House of Lords
Oaths and Affirmations
British Council
(1 day, 4 hours ago)
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Baroness Thornton
To ask His Majesty’s Government what progress they have made in supporting and funding the work of the British Council.
Lord in Waiting/Government Whip (Lord Lemos) (Lab)
My Lords, I declare my interest: I was a board member of the British Council for 12 years—an unbroken record, I am told—many of them as a trustee, deputy chair and as acting chair.
The Government have increased funding for the British Council, and we are allocating it £173 million grant in aid per year until 2028-29. In addition, we have provided a one-off cash injection of £10 million this year to support the British Council to restructure its grant-funded operations, in line with its financial turnaround plan. We have also agreed to the British Council retaining the proceeds of asset sales of £60 million. These are significant increases, from the 2024-25 baseline of £162.5 million, when this Government took office. This is a very positive settlement for the British Council in what all noble Lords know are challenging fiscal circumstances.
Baroness Thornton (Lab)
I thank my noble friend for that Answer. I have great affection and support for the British Council, having been a parliamentary ambassador for it for many years, and having met many incoming delegations over the years. What I did not hear in my noble friend’s Answer was a resolution of the punitive £200 million Covid-era solvency and restructuring loan handed to the British Council by the then Conservative Government. The costs are eye-watering: £15 million in interest every year before even making repayments. Can my noble friend tell me whether this is going to be resolved?
Lord Lemos (Lab)
As my noble friend knows, the loan was made on commercial terms to ensure compliance with the UK Subsidy Control Act, which means that interest rates are set at market rates. For the last five years, the British Council has made losses of around £50 million per year, greatly in excess of the loan repayments. The priority, therefore, is for the British Council to address these ongoing commercial losses, return to surplus and implement its financial turnaround plan, to get itself back on to a long-term financially sustainable footing. In the meantime, the British Council continues to do excellent and important work, funded by grant in aid.
Baroness Northover (LD)
My Lords, it is excellent that the British Council has been appointed as the UK’s national agency for the Erasmus programme. As we seek a closer relationship with the EU, how can we make sure that the British Council can play a full part in this, unhampered by this huge Covid debt?
Lord Lemos (Lab)
The noble Baroness is right: the Erasmus programme is an important part of the work the Government are doing with Europe, and the British Council has a big role to play in that. That is not one of the British Council’s commercial activities, as I understand it—but I will correct that if I have got that wrong—and therefore will continue and will not be affected by the discussions about the loan.
Baroness D'Souza (CB)
My Lords, the £15 million interest, which is paid annually by the British Council because of the £200 million Covid debt, is bringing the British Council to its knees. Would the Government consider some creative solution to this debt—for example, by granting the British Council a holiday or delaying the payment of that £15 million interest debt until its financial situation becomes a bit better? As we know, it is struggling, and it is doing everything it can to restructure, which includes the letting go of a huge number of staff around the world. This is very much to the detriment of the long-term future of the British Council.
Lord Lemos (Lab)
As I said, the loan must comply with the UK Subsidy Control Act, but the Government have already made some concessions by extending it to 2027. The British Council submitted its turnaround plan in August 2025, and it has been independently reviewed. It is obviously highly commercially sensitive, and therefore I will not give a running commentary. However, as I am sure the noble Baroness will be pleased to hear, we hope that the FCDO will agree to restructuring the loan in the coming weeks.
Lord Bellingham (Con)
My Lords, almost exactly one year ago, Russia designated the British Council an “undesirable organisation”, and the British Council was then forced to suspend all its remaining activities in Russia. Can the Minister tell us what the current situation is? Has any of its work there been reactivated? For example, are Russian students now able to access the IELTS, the global English standardised test?
Lord Lemos (Lab)
I thank the noble Lord for his questions. As he knows, the problems that the British Council has encountered in Russia go back a long time, and we take very seriously the recent problems that he mentioned. It is not a comfortable position for the British Council at all. I do not know the specific answer to the question about IELTS, but I am happy to come back to the noble Lord on that.
Baroness Alexander of Cleveden (Lab)
My Lords, I declare my interest as deputy chair of the British Council. On current plans, it is likely that this Covid-era loan will be paid down for the next 15 years plus. Can my noble friend the Minister say why the Government have not accepted the British Council’s offer of using its art collection in lieu of the loan, given that HMRC regularly accepts artwork from private estates in settlement of tax liabilities? Why can a comparable arrangement not be found for the Government’s own soft-power agency? I am aware of the complexities of the matter, so I invite my noble friend the Minister to write to me on the specific issue of the art collection paying down the loan and to place a copy in the Library for other noble Lords.
Lord Lemos (Lab)
I am of course happy to write to the noble Baroness, but I make it clear that I hesitate, with my noble friend Lord Livermore sitting next to me, to say anything other than that the Treasury expects the loan to be paid in cash. He has made that point before, so I dare say he may have some views on this letter too. The art collection is a matter for the British Council to decide on, not for the Government.
Lord Callanan (Con)
My Lords, the British Council has an important role to play in helping the UK to project its influence as a force for good on the world stage. It is, consequently, a member of the UK Government’s Soft Power Council. That council met four times last year, but it has not met once this year. Could the Minister tell the House why?
Lord Lemos (Lab)
As the noble Lord knows, soft power extends far beyond the Government, the British Council and, indeed, the BBC World Service to many other sectors—higher education, the creative industries and so on. The Soft Power Council had an independent review under Minister Elmore. Let me be clear that what is needed in the Soft Power Council is better co-ordination and more focus across all the different sectors, not just for the British Council and for the BBC World Service. That is what Minister Elmore will take forward.
Lord Ricketts (CB)
My Lords, over a long diplomatic career, I have seen a lot of the British Council’s work around the world and just how respected it is as a torch-bearer for British culture and education around the world. Is it true that the British Council has to dispose of properties and close down in a number of countries in order to deal with financial pressures? Is that really in the interest of British soft power?
Lord Lemos (Lab)
The British Council regularly reviews its estate, and it will continue to do so. The issue of soft power and Britain’s international reputation is about outcomes; it is not only about property. I have no doubt that, as part of the turnaround plan—and I will be straightforward about this—the British Council will have to review its estate, but it will continue to do its excellent work on cultural relations.
Baroness Kennedy of The Shaws (Lab)
My Lords, I had the great privilege, from 1998 until 2004, of being the chair of the British Council. Sometimes, it is useful to draw on one’s institutional memory. The reason that the British Council was set up in the middle of the 1930s was to share British values, as we saw the rise of fascism and Nazism across Europe. I just remind noble Lords that, as well as being a torch-bearer for our culture and language, it is also a torch-bearer for our values. Is that being understood by the Government and by the new arrivals in the Commons? Not very many of them will know that the British Council has been at the heart of promoting democracy, the rule of law and many other things and aspects of our culture.
Lord Lemos (Lab)
I entirely agree with my noble friend, and I was proud to be her deputy chair at the British Council. It is absolutely true that the British Council represents Britain’s values, and that helps with our standing in the world. In order to reinforce my noble friend’s point, I will draw attention to two of the British Council’s excellent programmes. The British Council continues to manage £78 million of scholarships —Chevening, Marshall and Commonwealth scholarships. Exactly in the way that my noble friend described, the British Council has a very big programme with Ukrainian schools, of which it should be extremely proud.
E-scooters and E-bikes
(1 day, 4 hours ago)
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Lord Storey
To ask His Majesty’s Government what assessment they have made of the use of electric bikes and scooters on roads.
The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)
The Government recognise the role that light electric vehicles, including electric cycles and scooters, can play in supporting economic growth, improving health and reducing emissions. The electric cycles that comply with regulations are already permitted on public roads, and the Government recently legislated to improve the regulation of shared bike schemes. E-scooters are being tested through shared rental trials to assess their benefits and safety, while private e-scooters remain illegal for use on public roads. We will consult on proposals for e-scooters in the next few months.
Lord Storey (LD)
My Lords, last October, Sandy Peters was walking on a pavement in south London with her son—it was his birthday—when a hired bike hit her at full speed. Her face went into a brick wall. She spent seven days in hospital, facing £10,000-worth of dental surgery. She has no way of recovering that money, because the company that hired out the bike carries no rider liability insurance. The rider was 16 and should have never hired a bike, but the age checks failed and the law required none. Nobody was held to account. Does the Minister not think it time to sort out the problems of e-bikes and e-scooters once and for all?
Lord Hendy of Richmond Hill (Lab)
The first thing to say is that we absolutely sympathise with somebody with such terrible injuries in those circumstances; our hearts go out to them and their family. As part of the powers the Government have taken on shared cycles, we will have powers to set insurance requirements. No decisions have yet been taken, but we will consult on them as a consequence of the powers given in the English Devolution and Community Empowerment Act for precisely the reason given by the noble Lord: hire schemes need some rules, and that legislation enables us to set them.
Lord Krebs (CB)
My Lords, where I live, in Oxford, one of the problems with e-bikes and e-scooters is that, all too often, they are dumped on the footpath and block the way for, in particular, mothers with prams and pushchairs, elderly people and the sight-impaired. In this context, in the past 18 months, Kensington and Chelsea Council has removed more than 2,500 illegally parked e-bikes and e-scooters and has charged the operators £210,000 for doing so. Does the Minister think that other councils, including Oxfordshire County Council, should be encouraged to follow the lead of Kensington and Chelsea?
Baroness McIntosh of Pickering (Con)
My Lords, does the Minister have a timetable for the introduction in law of the insurance scheme? He knows from our discussions during the passage of the English devolution Bill that the Motor Insurers’ Bureau is very keen on this. Can he also look outside Parliament at the new super highway for bicycles that is being built, and give an assurance that there will be safe crossings for pedestrians to reach the House of Lords and other aspects of Parliament? At the moment, cyclists and e-scooters are not stopping at the traffic lights, and it is incredibly dangerous for visitors and parliamentarians alike to cross the road at Abingdon Street.
Lord Hendy of Richmond Hill (Lab)
It was a surprise to the House authorities, just as it was to noble Lords, that construction of that scheme started on Saturday without notice. I and the department would expect the scheme to be designed in accordance with all the right design principles for cycling. I would also expect, as has been remarked in here before, all road users to observe their duty to comply with the law, which includes cyclists stopping at red lights.
Lord Shamash (Lab)
My Lords, I ought to declare an interest, in that I do not like electric bikes or electric scooters, so at least noble Lords know where I am coming from. Being stationary at a red traffic light and being overtaken by bikes that do not pay the slightest heed to the traffic signals is really frustrating to watch, not least given the speed at which some of them can travel. Will the Government give serious thought to negotiating with the companies? We understand the 20 mph limit, which I and a number of my colleagues in the House find incredibly frustrating. It would be useful if these bikes had speed limiters, so that the fastest they can go is 19 mph. Can that be taken on board? Will the Government negotiate with the bicycle companies to make sure that they do all they can to make these bikes as safe as possible for other road users?
Lord Hendy of Richmond Hill (Lab)
Electric cycles are only legal provided that the user is 14 years old or older and that the cycle meets the regulatory requirements: a maximum power of 250 watts and a maximum assisted speed of 15.5 mph. Beyond that, they are classed as motor vehicles, so they cannot legally be used on the road unless they are approved and registered with the DVLA, and taxed and insured. Riders must also wear helmets and hold a driving licence. The encouraging thing is that enforcement, which has been championed by the City of London Police, is increasingly being carried out by other police forces which have realised that people who use illegal e-bikes also break other laws and create other offences.
Baroness Grender (LD)
My Lords, we see a wide- spread issue with gig economy on-demand delivery riders illegally operating private e-scooters on public infrastructure. Will the Government introduce robust statutory duties for delivery companies to actively audit, monitor and enforce legal compliance among their riders?
Lord Hendy of Richmond Hill (Lab)
The noble Baroness is quite right: many of the principal complaints about this concern riders delivering food and other items. The Minister for Local Transport has written to food delivery companies emphasising the need for appropriate training, and the department has commissioned research on the road behaviours of food delivery drivers. As part of the road safety strategy, we have announced the piloting of a voluntary national work-related road safety charter for businesses that require people to drive or ride for them. The noble Baroness is right that there are issues with the gig economy and people who are employed to ride these bikes, and this is what the Government will do about that.
Lord Rogan (UUP)
My Lords, e-scooters cannot be used legally anywhere in Northern Ireland, except on private land with the owner’s permission. However, according to the most recent figures, three people have died and 51 have been seriously injured in Northern Ireland due to e-scooter collisions. Under current legislation, the PSNI must issue a warning before any e-scooters can be seized. Does the Minister agree that the removal of this legal obstacle, enabling officers to act immediately, would be incredibly helpful in enabling them to better protect the Northern Ireland public from reckless e-scooter riders?
Lord Hendy of Richmond Hill (Lab)
The Crime and Policing Act 2026 gave police stronger powers to seize vehicles being used anti-socially, without first requiring a warning. It also introduced new respect orders enabling police and councils to ban persistent offenders from areas where they cause harm. I am not familiar with whether that legislation applies to Northern Ireland, but I will write to the noble Lord to confirm that.
Lord Young of Cookham (Con)
My Lords, it is time someone spoke up for the cyclist. Unlike the noble Lord, Lord Shamash, I like e-bikes. I am one of a number of noble Lords on the other side of middle age who use e-bikes—legal e-bikes—to get around. Our case is undermined by illegal e-bikes being driven dangerously, often by delivery drivers. The City of London Police confiscates and destroys five illegal e-bikes every week. Should not more police forces do that and give wide publicity to that, in order to reduce this abuse?
Lord Hendy of Richmond Hill (Lab)
The noble Lord is right, and in pursuit of his desires, the Metropolitan Police recently seized 52 illegal e-bikes and mopeds. A total of 2,741 were seized across 2025-26. West Midlands Police seized more than 50, and Greater Manchester Police seized six and removed 55 locally. Merseyside Police seized over 500, Nottinghamshire Police around 100 and South Yorkshire Police over 150. So, we are starting to see proper enforcement across Britain, and the more publicity all that gets, the better.
