Clause 15 - Review of regulators’ complaints and appeals procedures

Small Business, Enterprise and Employment Bill – in a Public Bill Committee at 11:45 am on 23 October 2014.

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Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills) 11:45, 23 October 2014

I beg to move amendment 74, in clause 15, page 16, line 17, at end insert—

“(cA) an assessment of whether and, if necessary, the extent to which, any business, having challenged a regulator, has been discriminated against thereafter as a consequence.

(cB) recommendations for mitigating steps to be taken if an assessment mentioned in paragraph (cA) concludes that discrimination has taken place.”

Photo of John Robertson John Robertson Labour, Glasgow North West

With this it will be convenient to discuss Government amendment 21.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

It is always a great pleasure to serve on a Committee with a fellow Scot in the Chair, Mr Robertson. Congratulations on the referendum result—for the record, we won it by 55% to 45%. We welcome the thrust of the clause and what it tries to achieve. However, we want to ensure that small businesses are not discriminated against in any way when challenging regulators or, indeed, trying to enforce issues with regard to the clause.

Many small businesses say to me and my colleagues that a key issue in how they operate is not regulations but the way they are enforced, as well as their relationship with regulators at a local authority level or anything up to central Government level. We have failed to persuade  the Government to accept a number of amendments in this Committee, but we have tabled amendments that we genuinely think would strengthen the Bill. We welcome clauses 15 to 17, which are connected and introduce a mechanism allowing businesses the space to seek redress in resolving complaints and appeals.

The purpose of amendment 74 is to ensure that the reviewer’s report has due regard to any impact that a business encounters if it has challenged the decision of a regulator. Indeed, that is the intention behind clause 15(4), which says that a report should be produced that gives

“an assessment of the extent to which the relevant regulator’s procedures of the kind mentioned in subsection (2)(a) are accessible and fair to businesses”.

It asks for the report to provide

“recommendations to the relevant regulator” should those procedures require change, and suggests that recommendations can be made

“to the Minister of the Crown who appointed the reviewer for any change in the law which the reviewer considers would lead to improvements in the procedures or their operation”.

Amendment 74 requires that the measure goes just a little step further on the production of that report, which should provide an assessment of whether and, if necessary, the extent to which any business having challenged or, indeed, just queried a regulator has been discriminated against as a consequence of that approach. There should be recommendations for mitigating steps to be taken if an assessment mentioned in the proposed new subsection (cA) of our amendment, which looks at the discriminatory features, concludes that discrimination has taken place.

With amendment 74, we are not asking for any remedies but if a report is being produced, it would be only right and proper for those issues to be taken into account. The fear of small businesses would be that they would not want to challenge a regulator or reviewer of those regulations, on the basis that they could be subject to other regulations or, indeed, that the number of visits or assessments for that particular business could be increased.

The Forum of Private Business stated in its written evidence that although it welcomes the clauses,

“a fear will remain that should challenges be made, the business might be subjected to an increased level of assessment.”.

We always fear that. When I ran my own small businesses, if we made a complaint about an authority, there was always the fear that regulatory inspections would increase, the business would be informally blacklisted, and so on.

If a business feels that, having made a challenge, it has subsequently been subjected to an increased level of assessment from the regulator, it should be able to report those concerns to the reviewer, as mentioned in clause 13, and find out how they could possibly deal with them through that particular reporting mechanism. If that becomes a requirement of the reviewer, businesses can feel safe in the knowledge that they can challenge regulators on decisions that affect them and that they feel are unfair, without fear of retribution or other unpleasant consequences. I do not want our proposal to sound draconian but it is really about a perception. What most small businesses fear most from regulations, whether employment regulations, health and safety  regulations or any other regulations that their sector is subject to, is the possibility of retribution. The existence of a proper reporting mechanism would allow them to feel a little bit more comfortable if they decided, in such circumstances, that they wished to challenge the reviewer or the regulator.

I would like to raise some other issues on this part of the Bill. The British Chambers of Commerce questions whether the proposed reviewers are

“likely to be drawn from existing employees of the regulators” or whether additional employees will be required. There are no details on that in the Bill, as far as I can determine, so perhaps the Minister would answer that question directly when he gets to his feet. I can see that he has jotted that down so that he can answer it; I am looking forward to the exact number, if he is able to provide that.

As the Association of Chartered Certified Accountants said in its submission to the Government’s consultation on the small business appeals champions and non-economic regulators,

“the individual appointees must inspire the confidence of small business and the respect of the regulators.”

That is an incredibly important aspect of the appointment of any reviewer. The British Private Equity and Venture Capital Association said that if the reviewer appointee

“is ‘grafted onto an existing position’ as a Non-Executive Director as suggested in the consultation document, SBACs may not be as independent as necessary to ensure a unbiased view untainted by existing culture within particular regulators.”

That is an incredibly important point. The reviewer must be seen to be independent for these clauses to operate properly for small businesses.

We have no problem with the clause or Government amendment 21, which is a drafting amendment, but we want the Minister to confirm what the appointment process for reviewers will be. Will the reviewers be drawn from the regulators’ existing employees? Does the Minister agree that it is important to clarify that point to show that the reviewers are impartial and independent and ensure that they instil confidence in the regulators and the small business environment?

