is an incredibly important area and I am sure that we shall discuss it in Committee.

On interns, which were raised by the noble Lord, Lord Mitchell, we have to achieve the right balance. Under current law, it is legitimate for employers to provide paid internships where an individual is not a worker for the purposes of minimum wage legislation. If the individual is acting as a worker, they must be paid the national minimum wage. This depends not on the job title but on the working arrangements. However, given the dependency on employment status, the Secretary of State has launched an internal review of employment status in this area. We will be getting a report early in the new year.

Small businesses in the UK can feel hampered by barriers that restrict their ability to innovate, grow and compete. The Bill will address these challenges and pave the way for the Government to be more supportive of, and less burdensome to, small businesses in the UK. I again thank noble Lords and noble Baronesses for their contributions today and I ask the House to give the Bill a Second Reading.

Bill read a second time.