Lord Moylan (Con)
My Lords, I want to throw my tuppence into this. Building on the question asked by the noble Lord, Lord Krebs, what strikes me is just how shoddy and tawdry our great city streets are looking. They have been turned into great parking lots of bikes for the benefit of private companies. Is the Minister not moved to do more than simply recite a series of legal requirements imposed on bicyclists that nobody ever complies with?
Lord Hendy of Richmond Hill (Lab)
Gosh. The answer to that is the ability, through the English Devolution and Community Empowerment Act, to allow local leaders to license shared cycle schemes. This is precisely the measure that will enable local authorities to clean up streets, at least in respect of bikes. As we go forward with proposals for e-scooters, I have no doubt that the same powers will feature. The noble Lord does have a good point, especially in relation to people with partial or no sight, or other disabilities. Littering the pavements and streets with these things is hugely undesirable for ordinary people trying to walk about and make use of their towns and cities.
Further Education Colleges: Recovery of VAT
(1 day, 4 hours ago)
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Lord Forbes of Newcastle
To ask His Majesty’s Government what assessment they have made of the impact on further education colleges of their inability to recover VAT on expenditure; and what plans they have, if any, to address this disparity to create equality with other publicly funded education providers.
Lord Forbes of Newcastle (Lab)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I draw attention to my role as president of Capital City College Group.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, further education colleges are publicly funded and provide free education. No VAT is charged on these services, meaning colleges cannot recover VAT on their costs. Further education colleges are currently outside the scope of VAT refund schemes that allow some public bodies, such as schools maintained by local authorities, to recover their VAT. The Government are continuing to look into the VAT position of these colleges.
Lord Forbes of Newcastle (Lab)
I thank my noble friend the Minister for that response. As he correctly identifies, since 2011, FE colleges, unlike councils, academies and almost all other public sector organisations, have been unable to reclaim VAT costs from the Government’s refund scheme. LSE research estimates this to be a loss to the sector of £200 million a year. This puts college students at a funding disadvantage compared to their peers in state-funded schools and reduces resources for courses in government priority areas such as construction, engineering, digital and health. Given that colleges deliver disproportionately to young people from more disadvantaged backgrounds, and in the context of the current national crisis of young people not in education, employment or training, will the Government commit to reviewing this funding inequity for the FE sector as part of their cross-departmental response to the Milburn review?
Lord Livermore (Lab)
I am grateful to my noble friend for his question. As I have said, the Government are continuing to look into the VAT position of these colleges. Of course, admitting further education colleges to a VAT refund scheme would be a change in tax policy. As my noble friend knows, the Chancellor makes decisions on tax policy at fiscal events in the context of the overall public finances. I agree with my noble friend about the importance of FE colleges. That is why we are investing in FE colleges: £1.7 billion to support them to maintain their estates; £375 million to expand capacity for post-16 education; £590 million to support priorities such as recruitment and retention; and £295 million into 29 technical excellence colleges to support key sectors for growth including construction, engineering and manufacturing.
Lord Deben (Con)
Does the Minister accept that there are some areas where the law has already told the HMRC that it ought not to be demanding VAT—for example, agricultural shows—and that it refuses to accept the law and keeps on standing in the way of spreading what it has had to do for the Great Yorkshire Show to other shows? It is also true that the HMRC has lost its case about plug-in electric cars and is supposed to reduce the VAT to the same level as you pay at home. At the moment, it is penalising people who do not have a drive, and therefore people who do have a drive get their VAT very much lower. Why does he not intervene and make the HMRC accept the law?
Lord Livermore (Lab)
There is a lot there. I am confident that HMRC accepts the law and is following the law, but I am more than happy to look into the points that the noble Lord raises.
Lord Mohammed of Tinsley (LD)
My Lords, I will return to colleges and the original Question from the noble Lord, Lord Forbes. I want to follow up on the issue that he raised about the amount of VAT that is collected from colleges—about £200 million, if I heard the noble Lord right. What assessment have the Government done of the opportunity cost in improved facilities, more equipment and staff training that could be delivered if colleges were able to get that £200 million in VAT refunded?
Lord Livermore (Lab)
As I have already said, the Government are aware of this issue and we are looking into the VAT position of these colleges. As I have also said, we have significantly increased the amount of funding that is going to FE colleges to do the exact things that the noble Lord is asking for: £1.7 billion to support colleges to maintain their estates and £375 million to expand capacity for post-16 education, among other investments.
Lord Johnson of Marylebone (Con)
My Lords, although the funding gap has halved in the last 10 years, FE continues to play second fiddle to HE in many respects beyond this important VAT issue. Does the Minister agree with the Milburn review that colleges face a further disadvantage because of the way funding is provided on a lagged basis, which disincentivises them from taking on NEETs who are less likely to complete their studies and therefore bring funding to the institution than other types of students?
Lord Livermore (Lab)
There is a great deal to be said in favour of what Alan Milburn sets out in his interim review. He has published his interim review, setting out the drivers of youth unemployment. Clearly, some of the issues that the noble Lord raises are important to that and a factor in the rise in economic inactivity among those with health conditions. Alan Milburn will set out his final report later in the year, at which point he will set out his policy recommendations. I look forward to him doing so.
Baroness Blackstone (Lab)
My Lords, picking up what the noble Lord, Lord Johnson, said, the FE college sector really is the poor man of the education system in this country. This follows years of neglect by previous Conservative Governments. My noble friend the Minister read out a number of different improvements in the resourcing of these colleges, but does he agree that there also needs to be greater parity of pay? Those who work in FE colleges are worse paid than those who teach sixth formers and much worse paid than those who teach in universities, despite neither of those groups being particularly highly paid. Will he look into this, with the Department for Education, to see whether there can be some improvement in pay and in the training of leaders in FE colleges, so that we can have better skills training in order to support the economy and a better deal for those young people who do not want to follow an academic route and go to university?
Lord Livermore (Lab)
I agree with my noble friend’s overall point that we want greater levels of parity between FE colleges and other educational establishments. The Government are delivering those measures through our post-16 skills White Paper on developing the skilled workforce that our economy needs and on reaching the target of two-thirds of young people participating in higher-level learning. FE colleges are a vital part of that. One thing that I have not read out is that, in recognising rising student numbers, the Government are providing £87 million of exceptional in-year growth payments to colleges this year and are increasing funding by nearly £800 million next year.
Baroness Neville-Rolfe (Con)
My Lords, as noble Lords know, I am huge supporter of vocational education, so I welcome this Question. Does the Minister agree with the noble Lord, Lord Forbes, that it would cost the Exchequer £200 million to extend the scheme in the way proposed? More generally, do the Government consider that the criteria to reclaim VAT are fit for purpose?
Lord Livermore (Lab)
Both of those points are swept up in the point that I have already made: the Government are continuing to look into the VAT position of these colleges.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, another funding disparity currently planned for the next academic year relates to funding for free meals for students from poorer backgrounds. I strongly welcome the expansion of eligibility for free meals, but, in my experience, teenagers who attend FE colleges are no less hungry than those who attend schools. Will my noble friend agree to look again at the funding uprating for free meals?
Lord Livermore (Lab)
I am grateful to my noble friend for her question. I hear what she says and reassure her that the Government are aware of this discrepancy and are actively looking into it.
Lord Redwood (Con)
Why do the Government so often favour a model that takes a lot of tax off institutions, people and companies and then has to give some back by way of grant to help pay for it? Is that not just a double handling charge that we do not need?
Lord Livermore (Lab)
Yes, although overhauling the entire VAT system would be something of a long-term project.
Baroness Garden of Frognal (LD)
My Lords, I endorse everything that the noble Baroness, Lady Blackstone, said about the disparity in pay between FE lecturers and schoolteachers, and the iniquity of that. FE is simply not treated in the same way as other educational systems. The Minister keeps saying that the Government are looking into this. Can he put a timescale on that? Are they looking into it this year, next year or way in the future?
Lord Livermore (Lab)
As I have said, we are looking into the VAT position of these colleges. I am not in a position to put a timescale on that just now.
Lord Mandelson Humble Address
(1 day, 4 hours ago)
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Lord Pack
To ask His Majesty’s Government what further steps they are taking to retrieve information in relation to the matters covered by the Humble Address dated 4 February relating to the appointment of Lord Mandelson as HM Ambassador to Washington; and what assessment they have made of the extent to which relevant records, communications, and other material remain available.
The Parliamentary Secretary, Cabinet Office (Baroness Anderson of Stoke-on-Trent) (Lab)
My Lords, the Government have published all available material, with the exception of a small number of documents that were withheld at the request of the Metropolitan Police, making this the largest ever government response to an humble Address. The Government now consider that they have duly discharged the duties set out in this humble Address.
Lord Pack (LD)
In recent days, we have seen various WhatsApp messages passed to the media that were not handed to the Government for publication as part of the humble Address. Obviously, we do not know who passed those messages to the media, but does it not highlight the importance of ensuring that current and former Ministers and ministerial appointees fully co-operate with such processes? So would the Minister commit to reviewing the terms of the taxpayer-funded settlement payments or pensions for such people to ensure that, if, in future, people do not fully comply with such processes, there will be financial consequences?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord raises an important point about compliance with the will of both your Lordships’ House and the other place with regard to an humble Address. With regard to the specifics about any penalties, the Government currently have no plans to change the ministerial pension scheme, as I have put in writing several times to the noble Baroness, Lady Finn. However, I appreciate the noble Lord’s concern and I am sure there will be ongoing reviews.
Lord Harper (Con)
My Lords, can I just probe the Minister a little more on that question? The messages that were published between Lord Mandelson and the Chief Secretary to the Prime Minister were clearly within the terms of the humble Address. They were not published. That raises two questions. First, why did the Minister not make them available? Secondly, what confidence does that give us that all the rest of the information that was in scope of the humble Address has actually been published? How can the Minister give us that confidence?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I shall start with the noble Lord’s second point. This was an official-led process. There were no politicians involved in the determination of what was and was not published. About 1,500 documents were published only a week ago. With regard to any correspondence relating to the Chief Secretary to the Prime Minister, the Chief Secretary to the Prime Minister proactively disclosed to the other House twice last week that he had exchanged messages with Peter Mandelson, but they were no longer available to him to disclose as part of the humble Address. As he stated in the other place, if he continued to have access to those messages, he would have disclosed them as part of his return. He does not have access to the messages.
Baroness Finn (Con)
My Lords, given the miraculous emergence of the Darren Jones texts, can the Minister give assurances that there are no other withheld ministerial communications that will emerge? Also, given that confidence in this process has been shaken, as my noble friend Lord Harper said, can she now commit to publishing the schedule identifying exactly what material is being withheld at the request of the Metropolitan Police?
Baroness Anderson of Stoke-on-Trent (Lab)
As I have said many times and very clearly from this Dispatch Box—I think this might be my fourth outing on the humble Address, which will make it also the noble Baroness’s fourth outing on the humble Address—we have published everything that is available to us and that this was an official-led process that has been done in kind. We are adamant, and the officials are adamant, that we have fully complied with the humble Address. With regard to a schedule of documents, as I have discussed with the noble Baroness, Lady Finn, I shall be very clear: there are three buckets of information, which I have said on record before, about categories of information that will not be published. This small number of documents relate to national security, vetting material, conflict of interest process material and internal correspondence with Peter Mandelson. As and when the Met Police believe it is appropriate to do so, they, too, will be published.
Lord Pannick (CB)
My Lords, can the Minister confirm whether the Prime Minister and other Ministers have been using a WhatsApp system that permanently deletes official messages, and, if so, whether she thinks that is acceptable?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, the guidance on ministerial use of NCCCs— non-corporate communication channels—is clear for all Ministers and is part of the Ministerial Code, which states:
“‘Disappearing message’ functions have a role in limiting the build up of messages on devices. You must ensure that any such use does not impact on your recordkeeping or transparency responsibilities”.
There is a difference between storing material that relates to decision-making and the output of policy-making and keeping messages that may relate to gossip.
Lord Jackson of Peterborough (Con)
My Lords, how many other individuals in wider public service are effectively dismissed for gross misconduct yet receive a golden goodbye of taxpayers’ money to the tune of £77,000?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I am not sure that anyone would expect me to have the details of anyone’s employment contract or their departure at hand, but noble Lords will be aware of Civil Service contracts, because they are available to Members of your Lordships’ House, and in fact this one was published as part of the first humble Address.
Lord Kamall (Con)
My Lords, following up on the question from my noble friend, the Minister said that deciding which messages to release was official led, if I completely understood that correctly. Is she able to tell the House what criteria or guidance were given to officials so that they could decide which messages to release?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, the methodology of what was published and why, and what was withheld and what was redacted, was published in every volume of the disclosure last week, which noble Lords will remember I had next to me when we did the Statement. That methodology was agreed by the Permanent Secretary to the Cabinet Office. A KC was then brought in to quality assure that process. Materials were passed to the ISC that related to national security and international relations, which the committee then redacted. Additional material was then seen by the honourable Simon Hoare MP in his role as chair of the Public Administration and Constitutional Affairs Committee. He was then invited in on Monday last week to look at the third-party redactions to make sure that he was comfortable with them on behalf of Parliament, and he believed them to be sensible.
Lord Dobbs (Con)
My Lords, this is beginning to sound more like something out of “Mission Impossible”, with telephone messages destructing themselves after 30 seconds and other telephones being stolen in strange circumstances. This is getting to be a bit of a saga of excuses. We have here a decision about Peter Mandelson and that hugely important appointment, which was catastrophic. I would be the last person to accuse the Government of a cover-up, but it does leave a sense that the Government simply do not want to deal with this issue properly. Does the Minister not realise that this leaves the whole Government with a sense of avoidance: of not willing to face the truth that this was an appalling mess of their own creation?
Baroness Anderson of Stoke-on-Trent (Lab)
I shall take some of those points in turn. First, the Prime Minister have been very clear that the appointment of Peter Mandelson was a mistake, and he has apologised to Members of the other place and Members of your Lordships’ House but, most importantly, to the victims of Epstein. With regard to the publication, there has never been a larger amount of material released in relation to a humble Address. Last week, we released the second tranche of 1,500 pages, of which I read every one. Over three volumes, 337 documents were passed to the ISC. If there had been any idea of a cover-up, I think certain messages would never have seen the light of day. Instead, they have ensured that the tabloids have had something to write about, if nobody else.