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change 12:00, 23 October 2014

I am grateful for the opportunity to have this debate—it often says that on my speaking note, but in this case I genuinely am. The Opposition’s point is important, so it should be recorded and its spirit should be taken into account. There is one specific reason why we should resist the amendment: there is a problem with it, which I will come to. Nevertheless, its broad thrust, which is that the appeals champion should take into account whether an individual business has been discriminated against, is important, and I agree with it.

The difficulty is that the amendment requires that if evidence of discrimination is found, the appeals champion must make recommendations to mitigate it for the businesses concerned. My concern is that if the appeals champion must make an assessment of each individual business, they will end up not only looking into each individual case, which is fine, but reporting on each case. Therefore, they will end up doing the work that they are supposed to be overseeing.

The purpose of the appeals champion, which is set out in clauses 15, 16 and 17, is to ensure that at a senior level in all regulators there is somebody with a statutory  duty to take into account how well the appeals process and the regulator are working for small business and ensure that complaints are taken up. Too often, we, as constituency MPs, have had businesses say to us, “This regulator has come down on me like a tonne of bricks. I think it was unreasonable,” or, “It made these mistakes, and there wasn’t anybody for me to go to.” Normally, those businesses must go down the route of approaching an external ombudsman, but they want the process inside the regulator to change so that the mistakes are not made again. The appeals champion will help to change that process.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

On the subject of the regulators, I am slightly confused about where the financial services regulators, in particular the Financial Conduct Authority, stand on this issue. I am not sure whether they are specifically covered by the Bill. Will the Minister clarify whether the financial services regulators will be covered by the small business appeals champion provision?

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

I am grateful for that question. The Financial Conduct Authority and the Prudential Regulation Authority will not be covered by the small business appeals champion because they are already subject to more extensive statutory accountability and scrutiny than other non-economic regulators. We are creating a route for small businesses to go down to ensure their concerns are taken into account. That principle is already embedded for those two regulators. In fact, a stronger route is already set out in legislation.

Photo of Toby Perkins Toby Perkins Shadow Minister (Business, Innovation and Skills)

I entirely support what the Minister is attempting to do here. Provisions in the Deregulation Bill mean that a whole variety of regulatory bodies now have a growth duty, which could ultimately lead to businesses taking their regulators to court if they feel they have not delivered on that growth duty. What thought has the Department given to ensuring the right balance between regulators being answerable, and still being able to get on with their regulatory functions without being cowed by powerful interests?

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

That is an important point. The purpose of the appeals champion alongside the growth duty is precisely to ensure that the organisation has a duty to consider impact on growth and that there is a route for statutory recourse. Someone within the organisation will have a statutory duty to ensure that the appeals process works for small businesses. We have chosen the statutory route to allow someone within the organisation to make these arguments in favour of growth, in the same way that regulators have statutory duties in many other areas. Too often, the onus for regulators is on the regulation coming into effect, without any statutory requirement to consider how that might minimise the burden on businesses.

Through our deregulatory work, we have found some areas of deregulation where the purpose is to remove regulation altogether. That is fine, but there are other areas where we can get exactly the same policy outcome with a lower burden on businesses just by doing it more effectively—for instance, ensuring that inspections of a business from different inspectorates happen at the same time, or that guidance is written in plain English  rather than reams of legalese. There all sorts of different and detailed methods. The purpose is to ensure that when a regulator considers how it should regulate, someone with a statutory duty makes sure that it listens to the concerns of small businesses and acts on them in a reasonable way. If the concern is not reasonable, it should not necessarily be acted on. I have explained that as well as I can, and I hope I have not tied myself in knots.

Photo of Toby Perkins Toby Perkins Shadow Minister (Business, Innovation and Skills)

I am grateful for that explanation, which aids the debate. I do not want to revisit the debate on the Deregulation Bill about the growth duty and organisations such as the nuclear installations inspectorate being held to account for how they deliver on it, but we need to be very conscious that regulators still have a statutory responsibility. We absolutely want them to support growth, but what safeguards are there to ensure that we do not end up with weakened regulators that say, when there is a catastrophe, “We were so worried about the growth duty that it undermined safety”?

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

This is not about the growth duty; it is about the small business appeals champion, but the structure is similar. I do not think we will go down the route mentioned by the hon. Gentleman because regulators have statutory duties which they must, by statute, carry out. This is a question of ensuring that someone listens to concerns about how statutory duties can be carried out with a less negative impact on small businesses. I am grateful for the intervention because I found it useful to clarify that point.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

I apologise for interrupting my right hon. Friend as he gets into full flow. Before he turns back to the amendment, may I press him a little further on the Financial Conduct Authority and the PRA regulator? Various constituency MPs will have smaller independent financial advisers that are regulated by this. Will he go a little further on how he will make sure the FCA is included in what the Government are trying to achieve in the Bill?

