Lord Sharpe of Epsom (Con)

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My Lords, I refer to my small business interests, as set out in the register. I welcome the chance to speak on this Bill for the first time, and I thank all noble Lords who have contributed. Most of all, I thank the Minister for his introduction, his previous engagement and the genuine expertise that he brings to this subject.

I begin by reaffirming the support of these Benches for the broad provisions of the Bill. Industrial strategy must allow smaller businesses to both survive and compete with larger firms, so entrenching good payment practices, tackling asymmetry in the construction industry and increasing the powers of the Small Business Commissioner are all sensible aims.

A number of interesting questions have been raised on late payment terms, specifically around the 45-day and 60-day limits. Good questions addressing this issue were asked by my noble friends Lord Lansley and Lord Holmes, the noble Lord, Lord Mendelsohn, and the noble Baroness, Lady Thornton. But I would like to press on this: the new payment term must inevitably be balanced against the ability of businesses to arrange their finances and pay. To assist the House, could the Minister outline the trade-offs between the 45-day and 60-day payment limits, which have already been considered in the decisions taken in the Bill?

I note, for example, that the impact assessment suggests that 350,000 more small businesses might be caught by a change from 60 to 45 days. Can the Minister confirm that those numbers are roughly correct? Has the impact assessment or any assessment that the Minister has seen looked at precisely what the financial impact of that would be for those businesses? I can see merit in both sides of the argument, but it would help the House to understand the logic behind the conclusions that have been made.

I also understand the logic behind a timeframe for resolving disputes. Businesses that delay payments should not be able to raise a dispute within the timeframe and then delay payment indefinitely, as the noble Baroness, Lady Kramer, has just noted. The existence of this possibility undermines the principle behind the new deadline for raising disputes. That said, I am cautious about the impact of a deadline on resolving disputes. The value of payment disputes that will fall under Clause 7 will have a very large range, so enacting an arbitrary timeframe of, say, 14 days would disincentivise large disputes being brought forward and divert resources towards ensuring they get resolved within the deadline. There is a risk of creating a bottleneck around whichever the dispute deadline would be. However, I recognise the worry associated with an open-ended resolution timeline, so if the noble Baroness and the Minister believe that this worry can be reconciled with my reservations, I would be very happy to work with them as the Bill progresses.

I take this opportunity to repeat the concern my noble friend Lord Hunt of Wirral raised about the scrapping of retention payments, which we otherwise support. In their impact assessment, the Government stated that they would seek to remedy the removal of this insurance option by

“working with industry to find other ways of making sure construction suppliers provide a good service”.

That is surely the right approach. Purchasers must have available means to seek redress in the case of defects or defaults, a point ably argued by the noble Lord, Lord Docherty of Milngavie. This is particularly the case in the public sector, as public money must have adequate protection against underperforming workmanship. I hope the Minister can today update the House on the steps taken with the industry towards providing that assurance. As the noble Lord, Lord Mendelsohn, noted, other public bodies and various public authorities, in particular, local authorities, can be habitual late payers. Public bodies must set an example when they are the ones driving reform. Can the Minister outline how the Government intend to cut back on late public payments? Can he also set out a timeline for phasing out public retention payments, perhaps before the three-year transition period culminates? There are a number of questions around this subject that deserve answers.

I also look forward very much to the debates on the points raised by my noble friend Lord Lansley, which had considerable merit. The noble Baroness, Lady Alexander of Clevedon, also raised some very good points about retention payments re-emerging as something else, so I look forward to the Minister’s views on what might be done to prevent that state of affairs developing.

I would also like to pick up on a point made by my noble friend Lord Leigh of Hurley on the definitions of micro, small, medium and large businesses. The Bill uses the Procurement Act 2023, alongside giving the Secretary of State powers to make definitions, but my noble friend is right to point to the Companies Act 2006, alongside the use of less complex entities by standard setters, not to mention the Enterprise Act 2016 and the Small Business, Enterprise and Employment Act 2015, which all use variations of definitions that essentially describe the same thing.

I would be grateful if the Minister reassured the House that the regulation-making power in Clause 3(7) will not be used further to deviate from any of the existing definitions of businesses. Perhaps more optimistically, does the Bill not present a chance to standardise the definitions of different sized businesses? We should use this opportunity to think about how we fundamentally categorise businesses, especially as low-headcount, high-turnover tech and AI businesses are in the ascendant. Using a full-time employee equivalent, rather than a simple nominal headcount, alongside a standardised turnover and balance sheet total amount, would be a more proportional and accurate way of categorising most businesses, although I recognise that there is some tension with the point I just made about new tech and AI-type businesses. It is needlessly bureaucratic that so many definitions exist across so much legislation. This has been a long-running issue on all sides of the House, so I hope the Minister will agree to work with us to resolve it through the later stages.

I recognise the concerns surrounding the Small Business Commissioner. A perfectly free and competitive market would, of course, negate the need for a third party to arbitrate disputes, but in the absence of such a market, we support expanding the remit of the commissioner’s office to deal with these instances. Moving responsibilities away from the courts is the right choice, but, as has been stated, this must come with sufficient resources. Similarly, in the absence of such a perfect market, I understand the concern that suppliers that raise consistent disputes or enter into proceedings with an influential customer may face being blacklisted. So, for the Small Business Commissioner to work as intended, it must have the trust of the businesses it works for, and this means ensuring against negative repercussions from raising a dispute. I thank the noble Baroness, Lady Kramer, my noble friend Lord Leigh and others for raising these concerns, and I hope the Minister will be able to address them. I also look forward to hearing the Minister’s thoughts on enforcement and resources, as noted by, among others, my noble friends Lord Hunt and Lord Risby. For example, does the Minister have any idea how many staff work for the Office of the Small Business Commissioner, what resources they currently have and whether they will be increased in anticipation of this new legislation?

As the noble Baroness, Lady Kramer, noted, a more fundamental concern with this part of the Bill is the expansive Henry VIII powers it gives to the Secretary of State. New Section 2G, inserted by Clause 18, permits a wide array of unilateral actions, including the ability of the Secretary of State to restrict the disclosure of information and exclude specific disputes. I understand that the former could be used to protect smaller businesses, but it could also be used to protect the poor practices of larger firms, so I would welcome some clarity on this. Similarly, I wonder whether the Minister could specify in which circumstances the Secretary of State would consider excluding disputes. This has the potential to be very wide-ranging, so some specificity would be appreciated. Indeed, if the Minister is able to give that clarity today, can he say why the specific measures are not in the Bill?

My noble friend Lord Leigh’s points about the UN goals and large companies’ practice with regard to forcing their suppliers to address these complex rules were of merit and worthy of further discussion. I look forward to the Minister’s views on them.

Overall, we have some concerns, but this Bill marks an important step in the right direction for this Government’s industrial strategy. It is orientated towards helping small businesses survive and thrive, and I look forward to working with noble Lords on both sides of the House in the coming weeks.