Lord Grayling (Con)
Have the rules now been changed where an official mobile phone is supposedly stolen? Does that have to be reported? What is the process now?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, it is exactly the same as it was then and the process was reported to the police, as the police have confirmed for both the stolen devices.
Lord Purvis of Tweed (LD)
Does the Minister know how many Ministers were communicating with Peter Mandelson using disappearing messages on official government devices?
Baroness Anderson of Stoke-on-Trent (Lab)
I have no way to access that information.
Lord Bellingham (Con)
My Lords, when Morgan McSweeney appeared before the Foreign Affairs Select Committee, he said, “All of my messages concerning the Mandelson appointment will be published in the first round of publications”. Have they been?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord will be aware, as are all Members of your Lordships’ House, that Morgan McSweeney is no longer in post, and, with the greatest respect, neither I nor he would have known what was being published at any point in any such tranche. I reassure the House that the Government have complied with the humble Address but, as was previously set out, it remains the case that a subset of documents is subject to an ongoing police investigation.
Baroness Northover (LD)
My Lords, is the Minister aware that the previous Government also operated a system of disappearing messages?
Baroness Anderson of Stoke-on-Trent (Lab)
I think it is fair to say that there are many Members of your Lordships’ House who use disappearing messages. There are also many Members of both this Administration and the previous one who use WhatsApp far too often, which is why are undertaking a review of how NCCCs will be used by this and future Governments.
The Lord Speaker (Lord Forsyth of Drumlean)
My Lords, that completes Oral Questions for today. Those Members who wish to disappear from the Chamber should do so now.
Leaseholder Remediation (Building Safety) Bill [HL]
Complications from Abortions (Annual Report) Bill [HL]
Malvern Hills Bill [HL]
(1 day, 4 hours ago)
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The Senior Deputy Speaker
That this House resolves that the promoters of the Malvern Hills Bill [HL], which was originally introduced in this House in Session 2024–26 on 22 January 2025, should have leave to proceed with the Bill in the current Session according to the provisions of Private Business Standing Order 150B (Revival of bills).
The Senior Deputy Speaker (Lord Ponsonby of Shulbrede)
My Lords, I beg to move.
The Senior Deputy Speaker (Lord Ponsonby of Shulbrede)
My Lords, should Members wish to debate or object to this Bill, the appropriate time to do so is at Third Reading and on the Motion that this Bill do now pass, rather than on this Motion. The noble Baroness, Lady Coffey, gave notice earlier today that she wished to speak on this Motion. I will therefore seek leave to withdraw the Motion so that it may be retabled at a time when a debate can be held. I beg leave to withdraw the Motion.
Cuba: Humanitarian Situation
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Lord Callanan (Con)
My Lords, the original Question in the other place from Jeremy Corbyn MP was fundamentally misguided. The people of Cuba have long suffered from economic stagnation and political repression, and the Cuban state has a long history of abusing its own people’s political, civil and human rights. While the US sanctions have clearly had an effect, that context must not be forgotten when we are discussing the humanitarian situation in Cuba today. Can the Minister say what discussions the Government have had with US counterparts since the beginning of the embargo? What assessment has his department made of the news that a sanctioned Russian oil tanker arrived in Havana on 30 March this year? Can he confirm whether or not the Attorney-General has given advice to the Government on the legality of the US embargo?
The Deputy Leader of the House of Lords (Lord Collins of Highbury) (Lab)
I thank the noble Lord for his series of questions but, as he is well aware, successive United Kingdom Governments have opposed the United States’ embargo on Cuba and have done so consistently over many occasions for almost 30 years, certainly at the United Nations. We will continue that. Our position has been very clear that engagement and involvement are a way that we can deliver very clear messages about human rights. We have strongly made those points to both Cuba and the United States and we work with allies to pursue that position. In relation to reports of third-country involvement in Russia’s illegal war, we will continue to take appropriate action, together with our international partners, to deter those responsible.
Lord Bruce of Bennachie (LD)
My Lords, Volker Türk, the UN High Commissioner for Human Rights, has said about the blockade:
“Such severe sanctions packages that target entire sectors of an economy and produce broad, indiscriminate, and harsh effects on populations are incompatible with basic principles of international human rights law”.
We all know that poverty and hardship have been embedded by political repression in Cuba, but aid is now being provided by Canada and Europe for a humanitarian crisis created mostly by the US. The current blockade is making a long-term difficult situation for the people of Cuba potentially disastrous. What are the UK Government doing to engage with the United States Government to find ways to liberalise Cuba, to the benefit of its people, and not just see it as a resource to be plundered by US corporates?
Lord Collins of Highbury (Lab)
I hear what the noble Lord says, but what the United Kingdom Government have been doing is engaging with both the United States and Cuba. We welcome the dialogue taking place between those countries. Certainly, we are incredibly concerned about the current humanitarian situation. Our first concern is obviously also with United Kingdom citizens who may be involved, but our priority is to ensure, working through United Nations agencies, that humanitarian aid is delivered to the people of Cuba—who, as the noble Lord points out, have suffered tremendously, and that needs to be addressed.
Lord Alton of Liverpool (CB)
My Lords, in that one-party state which systematically suppresses dissent, freedom of expression and peaceful assembly, which routinely uses sham trials and which imposes arbitrary detention in harsh prison conditions, targeting journalists, labour activists and pro-democracy activists, can the Minister explore ways in which we can provide practical support and encouragement to groups such as Cuba’s Ladies in White, composed of women relatives of political dissidents and recipient of the Sakharov Prize for Freedom of Thought? Can he also say when we last raised with the Cuban authorities the denial of access to the International Committee of the Red Cross to Cuba’s horrific prisons?
Lord Collins of Highbury (Lab)
On the latter point, my honourable friend the Minister in the other place, Chris Elmore, has been in touch with the Cuban authorities. He has also spoken to the Cuban ambassador about these issues. We have been clear in our long-standing bilateral relationship, which has provided the opportunity for frank and constructive dialogue and allows us to continuously raise these human rights issues. The noble Lord is absolutely right, but we continue to press for the release of political prisoners by directly engaging, as I say, with the ambassador. We welcome also the release last year of prisoners under a Vatican-mediated agreement, so we are absolutely clear that these things must be properly raised with the Cuban authorities.
Lord Ahmad of Wimbledon (Con)
My Lords, the Minister will be aware that in 2023, the previous Government signed the PDCA, which was a political agreement that looked at humanitarian areas and covered human rights. What is the status of that agreement? My understanding is that it is yet to be ratified. In that light, are we also engaging with the direct discussions taking place between the US and leaders of the opposition within Cuba?
Lord Collins of Highbury (Lab)
As I said in answer to previous questions, we are engaged with the United States and with Cuba. We are encouraging the dialogue taking place between the US and the Cuban Government. In relation to the PDCA, ratification of the agreement was delayed to give the Government an opportunity to consider the position, particularly in relation to the global situation that we find ourselves in. What we have considered is that now is not the right time to enter into a new agreement and undertake new areas of our work. I think our priority is to address the immediate concerns, particularly in relation to the points that the noble Lord, Lord Alton, raised, but also the humanitarian situation to ensure that we can support those United Nations agencies that are getting aid in for the people who need it most.
Lord Boyd of Duncansby (CB)
My Lords, President Trump has on a number of occasions suggested or hinted at the use of military force in Cuba. The present Administration of the United States do not have a good record of compliance with international law. In their discussions with the United States Administration, will this Government make it absolutely clear that they expect the United States to abide by international law in all its dealings with Cuba?
Lord Collins of Highbury (Lab)
I suspect that the noble and learned Lord knows the answer to that question. We are members of the United Nations Security Council. We are absolutely committed to international law and urge all members of the Security Council and the United Nations to follow suit.
Baroness Meyer (Con)
My Lords, the United States has offered $100 million in aid to be administered by the Catholic Church, which the Cuban Government have not accepted, as they insist that all aid must go through their own institution. Given that the Cuban regime has provided support to the Russian war effort, what steps will this Government take to ensure that any aid we provide is not diverted to the Cuban authorities but goes directly to the Cuban people, who have, as we know, suffered economic hardship and denial of freedom under a one-party communist regime?
Lord Collins of Highbury (Lab)
I repeat what I have said before. We continue to provide support, primarily through the multilateral system, including organisations such as the World Food Programme and UNICEF. In addition, we are among the major contributors to the UN’s Central Emergency Response Fund. That is what we have been doing. Bodies such as the World Food Programme and UNICEF have established systems for monitoring distribution and ensuring accountability, which reduces the risk of diversion.
Digital Safety: Children
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Lord Markham (Con)
My Lords, there is total agreement across the House that children must be protected from harms online. Noble Lords will recall that amendments tabled by my noble friend Lord Nash on the impact of social media on children’s well-being were repeatedly resisted by the Government. We therefore welcome the Government’s recognition that further action is needed.
The Government have said that industry has three months to act and that legislation will follow if companies fail to do so. If Ministers are satisfied that these protections are so necessary, why have they chosen to rely on expectations from tech companies rather than legislating directly now? The proposals also appear to involve age assurance, device-level protections and enforcement obligations. What assessment has been made of the risk that younger users will simply remain on old operating systems, and of the practical challenges of implementing these measures across different manufacturers? The Government have also suggested that some educational platforms may be treated differently. What criteria will be used to determine any such exemptions?
Finally, can the Minister assure the House that, if the industry fails to meet the Government’s expectations within the three-month period, the necessary legislation will be ready to proceed without further delay?
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Innovation and Technology (Baroness Lloyd of Effra) (Lab)
I agree with the noble Lord that there is unanimity on the importance of tackling child sexual abuse online and taking measures to further restrict that and make it harder. As my noble friend Lord Hanson made clear during the passage of the Act, device-level nudity detection can play an important role in preventing children taking, sharing or viewing nude imagery.
This measure really looks at how to prevent those images getting online. That is a very important part of the strategy; it stops harm before it happens, in addition to the law enforcement activity that must happen in parallel. It applies to both old and new smartphones and tablets, and we expect tech companies to set up controls so that, if a parent hands down a phone, for example, all they have to do is reset it to enact this operating-level facility.
In respect of making sure that legislation is ready, as the Minister for Online Safety said in the other place yesterday, he is working carefully and closely in parallel with the Home Office to draw up legislation should that be needed, should the protections not be put in place at scale as expected.
Lord Clement-Jones (LD)
My Lords, I congratulate my honourable friend Munira Wilson on trying to extract some clarity from the Government after the Prime Minister’s speech yesterday before almost any of us arrived at London Tech Week. Sadly, it did not contain all of what was in the weekend media briefings. On these Benches, the Liberal Democrats have long called for a film-style harms-based age-rating system, with addictiveness as a central criterion, rather than a blanket ban on user-to-user services. Minister Narayan in the Commons subsequently indicated yesterday that addictiveness is
“very much on our minds”.—[Official Report, Commons, 8/6/26; col. 31.]
Can the Minister confirm that the forthcoming consultation response will explicitly adopt addictive design, including infinite scroll, autoplay and recommender algorithms as a harm category, triggering age-based platform restrictions, rather than relying solely on content type or constituting a blanket ban? Can she confirm that this will be enshrined in legislation, rather than a voluntary expectation of tech platforms?
Baroness Lloyd of Effra (Lab)
The consultation to which the noble Lord refers includes looking at features and functionalities; it looks at addictive algorithms, screen time and the impact on children’s health. The consultation has closed. There were many responses, and we are taking time to make sure that we have looked carefully at them—and, in addition to those responses, at the conversations that have gone on. I cannot pre-empt the Government’s response, which will come soon, but all the matters I have just mentioned were within the consultation for discussion.
Lord Young of Acton (Con)
My Lords, I declare an interest as the director of the Free Speech Union. Can the Minister tell us how the Government intend to safeguard against the obvious risks of requiring technology companies such as Apple to scan private messages before they are sent or received—also known, I believe, as client-side scanning? History teaches us that mass surveillance and censorship capabilities, however well intentioned, never remain narrowly scoped, whether in the hands of the state or private companies.
Baroness Lloyd of Effra (Lab)
The particular expectation that has been set for industry is in relation to nudity detection, and that technology has advanced substantially. Apple has rolled out device-level age assurance too. This is not about threats to privacy; it is about keeping children safe online. An adult will be able to switch it off if they want to, if they are able to verify that they are over 18. This measure is about keeping children safe. It is about implementing nudity-detection technology on children’s phones.
Baroness Benjamin (LD)
My Lords, it is great that the Prime Minister finally met bereaved parents and acted upon some of their concerns, but a social media ban or restriction is entirely meaningless if the regulator lacks statutory teeth, which has been the fatal flaw of previous legislation. We need an enforceable regime that remains democratically accountable to Parliament, not closed-door consultations or industry-captured advisory panels to quietly water down rules over time. What steps are the Government taking to put in place robust regulations—for example, to prevent children using VPNs to get around age restrictions—close enforcement gaps and stop technology platforms shifting addictive features or constantly adapting their algorithms’ design to bypass regulations?
Baroness Lloyd of Effra (Lab)
The noble Baroness is right to highlight the importance of the effectiveness of any regime; that is the central focus of what we are trying to do to keep children safe online. We need a regime that can be implemented, that can be navigated well by young people and their parents, and that is able to be communicated. That is one of the reasons we continue to support parents in having conversations with young people. The question about Ofcom’s enforcement powers is very important. We have made clear to Ofcom that it has the backing of the Government to take action. We have funded Ofcom so that it can take action and it has already launched 100 investigations and issued many millions of pounds in fines. That is the kind of regime we need. We need a regime that is effective and enforced.
Baroness Keeley (Lab)
My Lords, our debates around the issue of child safety in your Lordships’ House tend to highlight a lack of confidence that the big tech companies will do the right thing. They could make their products safe by design but they do not. If legislation is required after three months, can my noble friend the Minister assure the House that the legislation will be drafted and ready to go if, as many of us suspect, the companies do not act in the way that we want them to?