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change 12:15, 23 October 2014

Yes, of course. I am happy to return to that point on Report. We must make sure that the way the system is organised is practical and proportionate, but I will take that point on board and make sure that the interaction between the two systems works as well as possible and more broadly, as my hon. Friend says.

Returning to amendment 74, one of the key principles of the duties of the champion is that they should not interfere in individual cases or individual regulatory decisions. Clause 15(5) spells that out explicitly. We did this deliberately to ensure that the integrity and role of the regulator is not undermined—precisely the point made by the hon. Member for Chesterfield. We would not want the appeals champion themselves to be the process for the appeal. They should be inside the organisation to assess whether the appeals process has worked. Requiring the champion to assess whether any business has suffered discrimination, and then potentially to make recommendations to address that, might make them the final arbiter of appeals and therefore  unintentionally require them to be involved in individual cases, which is not the point. The point is that they are meant to oversee that process, rather than execute it.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I appreciate what the Minister is saying, but let us say that a small business executes a complaint through the reviewer, and goes back to them and says, “Yes, there was a problem with the regulations, the procedure and the process, but since I have brought this to the attention of that body, it has been very difficult to deal with”. Is that not the kind of thing that should be dealt with? The report should therefore say that there is a problem with how the regulations have been enacted, because a legitimate complaint was made and essentially, the body said to that business that it will make life more difficult for them.

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

Yes, I agree that it is critical that businesses should be able to make a complaint or an appeal without fear of discrimination or reprisal. That is why, under the existing statutory duties, the scope of the champion’s yearly assessment and the recommendations can cover this. I think this debate has made it clear that it should, but the report will be able to consider whether the regulator has adequate processes and procedures in place to ensure that businesses that challenge a regulator are not discriminated against. However, I would not want the amendment, as I interpret it, to require them to report on the behaviour in each individual case, because they might end up getting involved in a process they are designed to oversee.

We intend to set out the role of the champion in more detail in statutory guidance, on which we will consult in the new year. We will hold a series of workshops to seek the views of business and other stakeholders on precisely how the details will work, to make sure that this works for small business. I hope the hon. Member for Edinburgh South has been reassured by my response regarding the broad picture, and will agree to withdraw his amendment.

Government amendment 21 is a technical amendment. Clause 16 gives the Secretary of State the power to bring regulators into the scope of the policy to appoint a small business appeals champion by secondary legislation. The amendment corrects a drafting error to make it clear that the regulations themselves are subject to affirmative resolution, not the power to make the regulations. As I said, the amendment is minor and technical and I hope the Committee will support it.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I think the Minister is coming to the end of his remarks, but he has not really answered the questions about the appointment process for reviewers—whether they will be existing or new employees of the regulators, and whether they will be encouraged to be impartial.

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

Yes, it is envisaged that the appointment will normally, but not always, be somebody of seniority within the regulator with good links to the businesses that are covered, such as a non-executive director. Many regulators are covered by the clause and their needs will be different. The primary guard against the hon. Gentleman’s concern is that the provision will be a statutory duty on somebody within a regulator. Regulators, by their nature, act on statutory duties.  Therefore, having a statutory duty is a sufficient safeguard to ensure that the person carrying out the duty does so with diligence and in the way we intend. However, I am determined to get the details of the clause’s implementation right, and I hope the hon. Gentleman will work with me on the consultation.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I appreciate what the Minister said—and it does not say that in my notes: I genuinely do. However, I do not accept that the process is robust enough. That was the principle behind the amendment. The way the champion is being developed seems to be as a non-executive director at the regulator, who will produce a report and a review on the basis of whether the processes work for a small business, if they receive a complaint. It is a bit like the Independent Police Complaints Commission: the police investigating the police on procedures of the police. We do not want the regulator to be in that position.

The Minister said that the Government would not want to put in part of the review in the reporting documentation any discrimination procedures that may need to be put in place because they would not want the reviewer to be involved in determining individual cases. However, if it is a non-executive director of that regulator, there will be some involvement—at board level, I would have thought—if a complaint has been made about the processes of that regulator. Surely such a thing would go to quite a high level in the organisation. There may be a whole level of seriousness—from minor procedural difficulties to pretty serious ones, that end up at board level. There will be a non-executive director in the regulator who is the champion of small business, essentially determining whether that small business has been wronged in some way, and producing a report to say that the procedures of that regulator should be amended. It is surely right that, as part of that reporting process, an assessment be made of the impact of the organisation’s regulations on whether businesses have made a further complaint about being discriminated against.

Photo of Matthew Hancock Matthew Hancock Minister of State (Department for Business, Innovation and Skills), Minister of State for Portsmouth, The Minister of State, Department of Energy and Climate Change

Is the hon. Gentleman prepared to withdraw his amendment on the grounds that the report should not necessarily be published on the basis of the individual complainant? I agree with the thrust of what he said about ensuring that the issue is taken into account properly. I am confident that the matter can be dealt with by ensuring that the details of its implementation are put right.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I appreciate the Minister’s reassurance. If the guidelines will take into account that kind of process, I am happy to withdraw my amendment. We will hold the Minister to account for what I think is close to a promise that he just made to the Committee. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 ordered to stand part of the Bill.