Baroness Lloyd of Effra (Lab)
My noble friend is right to highlight the high expectations we have for this to be rolled out. We have made it very clear that, if those high expectations for the rollout at scale of this nudity-detection technology for children’s devices does not happen, we will legislate. The Minister for Online Safety yesterday confirmed to the other place that he is working closely with the Home Office to draw up this legislation in parallel, so that we can act should that be necessary.
Lord Grade of Yarmouth (Con)
I declare my interest as a recently retired chairman of Ofcom. It is very easy to criticise the Online Safety Act and to criticise the regulator, and it is even easier to criticise the Government, but does the Minister agree with me that the force of the Online Safety Act and the work that Ofcom and indeed the Government have done in persuading tech companies to change their behaviour is not all negative? Indeed, this week, X voluntarily agreed to tighten up its procedures in respect of illegal hate and terror content, which Ofcom has scrutinised and agreed. So there are some successes. We are making some progress in a very difficult area.
Baroness Lloyd of Effra (Lab)
The noble Lord is right: there has been progress in implementing the Online Safety Act since the illegal content code and the children’s code came out. As I mentioned, there have been 100 investigations into companies. There is also the very important aspect of the communication with the wider public, and indeed with tech companies, on what action is expected and at what speed.
Water Companies
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Lord Blencathra (Con)
My Lords, delivery of strategic water infrastructure is crucial to tackling wider systemic issues. What assessment have the Government made of the benefits of smaller farm reservoir networks alongside large-scale water storage? That is the shortest question of the day, I dare to suggest.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
One thing we have been doing is working with landowners on small storage areas. We know it can be very effective in things such as flooding, as well as providing water for livestock, for example. It is a very good point because, as well as building new large reservoirs to provide drinking water, we need to look at how we put less pressure on our water system. The noble Lord is absolutely right that that could be very helpful.
Baroness Grender (LD)
My Lords, are the rumours true that the Government will not publish the water Bill until Thames Water is resolved? The company is in breach of its licence conditions by not having held any grade credit ratings for nearly the last two years and by having failed to tell Ofwat and the Government about change of control. The only plan for the future appears again to be to leave it up to shareholders to own and pillage. Its independent expert states that the cost to the Government of special administration would be zero in the medium term, so why not get on with it?
Baroness Hayman of Ullock (Lab)
I am not aware of any such rumours. I do not know where they have come from, but I am not aware of them. On Thames Water, the Government are actively working very closely with Ofwat, which is evaluating the latest proposals from the consortium. Clearly, in doing that it has to take the best interests of customers and the environment into account. We are looking at all and any eventualities that may come out of those discussions with Ofwat, which includes being ready to apply for a special administration regime if necessary.
Lord Deben (Con)
My Lords, does the Minister accept that it has to be faced that in the east of England we spend a lot of money pumping fresh water out to sea during the winter and then do not have enough of it for agriculture, industry and homes? Nobody at this moment is looking at the specific issue of how we stop the costs of doing that and enable people in the east of England to have water supplies that at the moment they do not.
Baroness Hayman of Ullock (Lab)
The noble Lord makes a very good point—in fact, he made it to me yesterday. I do not blame him for repeating it, because it is critical for the east of the country. All I can say is that we are looking right across the water industry to see how we can improve it and make it operate effectively for consumers and the environment. I will absolutely reiterate to the department the points he has made.
Lord Sikka (Lab)
My Lords, water companies have knowingly violated their licence conditions and have more convictions than hardened criminal gangs, yet no executive has been fined and no company forced to relinquish its licence. What will it take for the Government to recognise that privatisation has failed and that water companies ought to be returned to public ownership?
Baroness Hayman of Ullock (Lab)
I know the noble Lord is very keen on nationalising the water industry. It is important that we use the clean water Bill coming up later this year to make the systemic changes to the water industry that will deliver us an industry that is fit for the future and that people can rely on. That is the big problem—people cannot rely on the water industry at the moment, and we are seeing issues such as those with South East Water and Thames Water more and more frequently.
When looking at nationalisation, we consider the regulated capital value of the water sector to be the closest proximity for the total value of the sector’s debt and equity; it is currently £107 billion. This is usually used as the starting point for estimations. You can then put on a discount—for poor performance, for example—or a premium. At the moment, £82.7 billion is the cost of the outstanding debt of the water companies. We are not looking to renationalise because of the cost and because of the amount of change we are bringing in. We want to crack on. In the case of nationalisation, government would become responsible for that huge amount of money.
Baroness McIntosh of Pickering (Con)
My Lords, I thank the Minister for the work that she and the department are doing in clearing up the rivers, watercourses and seas, though privatisation and EU regulations have played their part. She will be aware that the Cunliffe review referred to pollution and flooding being addressed up stream and to greater use of sustainable drains. Can she resolve her disagreement with her fellow Ministers in the Ministry of Housing to make sure that we can implement Schedule 3 to the Flood and Water Management Act 2010?
Baroness Hayman of Ullock (Lab)
As the noble Baroness knows, Defra is very keen to be able to implement SUDS. We know that it makes a huge difference. We know that we need to use sustainable drainage to tackle flooding, particularly given the size of the building programme and the Government’s ambitions in housing, for example. I can only assure the noble Baroness that we will continue to press the department on this.
Lord Redwood (Con)
We do need more capacity for reservoirs and water storage. Where have the Government and the regulator got to in granting the permits so that work can get under way to make that much-needed provision?
Baroness Hayman of Ullock (Lab)
The Government are very keen to press forward with new reservoirs. It is unfortunate that no new reservoirs have been built in almost 40 years. There are a number of reasons for that, and it is one of the reasons why we brought in the Planning and Infrastructure Act: to allow major projects—nationally significant infrastructure projects—to be able to move forward more quickly. We are currently working through that process.
Lord Cromwell (CB)
My Lords, yesterday I asked the Minister how long it takes to build a reservoir, but I am not sure I got an answer. I am told by a bit of internet research that it will take roughly 10 years to get through planning and then a further five to 10 years to build a reservoir, by which time I think most Members of this House will be either former Members or late Members. Are those the figures that the Minister is working to?
Baroness Hayman of Ullock (Lab)
I sincerely hope that I will see that first reservoir built and that I will not be a late Member, and I hope the same for the noble Lord. As I said, part of the reason for the Planning and Infrastructure Act was to tackle that issue of planning. It is not just reservoirs; there are many other important nationally significant infrastructure projects. Look at Hinkley Point C for nuclear, for example, and how many years that has taken. That is why we needed to change the planning system: to be able to move these projects on in good time.
Lord Grayling (Con)
On these issues, and further to the question asked by the noble Lord, Lord Blencathra, one thing the Government could do, which would be simple and quick, would be to give farmers and landowners permitted development rights to build small ponds and small reservoirs on their land. That would be beneficial on water and beneficial on biodiversity. It is something the Government could do now. Why will they not?
Baroness Hayman of Ullock (Lab)
We are not telling farmers and landowners that they cannot do that. There are ways in which we can work with farmers and landowners to allow the building of small water-holding areas. I will discuss this further with the Farming Minister, but it is something that we are already looking at.
Baroness Coffey (Con)
My Lords, the Minister was kind enough to reply to my Written Questions about what the Environment Agency in 2021 said was going to be its biggest ever criminal investigation. Five years on, with six charges potentially laid, there has been only one conviction so far. I encourage the Minister to work with her colleagues and fellow Ministers so that, when the water Bill does come through, a lot more power is given to the Secretary of State, as is happening with the Health Bill, so that we can get a move on with making sure that people go to jail when they need to and that we avoid this systemic failure in the first place.
Baroness Hayman of Ullock (Lab)
The noble Baroness raises an important point, not just on the water Bill that is coming forward but more broadly. I get very frustrated when we put in laws that should make a difference and then enforcement does not happen or things take too long. It is a really important point that the noble Baroness makes. Obviously, we will be debating the clean water Bill, and I am sure that enforcement and what we do about criminal behaviour will be part of those discussions.
Commercial Payments Bill [HL]
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Lord Leong
That the Bill be now read a second time.
Northern Ireland and Scottish legislative consent sought.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, at the outset I acknowledge the work of the previous Conservative Government in establishing the Office of the Small Business Commissioner under the Enterprise Act 2016, and in introducing the Reporting on Payment Practices and Performance Regulations, which require large businesses and LLPs to publish payment data twice yearly. Those reforms were important and necessary steps forward.
As most noble Lords know, I am a former business owner, so I know that many businesses across the United Kingdom have benefited from those measures without having to endure lengthy and costly litigation simply to recover money that was already owed to them. But despite those reforms, the culture of persistent late payment remains deeply entrenched in too many parts of our economy. Late payment is not merely an inconvenience; it is a scourge on British business. It costs the UK economy an estimated £11 billion every year. Small business owners spend more than 86 hours each year chasing overdue invoices. Every day, approximately 38 businesses in the United Kingdom close because they run out of cash while waiting to be paid.
Behind every one of those statistics is a founder who took a risk, mortgaged a home, invested savings, employed staff, and worked tirelessly to build a business—only to discover that despite fulfilling their side of the contract, they could not survive because payment did not arrive on time. That is neither fair nor sustainable, and this Government are determined to act.
In July 2025, the Government launched a public consultation to gather views from businesses, trade bodies, representative organisations and stakeholders across the country on how best to tackle poor payment practices and improve payment times. The response was overwhelming. Businesses large and small, across all sectors and regions, made it clear that reform was urgently needed. The measures before your Lordships’ House today are the result of that engagement.
The Bill builds on the foundations laid by previous reforms and delivers on this Government’s manifesto commitment to tackle persistent late payments once and for all. Its purpose is straightforward: to ensure that when goods are supplied or services are delivered, businesses, particularly small and medium-sized enterprises, can be confident they will be paid fairly and on time.
SMEs are not peripheral to our economy; they are the very backbone of it. There are approximately 5.5 million SMEs operating across the United Kingdom. They employ around 60% of the private sector workforce and account for around half of all private sector turnover. Yet too often, they operate in a commercial environment where delayed payment has become normalised and smaller suppliers effectively act as involuntary lenders to larger organisations with greater bargaining power. The Bill seeks to restore balance, fairness and accountability to those commercial relationships.
Part 1 of the Bill introduces a maximum payment term of 60 days in commercial contracts, subject to limited exemptions, and renders contractual terms in breach of those rules void. We have listened carefully to businesses and stakeholders to ensure that these measures are proportionate and workable. Therefore, the Bill includes provisions enabling exemptions for large-to-large business contracts and for circumstances where the purchaser is the smaller party. We also intend to consult on secondary legislation that would exempt contracts relating to imports and exports from maximum payment terms.
This is not an attack on legitimate commercial freedom; it is a measured and proportionate intervention to address situations where freedom of contract exists more in theory than in practice because of unequal bargaining powers. Businesses cannot pay wages, suppliers, VAT, rent or national insurance with invoices that remain unpaid for 90, 120 or even 180 days. Prompt payment should be the norm in a modern economy, not the exception. The Bill also strengthens the existing statutory right to interest on late payment of commercial debts.
At present, many suppliers are reluctant to enforce those rights because they fear damaging valuable commercial relationships. Consequently, the law often exists only on paper. The Bill will remove the ability for contracts to substitute weaker remedies in place of a statutory interest at 8% above the Bank of England base rate. That will create a stronger deterrent against late payments and reinforce the principle that delaying payments should carry consequences. The Bill further allows suppliers to recover a fixed sum where disputes are raised late or without sufficient information in an attempt to delay payment. Too many businesses have encountered situations where objections are raised at the eleventh hour, not because there is a genuine dispute but because delaying payment benefits the purchaser’s cash flow. That practice is unfair, damaging and totally unacceptable.
Legislation is meaningful only if it can be enforced effectively. That is why the Bill will significantly strengthen the powers of the Small Business Commissioner. The commissioner will be empowered to resolve contractual payment disputes through a confidential adjudication scheme operating outside the court process, enabling small businesses to recover money owed to them quickly and efficiently. The commissioner will also gain powers to investigate persistent poor payment practices by larger businesses, to compel participation in investigations, to issue recommendations, to give publication and enforcement directions, and, in the most serious cases, to impose financial penalties. The Bill will allow regulations to be made to empower the commissioner to enforce compliance with payment reporting obligations when businesses fail to publish accurate payment data. Taken together, these reforms will transform the Small Business Commissioner from a passive observer into an active champion of fair payment practices across the United Kingdom economy.
The Bill also addresses one of the most controversial and damaging practices in the construction sector: cash retentions. Retention payments represent labour and materials already delivered and installed on site. Yet subcontractors and smaller firms frequently wait months, sometimes years, for money that is rightfully theirs. In some cases, they never recover it because of insolvency higher up the supply chain. The Construction Leadership Council estimates that approximately £223 million in retention payments is lost annually due to insolvency, while around £4 billion to £6 billion in retentions is held across the industry at any given time. That is an extraordinary amount of capital being withheld from productive businesses. Therefore, the Bill bans retention clauses in construction contracts and introduces a fixed sum payable for any unauthorised deduction from a retention payment.
A two-year transition period will apply before the ban comes fully into force, allowing industry and clients time to adapt and enabling alternative surety products to develop in the market. This is an important reform that will improve cash flow, strengthen resilience and reduce insolvency risks throughout the construction supply chain.
There is a broader economic case for this legislation. Growth does not come solely from major infrastructure projects or multinational investment; growth also comes from healthy cash flow in ordinary businesses across every town, city and region of our country. When small businesses are paid on time, they invest with greater confidence, recruit more staff, train apprentices, innovate and grow. Improving payment culture is therefore not simply a contractual issue; it is a growth strategy, a productivity strategy and, fundamentally, a fairness strategy. The Bill strikes the right balance between respecting commercial freedom and intervening where persistent unfairness harms businesses, jobs and economic growth. It is pro-enterprise, pro-growth and pro-fairness.
Poor payment practices destroy businesses, jobs and livelihoods. Too many business owners work day and night, often without paying themselves—as I, for one, know—reinvesting every penny into their businesses, only to find that they run out of cash because larger organisations fail to pay them on time. The Government are on the side of those businesses. We will not accept a business culture where smaller firms bear disproportionate financial risk simply because they lack bargaining power.
I am grateful for the constructive engagement and support received from noble Lords across the House through the all-Peers briefing sessions and discussions with Front Benches. I look forward to working collaboratively with noble Lords during the passage of the Bill. I particularly look forward to hearing the wisdom, expertise and practical experience that your Lordships’ House will bring to this important debate.
The Bill will help to ensure that the United Kingdom remains one of the best places in the world to start, build and grow a business. It will strengthen confidence, improve cash flow, protect jobs and create a fairer commercial environment for millions of businesses across our country. Businesses that do the work deserve to be paid on time. That is the simple and fair principle at the heart of the Bill. I beg to move.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register, in particular as a partner and practising solicitor at DAC Beachcroft. It is a pleasure to follow the Minister, who not only read from a brief but spoke from his heart. He has a record that anyone should be proud of in building businesses in the past.
The Minister was also very generous in the praise that he extended to the previous Conservative Government. We on these Benches have consistently championed the rights of small businesses. In government, we created a specific duty for contracting authorities to consider small-sized and medium-sized enterprises in competing for contracts. During the pandemic, we directed an additional £69 billion towards support for businesses.
That belief in small business has followed us into Opposition, often in defiance of the Government’s broader approach to industrial policy, so it is welcome to see Ministers taking a step in our direction. For that reason, I say from the outset that we do not oppose the Bill. Tackling poor payment practices will be beneficial not only to small businesses but to the wider economy as a whole.
As the Minister pointed out, an estimated 38 businesses close every day as a result of late payments, costing the country some £11 billion annually. We therefore recognise the need for reforms such as mandatory payment terms and statutory interest payments, both of which should improve cash flow and provide smaller firms with greater certainty.
However, I recognise that there is a small risk that some businesses may be negatively affected by the changes to the late payment rules. Although that is undoubtedly not the Government’s intention, the decision to exempt transactions between large businesses risks creating an incentive for bigger firms to bypass smaller suppliers altogether. I would therefore be grateful if, when the Minister comes to sum up the debate—like him, I look forward to noble Lords’ contributions to this debate from all sides of the House—he could address whether the Government have considered this possibility and what safeguards could be created to guard against such an outcome.
Similarly, in a number of countries where mandatory late payment terms have been introduced, they have in practice tended to become accepted payment dates rather than genuine deadlines. Instead of encouraging prompt settlement, they have occasionally encouraged businesses to delay payment until the final permissible day. I hope that the Minister will address this concern in his reply; I look forward, as he does, to engaging constructively on these matters in Committee.
I also ask the Minister for some clarity on the 60-day payment term. There is often a discrepancy between when a business does a payment run and when the bank actually makes the payment. There are instances where unforeseen delays cause the payment to overrun the 60-day window, after which statutory interest is automatically applied. Can the Minister confirm whether the 60-day deadline ends when the payment is made or when it is received by the supplier? Does the legislation account for delays due to payment runs or payment system delays? Perhaps these points need more clarity in the Bill’s drafting.
We similarly support the abolition of retention sums in construction contracts. We recognise that retention payments are often far smaller than the actual cost of defects, and that they have increasingly become less a form of genuine insurance and more a mechanism for unilaterally transferring risk on to smaller contractors while preserving working capital for larger firms. That does little to improve either quality or productivity in the construction sector.
Despite this, we recognise that, on occasion, retention payments have served as a legitimate, if limited, form of protection against defective work. In the construction industry, where the cost of errors tends to range between 5% and 25% of project value, the importance of ensuring that adequate protection against shortfalls is available is self-evident. Given that the retention option is being removed from construction contracts, can the Minister please explain how the Government intend to ensure that defects in construction projects will still be rectified by those responsible?
I turn for a moment to the changes proposed to the Office of the Small Business Commissioner. Bringing upwards claims into its remit is welcome, as are the new powers to enforce compliance and to distribute fines for non-compliance. The success of these reforms will depend ultimately on resources. Greater powers and greater responsibilities must be accompanied by adequate funding. The former without the latter risks creating backlogs and inefficiency, and ultimately discrediting the important work that the commissioner’s office exists to carry out. I therefore hope that the Minister can assure the House that sufficient resources will accompany these expanded duties.
I also wish to address some broader points concerning the Government’s overall business policy. This Bill is undoubtedly a step in the right direction, but I would describe it as a small step only, because it must be seen in the broader direction of the Government’s overall legislative programme. This is a Bill that rightly seeks to support small businesses in competing fairly with larger firms. It seeks to improve cash flow and to engineer greater and fairer symmetry within the market. These are worthwhile and sensible objectives. It is a great pity that those very principles should be in such obvious contrast with almost every other area of government policy.
Small businesses will welcome this Bill, but it will do little to relieve the broader pressures under which they must currently operate. Industrial electricity costs in the UK remain among the highest in the OECD, driven by a combination of high green levies and continued reliance on intermittent energy generation. The consequence is that large sections of our manufacturing and construction sectors are becoming increasingly uncompetitive and, in some cases, simply unprofitable. At the same time, the minimum wage has continued to rise significantly beyond the rate of inflation, discouraging investment in youth employment and training opportunities. For sectors such as construction, which already endures one of the highest turnover rates in the United Kingdom, this is particularly damaging. Businesses cannot continually absorb rising labour costs while simultaneously facing higher energy prices, increased taxation and ever-growing administrative and regulatory burdens.
I must return to the Employment Rights Act. The Government’s own figures suggest that it will impose over £1 billion in additional administrative costs on businesses. Many of us suspect that this figure may prove to be a significant underestimate. Those costs will inevitably fall most disproportionately on small and micro businesses, which lack the legal resources that are available to larger corporations. When the qualifying period for unfair dismissal is reduced to six months, many small businesses simply will not possess the capacity to manage, or even adequately assess, the additional risks involved in hiring.
Six months was a late and welcome compromise, but it will still make employers think twice and twice again before hiring people. At a time when economic growth remains weak and business confidence fragile, that is deeply concerning. Given the stated intent of this Bill—to help smaller businesses survive—I hope that, over the coming weeks, the Minister will be receptive to measures exempting some of the most vulnerable businesses from further measures within the Employment Rights Act that stand to be triggered by secondary legislation.
While we welcome this attempt to improve market practices and enhance protections for small businesses, without cheaper energy, affordable labour and proportionate employment regulation the effect of these reforms will inevitably be limited. We therefore hope that this Bill marks not merely an isolated intervention but the beginning of a broader change in the Government’s outlook towards the wealth creators in our society, without whom no progress is possible. This legislation is founded on sound principles. I only hope that the same principles will come to guide future policy more generally across the full field of industrial and economic strategy.
Lord Thomas of Cwmgiedd (CB)
I too welcome the powerful, lucid and passionate way in which the noble Lord the Minister introduced, based on his own experience, the need for this Bill and the principal purposes behind it. It is also a great pleasure to follow the noble Lord, Lord Hunt, and his exposition of some of the problems that he has encountered from his long experience as a senior and distinguished lawyer, because at the heart of so many legal disputes is the desire to delay payment.
I want to raise a point that has not been raised, which comes from much more recent experience, primarily in this House. The notes to the King’s Speech say:
“The measures apply only to UK-to-UK business transactions and do not affect global supply chains or international trade”.
The Late Payment of Commercial Debts (Interest) Act 1998, which this Act seeks to amend, applied to all business-to-business contracts governed by English law—or, I should hastily add, laws of other parts of the United Kingdom, provided that there was a connection in the contract with the United Kingdom. My understanding is that it is intended that effect will be given to what is said in the King’s Speech under regulations made under new Section 2E, which is to be inserted by Clause 3 of this Bill, and that it is intended thereby to exclude all non-UK business-to-business contracts and thus achieve the result of excluding international trade from the scope of the Bill.
The point I wish to raise is to question whether that is a sensible and desirable policy, given the changes in technology, recent legislation, and the current emphasis on the need to strengthen the participation of SMEs in exporting and importing. I hope that His Majesty’s Government would wish to take a position to promote a modern policy in tune with their ambition to be leaders in the digital age: I would hope we would not be seen as laggards. I therefore suggest that we might need to look at and should consider an amendment to the Bill to remove the exclusion from the regulatory powers of the Bill of international trade—imports and exports—or at least to provide a sunset for that provision.
Now, can I explain the experience that has led me to this view and declare my interest through it? My experience is derived from my chairmanship of the Special Public Bill Committee on the Bill that became the Electronic Trade Documents Act. Since that time, I have taken an interest in trying to encourage the head start that the Act gave the United Kingdom in revolutionising documentation and payments in international trade, in particular financing trade and the speed of payment, that being particularly important. One of the avenues through which I have tried to do this is by assisting in the implementation of the Act as chairman of the advisory volunteer board of the International Centre for Digital Trade and Innovation.
The Electronic Trades Document Act was a Law Commission Bill, the purpose of which was to legislate in the United Kingdom to bring about a legal regime absolutely consistent with the UNCITRAL Model Law on Electronic Transferable Records 2017, but in a way that retained the historic flexibility of English law and was consistent with the law of Scotland. It is a very short Act: it is seven clauses over three operative pages. It is a pleasure to see that two members of that committee will follow me in speaking in this debate: the noble Lords, Lord Lansley and Lord Holmes of Richmond.
The regime under the model law replaces the centuries-old traditional way in which we traded. Paper bills of lading, paper bills of exchange and paper certificates have been used for trade since the 13th century. It is a long tradition, and it takes a long time for people to get used to losing long traditions, but we must get used to this, and the Bill is an important opportunity to see how we can bring about a new system.
The new system replaces the old one with electronic documents, making the process entirely electronic. It provides better and easier access to finance. It ensures vastly speedier payment. It provides greater security than traditional paper-based documents and reduces the cost. If one wants to see a snapshot of the way in which the system works and the advantage that it brings, it is set out in a short and easily digestible recent report of the Teesside University Digital Trade Testbed on a project undertaken with the Centre for Digital Trade and Innovation, the ICC, and His Britannic Majesty’s embassy and other stakeholders in Japan.
The regime to which the Act made the UK a party is already in force in many leading countries with which we trade—the United States, Japan, France, Germany, Singapore and much of the Gulf. Its implementation is before legislatures in many other countries, including India, Australia, Canada, Mexico, Spain, China and Turkey.
As the UK was one of the first to get going, we have an undoubted leadership. It was indeed a pleasure, as I am sure members of the committee will recall, when the French came over to see how we would be implementing the Bill. Huge work is being done by the Centre for Digital Trade and Innovation and others to promote the use of digital documentation, but the UK needs more support in this. It was being done by the then Department for Digital, Culture, Media and Sport, but it now needs support from the new department.
It is important to realise that dealing with this matter in the Bill would bring huge advantages. First, it would encourage SMEs to engage more in import and export, as payment terms would be the same as for domestic trade. One does not want to see a differentiation. Secondly, it would encourage the move to electronic trade documents in the UK, with the great advantage that it brings. Thirdly, it would promote the leadership that we already have in electronic trade documents. Fourthly, it would bring His Majesty’s Government visibly behind the move to electronic trade documents. Fifthly, it would tie in with the move to e-invoicing that HM Treasury is insisting on. This is to be compulsory under the VAT regime. Sixthly, it would help achieve part of the Government’s trade strategy where it is stated, in reference to the use of digital documentation:
“The London School of Economics estimates that global adoption of digital trading systems could boost the UK’s GDP by up to 0.9%—and that even partial adoption could significantly impact the UK economy”.
I am extremely grateful to the Minister for his engagement on this point. I look forward to further discussions, before and in Committee, on how we can bring trade into the Bill, or at least prevent it excluding trade. That is so important not only to the way that we should be encouraging import and export business but to our leadership in the electronic age. I therefore look forward to hearing the views of other noble Lords on this subject and to engaging further in bringing the modern age into the Bill, in comparison to the scourges that the two preceding speeches addressed.
Baroness Alexander of Cleveden (Lab)
My Lords, I begin with my register of interests. I chair the Joint Industry Board of the electrotechnical sector, which brings together employers and unions operating in the electrotechnical, engineering services and built environment sectors. Our employer members are a critical part of the construction supply chain, and many have felt the burden of late payments and retentions. I therefore begin by congratulating the Government on the Bill.
Noble Lords will be familiar with Ronald Reagan’s lampooning remark:
“I’m from the government and I’m here to help”,
and will know that new regulation often engenders business scepticism. However, when it comes to tackling late payments, there is broad consensus that it is past time to update the well-intentioned but, in practice, ineffective legislation put in place at the end of the last century by the previous Labour Government. SMEs have been calling for further government action for more than a decade. This Bill will now deal with outdated and ineffective legislation.
To echo my noble friend the Minister, a shocking quarter of all firms are impacted by late payments. The Bill will bring relief to 1.5 million small businesses every year. Shockingly, late payments currently lead to more than 14,000 businesses closing each year, and the total cost of late payments is estimated to be a whopping £11 billion each year. The Bill, as the noble Lord, Lord Hunt, graciously acknowledged from the Benches opposite, is a valuable economic pro-growth measure.
When the Bill reaches the statute book, it will advance the Government’s ambition for Britain to be one of the best places to start a new business, and Britain will then have the most effective late-payments regime in the G7. Knowing that payments will be made on time means that British businesses can rely on, or indeed bank on—for that is the right word—better cash flow, thereby releasing income for investment in capital and people. By delivering enforceable penalties, the Bill can change our payments culture.
I mentioned that 1.5 million small businesses are impacted each year by late payments. Some 900,000 of them are in the construction industry, so, as the Minister has made clear, the Bill will also tackle retentions in the construction industry. Retentions are justified, as the noble Lord, Lord Hunt, made clear, as security against defects, and high-quality, on-time performance matters, but retentions, as the noble Lord recognised, are not a neutral accounting mechanism. In practice, they starve supply-chain small businesses of cash. They remove cash from companies that are often working on very thin margins. The practical impact of retentions is to remove liquidity from businesses that need that cash to pay staff, apprentices, suppliers, and tax and financing costs. Retentions expose small businesses to insolvency risk and impose a costly recovery burden that is often disproportionate to the sums at stake.
These retentions are not a marginal issue. In the impact statement and in evidence to the other place, retentions were estimated at up to £8 billion a year. Some 50% of construction supply chain contractors experience partial or full non-repayment of retentions, and the construction industry experiences the highest number of insolvencies of any sector in the UK economy. This Bill, as the Minister acknowledged, goes to the heart of building a resilient construction supply chain. It will stop dominant players using market power through contractual complexity, payments delay and retention practices to fund their own working capital at the expense of smaller firms.
The Bill, if properly implemented, can tackle these issues once and for all. No longer will money earned by small companies become free working capital for larger firms. The Bill can deliver not simply legal change but a significant productivity boost. However, as noble Lords have noted in all the opening speeches so far, the devil is in the detail. So, in my remaining time, I shall ask the Minister about issues to which I hope we can return during the subsequent stages: my queries relate to enforceability, avoidance and remedies.
First, on enforceability, as the Minister is aware, while the Small Business Commissioner has been an excellent advance, construction disputes are outwith the commissioner’s powers due to the separate existing statutory construction adjudication arrangements. However, this existing construction adjudication regime is largely inaccessible for lower-value claims, so I invite the Government to consider measures to ensure that the enforcement ban that they are proposing will also be available to small construction supply chain companies. Is this the moment to consider whether the Small Business Commissioner should also have some jurisdiction in construction, or could the commissioner have a supporting role in construction payments behaviour even if the formal adjudication regime remains under the construction Act?
I turn to the second issue, which is avoidance. If the Bill is to fulfil its promise, it must prevent disguised or backdoor retentions. So does the Minister agree that the definition of “retention” in the Bill should be widely interpreted by the courts to ensure that contractors do not try to reimpose retentions by another name? In that service, will the Government commit to monitoring avoidance behaviours, including where main contractors seek alternative forms of security, which could be more expensive, more complex or simply unavailable to small companies? I encourage the Government’s commitment to use the secondary legislation powers in the Bill expeditiously when new backdoor retention practices emerge.
Thirdly, and finally, I come to remedies. The construction industry’s payment regime is already highly complex. It involves five dates and two notices. As the Minister has acknowledged, the Bill proposes to layer on top of that a further two-year transition arrangement. I encourage the Government to consider simplifying these transitional arrangements to ensure that small businesses can follow the changes without having to pay for specialist lawyers.
The Bill is a significant development in the Government’s plans for supporting growth. It will improve Britain’s payment culture and support all small and medium-sized enterprises. It will improve supply chain resilience, reduce insolvency pressures and support a more productive economy. I commend it to the Chamber.
Lord Lansley (Con)
My Lords, I am pleased to follow the noble Baroness, Lady Alexander of Cleveden, who made some important points about enforceability and escaping avoidance of the provisions. I will come on in a few moments to talk about some of the other issues raised by the proposed ban on retention payments.
I am also pleased to follow my noble and learned friend—for these purposes—Lord Thomas of Cwmgiedd, with whom I served on that Special Public Bill Committee on the Electronic Trade Documents Act. From what I heard, I entirely agree with him on the importance of us trying to see the progress that we are making, under English law, in securing the electronic dispatch of documents being reinforced through the mechanisms that we are bringing into force in relation to payment terms.
I draw attention to my entry in the register of interests. I am a director of a small business and chair of the Cambridgeshire Development Forum, although I should again emphasise that I do not speak on behalf of any of the members of that forum. My views are entirely my own.
As my noble friend on the Front Bench may have done, we have worked on this issue from time to time over quite a long period, not just in the parliamentary sense. I was once upon a time the deputy director general of the British Chambers of Commerce and remember, back in the late 1980s, talking at length to David Trippier, who was then the Small Firms Minister, about the introduction of the code of practice on payment of bills on time. It is fair to say that where we are now, all those years later, has demonstrated that while it has always been desirable for us not to proceed by way of legislation and making payment terms mandatory and interfering in contractual terms between businesses, in practice we were never effectively able to overcome the obstacle that many small businesses would not challenge the payment terms of large companies to which they were suppliers. We have to be prepared to step in.
That is indeed, as other noble Lords have said, where the Small Business Commissioner is a very important addition to our armament. The work of the Small Business Commissioner and her team is really central to ensuring that small and medium enterprises can be protected, because they are not themselves having to raise complaints against their larger customers. I hope that we thoroughly support greater powers for the Small Business Commissioner.
Is there a means by which the interventions that the Small Business Commissioner can undertake might be prompted and supported occasionally by working with the large audit firms? We know that payment terms tend to be longer in larger businesses and, when the audit firms are examining larger businesses, it would be possible for them to sample their payment terms and report to the Small Business Commissioner so that the commissioner’s team could, where necessary, investigate particular large firms without necessarily having to do so off the back of a complaint by a particular supplier.
I have one other principal point about payment terms. The Government have chosen the 60-day approach, not the option to move over time—after, say, five years or so—to the 45-day approach. I have been trying to work this out in my head and thinking about it simply in practical terms. If one is, as a company, in receipt of an invoice in the first part of the month, it should be paid at the end of the month. Quite often companies have end-of-the-month payment runs and often rest on that as an excuse for delay. But if it is in the first part of the month, it should be paid by the end of the month and if it were to move to the following month, it would exceed 45 days. If, however, one receives an invoice in the latter part of the month and it passes over the end of the month in the payment run, it would go to the end of the following month and therefore would probably just about fall within 45 days. Thinking about it in practical terms, it always seemed to me that 45 days ought to be the logical maximum payment term, and I am not quite sure I understand where 60 days comes from in relation to the practicalities of when one receives an invoice. I hope we might think carefully about whether moving to 45 days might be better in the long run.
I have one point—an important one from my point of view—on retention payments. I have never been persuaded and am still trying to be persuaded. I think I would be more persuaded if I felt confident, as my noble friend on the Front Bench was saying, that we had other mechanisms for dealing with snags and defects.
In that context, if not today then in further discussion, we might look at whether the Government are now in a position to activate fully the new homes ombudsman scheme, under the auspices of the new homes quality board. I am very much persuaded of the value of this. Many major contractors are signed up to that scheme, and we are pretty close to the point where it could essentially be made nationwide and mandatory. That might well give people the assurance they are looking for about desnagging for residential dwellings, which is an abiding problem that many buying new homes have to put up with.
As far as retentions are concerned, I have received a brief from the National Housing Federation. We were talking about social housing last week and I noted, with some concern, that it shared the concern that I have. Let me quote the National Housing Federation, which of course represents housing associations and registered providers, generally speaking, of social housing. It said that retention clauses are one of the strongest practical mechanisms housing associations have that enable them to hold developers to account on good quality standards, strong aftercare services and agreed delivery timelines for Section 106 homes. Noble Lords will recall that the Section 106 obligation on developers is the single largest mechanism by which we provide affordable and social housing.
The National Housing Federation went on to say that a ban on retention clauses will increase the risk for housing associations buying Section 106 homes. We know that housing associations buying Section 106 contracts is a particular problem; they have lacked the cash resources to do this because they are so busy trying to remedy aspects of their housing stock and meeting building safety requirements.
I ask the Minister to reflect carefully on whether we can deal with the problems raised by the National Housing Federation. It looks for an exemption for registered providers, which is not a small exemption. It would be a substantial one, but I want to be sure that we do not do something that would inadvertently further inhibit us in providing social housing. As we all know, at the same time as we are supporting the business community, we absolutely need to increase the supply of social housing. With those reservations for the moment, and with questions about the ban on retention payments, I say how much, generally speaking, I welcome the Bill that the Government have brought forward. I hope that the House will give it its fulsome support.
Baroness Thornton (Lab)
My Lords, I am very pleased to welcome the Commercial Payments Bill and to take part in this Second Reading. I congratulate my noble friend the Minister on his absolutely outstanding introduction to it. I intend to make two points about why the Bill is so important to our business community, particularly those seeking to establish and grow enterprises of all kinds: small businesses and social enterprises.
But first, I want to say that I support this legislation for personal reasons. At a very early age, I was aware of the importance of invoices being paid in good time. My dad, Peter Thornton, was a master plumber who set up a plumbing and building business in Bradford when I was a child. It was a successful business that grew to employ a few dozen employees and provide apprenticeships for plumbers, electricians and brickies. He remained proud of that for the whole of his life. Even at 10 years old, I was aware that there were moments in the early days when customers delaying payment caused anxiety and belt-tightening times at home. Sad to say, some of this was the local authority dragging its bureaucratic feet and not paying bills in a timely fashion.
Many years later, having worked on a freelance basis and self-employed, I set up my own small business with a business partner. We were a micro-business— I think we employed 10 people at the most—and a very happy company. But again, my business partner and I had moments of anxiety caused by clients delaying payment of invoices and dragging their feet, particularly large companies that did not recognise the effect that an extra 30 or 60 days, or delays that were arbitrarily imposed, had on our company and its cash flow.
My second reason for supporting this Bill is that I am the founding chair of Social Enterprise UK, of which I am now patron. I am currently vice-chair of the Social, Cooperative and Community Economy All-Party Group, and a senior associate of E3M, an organisation that supports social enterprises contracting to deliver public services. Social businesses are businesses. Many are small and face the same challenges as all SMEs. They seek to make surpluses, like any business. The thing that distinguishes them, of course, is what they use those surpluses for: to fulfil their social purpose. Equally, they depend on the timely payment of invoices and suffer in the same way that many noble Lords, including my noble friend the Minister, have spoken of from delayed payments and non-payment. There is an unfairness in that, sometimes with disastrous consequences.
A recent consultation by Social Enterprise UK about procurement, asked: to what extent do you agree or disagree that requiring contracting authorities to exclude suppliers from bidding on major contracts if they cannot demonstrate prompt payment of invoices to their supply chains within an average of 60 days would help improve payment by suppliers to the public sector? Of course, there was agreement about this. One of the comments—I am glad I am following the noble Lord, Lord Lansley, saying this—was:
“A 60-day requirement should be the minimum, but we would like to see it set to at least 30 days. This reflects what the Fair Payment Code recommends for SMEs, and would also reduce barriers for social enterprises, where healthy cash flow is crucial and late payments are often a barrier to entry. We would also suggest altering the wording of this recommendation to a ‘maximum of 30 days’ rather than an ‘average of 60 days’, to reflect the importance of prompt payment of invoices”.
This is why I am pleased to follow the noble Lord, Lord Lansley, who at least suggested 45 days, and I think thousands of SMEs would agree with that quotation.
I seek assurance from my noble friend the Minister that this legislation will apply as much to social enterprises, co-operatives and community businesses as all other businesses. On that note, I welcome this Bill and I wish it speedy progress through the House.
Lord Docherty of Milngavie (Non-Afl)
My Lords, I too thank the Minister for the passion and eloquence with which he introduced this Bill. It is a pleasure to follow my noble friend Lady Thornton and other noble Lords.
When I began my career in banking, I had to work out cash flows and balance sheet ratios for businesses manually. To anyone under the age of 40, that is pretty neanderthal—and it seemed it at the time. But I remember being told early in my training that debt never killed a company; it was always a lack of cash. You might say that a banker would say that, and there is of course a relationship between debt and cash, but it was a simple lesson because it is true. So I welcome the thrust of this Bill and the provisions within it.
The latest British Chambers of Commerce survey shows that three-quarters of all businesses report late payments and one-quarter of all businesses report that late payments are having a direct impact on their operations or ability to grow. So the proposal in this Bill to set a cap on payments at 60 days can only be welcomed. It will of course be important for business to clarify the scope of any exemptions, as the Minister has said, and we will have to be mindful of how enforcement might impact on commercial relationships, especially between small suppliers and much larger customers. I also welcome the provisions in the Bill to strengthen the role of the Small Business Commissioner beyond guidance to more effective enforcement of prompt payment practices. Increased transparency backed by enforcement powers can only be welcomed.
It was the provision in the Bill to abolish retention payments in construction contracts that I found especially interesting. Here, I must declare my interests. I am a director of Hellens Residential—a for-profit registered social landlord that is part of a larger property group—and I am a shareholder in a small regional housebuilder based in the north-east of England.
The construction business model is not an enviable one. As my noble friend Lady Alexander said, it is a low-margin business. Last year, margins in the largest 100 construction firms were just 2.4%, up from 1.9% the previous year. You are paid in arrears, have a negative cash flow, and therefore have to have ready access to working capital. Your clients are sometimes debt-funded and illiquid in nature themselves. When building anything from scratch, you can take on all the risk of what is under the ground, which is the riskiest part of construction. Construction inflation over the last five years has been almost 40%, with inflation in key materials such as steel, timber and concrete hitting 60% over the same period. In short, it is not an easy sector of the economy in which to make money.
I am reminded of Warren Buffett’s remark that when a chief executive with a great reputation joins a company in a sector with a poor reputation, it is the sector’s reputation that will prevail. Construction in the UK represents about 4% of the economy and employs just under 1.5 million people. It is one of the diminishing number of areas of the economy where school leavers can learn a trade that can provide them with an adequate standard of living and, if they wish, career progression. Yet, as has been mentioned, despite accounting for just 4% of GDP, construction accounts for nearly 17% of all insolvencies in England, and current levels of insolvency are around 20% higher than pre-pandemic levels. Any changes to the business model must be considered carefully, but anything that improves cash flow in construction companies, as a number of noble Lords have said, should be welcomed in principle.
Retention payments—money held back by the customer until work is completed—are typically around 3% of large contracts and up to 5% for smaller contracts, so the sum held back is usually larger than the profit margin in the business. Half the sum, however, is paid when practical completion has been certified by an architect or a QS. That means the job is finished, so half the retention is paid over at that point. However, the other half of the retention payment is held by the customer until the defect period ends. That is the period during which the contractor has to return and fix any faults; it is typically 12 to 24 months. Often defects can take time to emerge—for example, with building work completed in spring, it might not become apparent until winter that there is a problem—but, in essence, around 2.5% of the contract sum is retained during the defect period.
If a window falls out, a heating system fails or an elevator malfunctions, the contractor is called back to rectify the fault at their own cost. This means that they have to pull people off another contract, which delays that contract, and get them to site, which could be miles away. Frankly, it is very inconvenient for them, and it can be quite expensive. They will turn up, sometimes reluctantly, and for smaller developments it is often the fact that the customer retains half of the retention payment that incentivises them to show up at all. If you have ever tried to get a plumber back to your house three months after you thought they fixed your boiler, you will get the picture. Although the industry is known for its disputes and resorting to contract arbitration, in practice companies usually try to take a commercial view on disputes. The fact that some money is retained incentivises a pragmatic approach to resolving disputes.
I have one question for the Minister, and it relates to behaviours. The noble Lords, Lord Hunt and Lord Lansley, touched on this. How, in the absence of retention payments, will a contractor be incentivised to return to a site and correct defects at their own expense, short of a customer resorting to legal or other contract enforcement action? I think the Minister said that the transition period will give time for alternative mechanisms to be given. I very much look forward to hearing more from the Minister, if not today, in the Bill’s later stages. That notwithstanding, I very much support the principles of these changes. I am pleased to note that both the British Chambers of Commerce and the Federation of Small Businesses broadly welcome the Bill. The provisions in the Bill are practical and sensible and show a real commitment from this Government to support UK business, and I welcome them.
Lord Leigh of Hurley (Con)
My Lords, I welcome the Bill and refer your Lordships to my business interests, which are largely in the SME sector, as set out in the register.
I thank the noble Lord, Lord Leong, for his very gracious remarks about the contribution the Conservatives have made to the Bill—the continuing line. I ought to fess up: I am not sure that the Conservatives have always led the way in this. I remember going to a speech that my noble friend Lord Heseltine, not in his place, gave. It was literally 30 years ago, but it was such a powerful speech that I can remember it. It was at the Institute of Directors, largely with small businesses there, and he was describing his business career. He explained that when he started off, he had a ledger in which he listed all the bills payable. The first column was “Bills 30 days” and the second column was “Bills over 60 days”. The third column was “Bills 120 days”. The fourth column was “Bills where solicitor’s letter has been received” and the fifth column was “Winding-up order has been received”. He said to the Institute of Directors, “Gentlemen and ladies, my advice to you, to be a success in business, is only pay the bills in the fifth column”. Not a great precedent, but a true story.
This is an important Bill and I believe it will be supported on a cross-party basis. It is something close to my heart, not least, as with the noble Baroness, Lady Thornton, because of my family history. Like many people in this House, I come from an entrepreneurial family. Both my grandfathers were originally in the furniture business, which led to my mother, after a successful career as an actress, deciding also to go into the furniture business. She discovered that in the East End of London in the 1970s and 1980s, there were a large number of craftsmen who made reproduction furniture. They worked under the railway bridges, some of them manufacturing reproduction furniture with wood, some doing the brass, some doing the lining and some doing the glass, but they were not combined, any of these businesses. She started taking furniture from one craftsman to another, and then took it all the way from the East End to the West End to sell it. None of those manufacturers could imagine “going up west” to sell their products, so she took the furniture there and sold it to the large department stores.
Now, it was a big learning curve for her: she had a great eye for business and a certain business acumen, but she did not have much business experience and she was busy juggling a family life. It turned out that the first meeting with the buyer in this upmarket West End department store was during the school holidays, and she was obliged to take my younger brother. The meeting went well and an order was about to be placed, when the experienced buyer said to my mother, “Now, Mrs Leigh, what are your terms?”, and she had no idea what that meant. Fortunately, my younger brother, aged 12, was in the room and he piped up, “2.5%, 30 days; 5%, seven days”. “Fair enough”, said the buyer, and the order was placed.
In those days, it was absolutely normal for a discount to be given for payments made in anything like a reasonable time. Needless to say, the buyer took the 50% discount and paid 60 days later. Sadly, there was not much that could be done about it. In fact, most businesses, as has been said, did not have the resources to cope with that sort of thing, particularly in the days of very high interest rates, so late payments is in my family folklore. Clearly, businesses need to have this situation remedied, but I cannot help feeling, as perhaps others do, that it is a shame that a common-sense issue such as this needs some 60 pages of legislation to be regularised, with some quite turgid and difficult clauses, and the heavy hand of government has to come in, for reasons everyone does understand, but it is regrettable that this is necessary.
There is a huge amount to discuss in this Bill. Later I will come on to some matters that are not in it but might be. I will focus on one area: the role of the aforementioned Small Business Commissioner, which comes from the Enterprise Act 2016—I see one or two familiar veterans on the other side of the House who worked on it. I note that the Government are using the definition of SMEs from the Procurement Act 2023. There are quite a lot of other definitions around; there is one in the Companies Act and we have the term “less complex entities” used by standard setters elsewhere. Perhaps the Government could start off by trying to find one definition for SME companies.
As my noble friend Lord Lansley pointed out, the concern is that most small businesses will frankly not have the time or energy to use an adjudication system in the way the Government anticipate. They will not want to enter it because they will not want to get into conflict with their customer. In a perfect market, the customer can choose which supplier they prefer, and no supplier wants to be deemed to be part of the “awkward squad”. I do not understand how this will work in practice and will be interested to hear the Minister’s thoughts. It seems to me that, by the time anyone has brought a specific complaint about late payments to the Small Business Commissioner, it will have been settled long since. All we are talking about here is timing, not whether the debt is actually due. Will the SBC have a 24-hour service seven days a week? I am keen to know more.
Some of this might be covered in the regulations, not yet published, which Clause 18 anticipates. Once again, the Government are tantalising us with what might come at a later date. I very much hope we will see drafts of these regulations as the Bill progresses through your Lordships’ House, because in this instance, as ever, the devil is in the detail. It is entirely possible that the proposal for adjudication may be redundant unless a quick and effective mechanism is put in place.
Particularly interesting to me is Chapter 2 of Part 2, which will allow investigation into payment practices—not specific instances but whole practices. It is not quite clear from the Bill exactly what would trigger an investigation and who can do so. The Bill says that a large business can be investigated where it
“‘persistently’ engages in poor payment practices”,
but we need to know what “persistently” means. The wording in the Bill and the Explanatory Notes, which I have read, is not clear. Worryingly, it will allow the Small Business Commissioner not to progress matters if it does not feel that it has the necessary resources. That cannot be satisfactory, because it is less likely to have the necessary resources in respect of a very large business. Why should it get off simply because the SBC feels it does not have the necessary resources? I look forward to debating this and other areas as the Bill progresses.
As I mentioned, I want to raise something that is not in the Bill but might be, which is particularly relevant to the relationship between SMEs and their large customers. There is a growing and worrying trend of large companies forcing their suppliers to comply with certain conditions which they feel are obligatory but on which small suppliers might take a different perspective. This applies already in areas such as modern slavery requirements, but it is now being applied by those who have signed up to the UN sustainable development goals. We are half way to the 2030 deadline for hitting these goals but on track to meet only 12% of the targets, so panic might be setting in.
The 17 UN goals are a worldwide initiative of generally apple-pie good things such as ending poverty, protecting the planet and, to use their words, ensuring that all people enjoy “peace and prosperity”—I am not quite sure that every SME can achieve that, but those are the aims of the UN Global Compact. The problem is that CEOs of large companies have clearly been persuaded to sign up—maybe over a long lunch at Davos or by their PR agents—and are now forcing their SME suppliers not just to comply with these goals but to evidence that they are doing so. They are forcing them to attend webinars, go to seminars and set out specific goals that they then have to explain to their customers that they have achieved.
I have talked to SME businesses that regard this as wholly inappropriate and are struggling to be able to do business with larger companies that force them to undertake this sort of work. They just do not have the resources, but they are frightened to speak up because they do not want to lose the business. They are responsible people who carry out their business in their own way and take care to undertake business responsibly, so why should they have to go through all these hurdles just to supply a product or service to a larger company? Artificial barriers are thus eventually being created and are detrimental to SME businesses.
I am sure the Minister is aware that large companies are forcing their suppliers to comply with these UN Global Compact requirements; people are being forced into training and taking on other costs that are unnecessary. Will he consider requiring such companies to disclose where they are forcing their suppliers to enter into these compacts? I accept that we do not want to make large companies do more work in their annual reports—the average FTSE 100 company annual report already has 97,000 words—but, none the less, a line has to be drawn against this behaviour.
In closing, I particularly thank the Institute of Chartered Accountants in England and Wales, of which I am a member, as well as Make UK and the British Chambers of Commerce, for their assistance to me to date. I very much look forward to working with the Minister, who I am sure will bring his extensive business expertise to this debate.
Lord Holmes of Richmond (Con)
My Lords, what a pleasure to follow my noble friend Lord Leigh of Hurley and to hear some of his family history. I always suspected that he was a big fan of sofa government.
I declare my interests as set out in the register as adviser variously to the Crown Estate, Endava plc and Simmons & Simmons LLP. I give more than warm congratulations to the Minister for the way in which he not only clearly and precisely set out the provisions of this Bill but did it with such experience and expertise. In all my dealings on previous Bills, I have always found the Minister passionate, constructive, practical and a pleasure to deal with. That will certainly be the case for the negotiations that we have coming up on this Bill.
It is a good Bill and I welcome it. To mash up my biblical references, it is full of good intentions but we all know what good intentions have the potential to pave and, as has already been noted, the devil is in the detail. I will go to some of that detail in the first instance. Why is it that if you are a small or micro entity you have a maximum payment term of 60 days, whereas if you are a public authority you have 30 days? I am a big supporter of public authorities. The roles and responsibilities they have are extraordinary, and the difference they make to people’s lives on a daily basis is to be absolutely applauded. My old man worked for a local authority; it is in the blood. But they are in a very different circumstance from micro entities when it comes to late payments. These are not ideal, but they are less likely to break a public authority in the same way as we see in those 14,000 businesses year on year. These are 14,000 tragic stories for all those individuals involved and in how that ripples out through their families and communities.
Secondly, I ask the Minister: when it comes to the penalties, why does the Bill specify 1% of UK revenues? As has already been noted by the noble and learned Lord, Lord Thomas of Cwmgiedd, in his excellent and powerful speech, we need not only to consider the international context from a trading perspective but to understand the modern environment in which we are working. Do we not need to see something consistent with approaches that have been taken in other pieces of legislation, such as the Online Safety Act, which looks to global turnover in this respect?
The Bill is positive, with many good intentions, which I welcome, but it could be made so much more powerful and impactful if it had the golden thread of inclusion and innovation running right through it. So many of the Bill’s intentions would massively benefit from AI, data analytics and inclusion by design. Take, for example, structured payment event data. AI could perform such a profound service to the intention of the Bill in this respect. Take also the Small Business Commissioner’s enforcement action. That will result in a rich disputes intelligence database, ripe for data analytics to be applied to it.
It is worth considering a number of “no’s” currently in the Bill, which, through amendment, we need to convert to “yeses”. First, there is no digital layer or auto-enforcement provisions. The tasks and responsibilities being given to the SBC very much will the end, but without providing the means in terms of resource, funding and technologies, to set out just three. When one considers the caseload—the amount of data the SBC will have to engage with—this is completely impossible without sophisticated AI, digital case selection tools and so on. What is the Government’s intention in this respect, and, without going into the detail, would it not be better to see some more of this at the principles layer of the Bill?
A second “no” is that there is none of the data architecture required to optimise the solutions sought in the Bill. The current structure involves self- referral in bringing matters to the attention of the SBC, which will inevitably result in a reactive rather than proactive, and potentially predictive, posture on the SBC’s part. What is the Government’s intention in this respect, looking at how, with an effective data architecture framework, we could enable the use of vital data from other parts of the state in the late payment process?
So much of this is about small and medium-sized enterprises and the asymmetry they often experience. The Bill should be focused on SMEs, because, as the Minister rightly identified, they are the backbone of the UK economy and are often described as such by government; but so much more needs to be delivered in order to support that spine. It is easy to talk about, but it is much more difficult to put in place all the measures required to support them. The Bill has the potential to do that, yet it contains none of the digital tools that would enable SMEs to engage with this new process. In order to track progress, to understand their rights, to calculate what is owed to them and to understand the pathway to the enforcement and investigation process, SMEs—which are often the furthest away from digital inclusion, enablement and empowerment —will be in a similar position without greater government action to support, enable and empower them.
The Bill contains nothing on equality. Late payments are not a neutral concept; they fall disproportionately on SMEs and, often, on minority owners, older owners, disabled person owners and community-based businesses. What is the Minister’s view on the analysis we would like to see in the Bill of where late payments currently fall and their impact from an equalities perspective?
Similarly, there is nothing in the Bill on ESG, yet the supply chain is vital to this. Late payments all too often occur at what is described as the lower or bottom end of the supply chain. What provisions does the Bill contain to support the Government’s ambition for supply chain transparency and positivity? Currently, because of the way late payments impact, there is no sense of how that is measured from that critical ESG perspective.
There are some excellent provisions in the Bill, and with amendment they can be excellent plus. We need to empower and enable small and medium-sized enterprises to do what they do best: run and grow brilliant businesses and provide great goods and services right across the United Kingdom. Through amendments, we can make the Bill better economically and environmentally for everybody. With amendments, we can make the Bill well worthy of prompt payment.
Baroness Bennett of Manor Castle (GP)
My Lords, we have an economy that is heavily dominated by giant—usually multinational—companies. There is nothing inevitable about that: it is a result of political and policy decisions made over decades by multiple Governments. It can and must be different. The Green Party sees the Bill as a modest step in the right direction of levelling the playing field between very large, powerful companies and those who are often their suppliers and who are inevitably in a supplicatory position towards them.
Like many other speakers in this debate, I bring family stories. I am a builder’s daughter; my father was a manager for a subcontractor in Australia. I learnt early on, as soon as I was old enough to understand, that one reason my father was angry or stressed was that he was often concerned about his firm going broke because it was not getting paid or the payment was being delayed. Sometimes, that payment would arrive eventually; other times, it would never arrive. That does damage to a great many small and medium enterprises.
An illustrative case study is that of Carillion, which went down in 2008, taking with it many SMEs. This shows the link between the two problems of late payment and financial collapse. I draw on the excellent—as always—Library briefing to quote the economist Orcun Kaya, who notes that, unlike the 30-day terms that some offer,
“Carillion imposed payment terms of up to 120 days on its smaller suppliers and contractors”.
That meant that there was three months’ work—with debts incurred—for which people were not paid. We can clearly see that when a company starts to delay payments and stretch out its terms, it is often a sign of financial stress within the company. It should be regarded as a red flag. I cannot see anything in the Bill on that. I wonder whether there is any way to use the Bill to introduce a red flag system. There is word of mouth in various industries—people start to talk to each other and explain the problem—but word of mouth is not a legal or formal framework.
This case study also needs to be used to raise a broader point: we have huge structural problems in many sectors of the UK economy, which the Bill on its own tackles only at small scale. There is the disaster of the outsourcing of public services to the lowest possible bid, and the disaster of business approaches and business culture. In that respect I cross-reference today’s debate with yesterday’s Second Reading of the Financial Services and Markets Bill. The parliamentary inquiry into the collapse of Carillion said that it was
“a story of recklessness, hubris and greed. Its business model was a relentless dash for cash”.
Three directors were later fined by the FCA for financial misreporting. These issues are all interlinked and all relate to the nature of our business culture, which holds back so many SMEs in our society.
We often refer to the construction sector, and that is one of the issues that I will come back to the Minister on. Thinking about the great state of disarray in the construction sector, one awful symptom I have to raise is that the latest report on mental health in the sector from the CIOB—formerly the Institute of Builders—shows that male construction workers are three times more likely to die by suicide compared with those in other industries, and that 28% of respondents have experienced suicidal thoughts at least once over the past year.
We must acknowledge that we have a real problem in the structure of the industry. Late payments are part of this story, but they are only a small part. There are also the issues of subcontracting and fake subcontracting, where, in effect, individual workers are forced to become their own small business. They, of course, can encounter all the problems that the Bill attempts to cover. But how will a quite low-paid worker forced to firm their own business be able to hold late payments against a giant construction firm? That will help us to frame the shape of the Bill. On that point, I draw on a very useful and detailed briefing from the ECA and Actuate UK, seeking clarity on the Small Business Commissioner’s role in terms of construction. Perhaps the Minister could address that in wrapping up or, if he prefers, he could write to me about that.
Another quite technical point—I am again drawing on the briefing—is the issue of retention in new Section 113A. Retention is of course what the Bill seeks to prevent happening, and it mentions related agreements. Perhaps there is the thought that the judiciary will interpret attempts to recreate retention clauses by calling them something else and will interpret the ban very widely in terminology. It is important to address how we will make sure that retention bans are not just called something else but are still in effect retention bans.
The briefing also raises important issues about the transition period and last-day retention. There will potentially be a cliff edge at the end of year three, where all transition-retained sums could become due simultaneously, and that could create a state of real chaos. Again, that might be something the Minister will want to write about. The briefing raises some very serious issues.
Also on the detail of the Bill, there is the penalty for unlawful retention. That will potentially be very useful as a penalty, but it will become a reality only if SMEs can afford to enforce it. I do not see in the Bill any resources provided to help SMEs with enforcement, so what will happen with that?
We have had discussions about 60 days, 45 days or 30 days. It is important to note and demonstrate what might be possible. In the UK defence sector, the Ministry of Defence direct contracts specify that 90% of undisputed SME invoices must be paid within five working days. It is interesting to note that when we think about what is actually possible.
It is also useful to think about comparative terms here. Presumably, this does not cover the supermarket, food and farming sectors. We have the Groceries Code Adjudicator there. How does the Bill interact with the Groceries Code Adjudicator? What is the interaction?
Finally, I turn to an issue that has already been raised by the noble Lord, Lord Lansley. Like him, I draw on the briefing from the National Housing Federation, which delivers a cry of concern from the heart about the Section 106 provision. We are talking a lot about inequality of arms and an inequality of power between suppliers and purchasers; here, we have to note that a major construction company versus a housing association in some ways turns that balance of power around. If there is a problem with, say, a block of flats that has been constructed and purchased for social housing, housing associations may not have the capacity to carry out repairs themselves. They may also find it extraordinarily difficult to bring legal action against a major developer. This is an issue that the Minister is going to have to address as the Bill progresses, if not today, because the National Housing Federation has identified an issue. I do not know what the solution is, but we certainly need to address it.
Baroness Dacres of Lewisham (Lab)
My Lords, I welcome the opportunity to speak in support of the Commercial Payments Bill. It has been extremely interesting to hear the various points made by noble Lords, in particular the noble Baroness, Lady Alexander of Cleveden, and the noble Lord, Lord Holmes of Richmond. I thank my noble friend the Minister for his detailed and passionate introduction to this Second Reading.
The Bill deals with an issue that causes real frustration and damage to many small and medium-sized businesses across the country. Quite simply, too many businesses are not being paid on time for work that they have already completed. For large companies, delayed payments may sometimes be seen as an administrative issue or a cash-flow decision, but, for smaller businesses, late payment can mean sleepless nights, financial stress and serious uncertainty about the future. Many small firms are spending too much time chasing invoices instead of serving customers, training apprentices, creating jobs and expanding their businesses.
The scale of the problem is significant. Around 44% of invoices from SMEs are paid late, with late payments estimated to cost the UK economy £11 billion each year. Around 14,000 businesses close annually because of late payments. This should concern us all. Small businesses are central to both our economy and our communities. They employ local people and support our high streets, and they often provide opportunities for people starting out in work or setting up businesses of their own.
This legislation is a welcome step towards tackling a problem that has existed for far too long. I particularly welcome Clause 18, which strengthens the powers of the Small Business Commissioner to help resolve payment disputes between smaller and larger businesses. Many small businesses simply do not have the time, money or legal support that is needed to challenge unfair payment practices. Giving the commissioner stronger powers to investigate poor behaviour, resolve disputes and take enforcement action is an important step forward. The Bill gives the Small Business Commissioner powers not only to resolve disputes but to investigate persistent poor payment practices and take action against repeat offenders.
Clear maximum payment terms are particularly welcome. It cannot be right that some businesses wait months to be paid while themselves still being expected to pay wages, suppliers, rent and tax bills on time. The Bill rightly tackles the issue of late payment interest. If a business pays late, there should be consequences. Removing loopholes that allow companies to avoid statutory interest is therefore welcome.
These problems are especially serious in the construction sector, as we have heard from many noble Lords. Many construction subcontractors and specialist firms are small businesses operating on very tight margins. They may already have paid for labour and materials long before receiving payment themselves.
I have read the helpful briefing from Actuate UK, the engineering services alliance, which represents more than 60,000 firms, together with the Electrical Contractors’ Association, which represents businesses working across the electrical and engineering sectors. Their briefing highlights how retention can remove vital cash from small businesses for months and sometimes years. The briefing warns that these practices can leave smaller firms exposed if larger contractors collapse.
Clauses 11 to 17 represent an important step towards improving fairness in construction contracts. The collapse of Carillion showed the serious consequences that unfair payment practices can have across a supply chain. I support the Government’s intention to improve fairness in this area, including through the proposed ban on retention. As the Bill progresses, I hope that the Government will continue to listen carefully to concerns around enforcement and implementation.
One point I would make is that these protections will work only if smaller firms can realistically use them. Many SMEs simply cannot afford lengthy legal disputes or complex adjudication processes. Without practical enforcement, some smaller firms may still feel unable to challenge poor payment practices. Can my noble friend the Minister say more about how the Government intend to ensure that these new protections are genuinely accessible in practice?
There is a wider issue around business culture. Paying suppliers on time should not be seen as optional good practice; it should be part of being a reasonable business. When smaller firms are paid fairly and promptly, they are better able to invest, hire staff, support apprentices and contribute to local economic growth. That matters not only for individual businesses but for the resilience of local economies and supply chains more broadly.
As the Bill moves through this House, I hope that there will be careful consideration of how to prevent companies simply finding new ways around these rules and loopholes through different contractual arrangements or payment structures. The Bill sends a clear message: small businesses should not be expected to carry unfair financial risk while waiting to be paid for work that they have already completed. Fair and timely payments are not just about good business practice; they are about confidence and building a stronger, more resilient economy. I support the Bill.
Lord Risby (Con)
My Lords, during my entire life as a parliamentarian, the health and enduring viability of the small business sector has been at times a matter of concern, with Governments of all stripes to some extent failing or falling short of being able to deal effectively with the one key necessity for the success of these businesses: cash flow. I declare an interest in that I was for many years the deputy chairman of the Small Business Bureau.
I warmly welcome the opportunity that this Bill offers and the manner in which the Minister explained it. It shines a light on the key element here: late payments. In many parts of the country, we see evidence of the consequences of this, including a visible deterioration in the range of commercial activity on our high streets. We have even seen the growth of charity shops, however admirable their causes, go into reverse, despite lower business rates for them because of the more recent national insurance hikes and high electricity prices.
What is true is that the British Business Bank and the Office of the Small Business Commissioner provide reassurance and support, yet far too many businesses close every day, with all the consequences for employment; hence the welcome increases in the authority and empowerment of the Small Business Commissioner, including naming and shaming and the enforcement of fines.
At the heart of this is businesses having confidence; I know this as one who started a business. Confidence is fundamental for start-ups. Of course, further risk assessments always arise when expansion is contemplated and the velocity of payments becomes even more crucial. Is the Minister satisfied that those with small businesses are, or will be, able to go online and check out the payment policies of larger supplier organisations?
Information is the key. Is the Minister content that, where possible, the average time to pay is clearly indicated? Nothing would be more valuable than being able to start a new search with ease by simply entering the business name of a supplier. It is one thing to have a payment performance report, but how can it best be used and, importantly, ensure the monitoring of evidence? It would be good for smaller businesses to feel comfortable about accessing a league table indicating the time to pay. This would incentivise suppliers to be the best. Supermarkets already supply this information. If the best suppliers are clearly known, they will attract business and fulfil this role. This would enhance the integrity of the supply chain.
Then it comes to enforcement. Is the Minister satisfied that the office of small business, with enhanced powers, has the capacity to be effective in representing SMEs’ interests? For example, how many individuals will be attached to this role in the future, which is so vital given its expanded duties?
A number of local authorities do, admirably, pay rapidly, so I turn to the 60-day ruling. If there is the possibility—and I hope not—that this will cause a drift upwards, elongating payment times rather than the reverse, then this would be regrettable. I would welcome clarification about public authorities paying in 30 days, but why cannot private companies do the same? This is a question that I have been asked to put forward this afternoon.
We want to attract more foreign businesses to boost our GDP, highlighting the importance of getting not only the right legislation but a clear message that this country is open for business. For 10 years, like others I was one of the Prime Minister’s trade envoys. Access to information about business opportunities in this country has hugely increased over this period. I pay tribute to our embassies abroad in this pursuit. Nevertheless, our export and import relationships are not at the sophisticated and all-embracing level that we find so frequently in other countries, where export activity is promoted through SMEs by these countries and through encouraging their activity abroad, supporting and creating an environment for our small businesses to thrive. They are, after all, the seed corn of the economy. This would be very welcome to all of us in your Lordships’ House, but there is certainly more work to be done.
Baroness Goudie (Lab)
My Lords, I welcome this Bill. I welcome that there is great support for it across the House and that we can get it through and help everybody else to make Britain a much better and more welcoming place.
I am pleased to speak in support of this Bill. It addresses a practical problem that has very serious consequences. For small businesses, timely and reliable cash flow predicts many serious matters: whether wages can be paid, whether rent can be met, whether investment into a company can be made and, at the end of the day, whether a viable company can survive.
The economy of the United Kingdom is built on small and medium-sized enterprises. At the start of 2025, SMEs made up 99.9% of the 5.7 million private sector businesses and accounted for 60% of employment and 51% of turnover. Therefore, a conversation focusing on supporting SMEs is really a conversation that is focused on improving the quality of our economy as a whole. Additionally, we know that, when we talk about SMEs, we are also talking about the jobs, families and local high streets that are attached to every single enterprise.
This Bill goes to the heart of our economy by improving business conditions for these vital companies. Approximately 44% of invoices from SMEs are paid late. Those very late payments are estimated to cost the UK economy almost £11 billion each year, forcing 14,000 businesses to close annually because of late payment. Every single closure represents a person who has taken a risk and who has often employed others and created work for their community.
I particularly welcome the Government’s recognition that payment culture matters. A small business should not have to act as an unofficial bank for the larger customer, and nor should entrepreneurs spend precious time chasing money that is already owed to them when that time could be spent growing their business, training staff, improving services or winning new contracts.
Much has already been said in this House about construction. I welcome the Bill’s attention to that issue. However, I wish to focus on small businesses and women’s role in the SME sector. For women who are building businesses, working as sole traders, employing local people and supporting their families, reliable payment is central to confidence, independence and growth. Women-led businesses can face particular barriers in accessing finance. The Government are trying to make this easier by talking to the banks, but we need more support networks and investment. When payment is delayed through no fault of their own, these barriers become harder still. A late invoice can mean postponed childcare, delayed wages, additional borrowing or the loss of confidence to take on the next contract. If we want more women to start and scale businesses, fair and prompt payment must be part of that ambition.
I welcome the Bill’s provisions to strengthen maximum payment terms, to make interest on late payments more effective and to give the Small Business Commissioner stronger powers. I hope that, as the Bill progresses and once it is implemented, Ministers will keep under close review whether the overall timetable for acceptance, verification and payment is sufficiently ambitious for the smallest firms. It is really important that we have some clause allowing us to look at this after a year or so. In practice, a period approaching 90 days can still feel very long for a small supplier managing a tight cash flow.
I hope that the strengthened Small Business Commissioner will be visible, accessible and trusted by the smallest firms—including sole traders and women-led businesses that may not have legal teams or finance departments behind them. This is a welcome Bill. It is pro-business, pro-growth and pro-fairness. Most importantly, it seeks to change not only the rules but the culture. I look forward to supporting the Government in that endeavour and to ensuring that small businesses, entrepreneurs and women-led enterprises are at the heart of its success.
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to participate in this debate and to follow the noble Baroness, Lady Goudie, who made some excellent points, as always, particularly on the backbone of the economy that is represented by small businesses and on the role of women. Those were very important points. I declare my interest as chair of a charity, International Students House. Like many other institutions, it is potentially impacted by late payments and is affected by the law on retention in construction contracts, as we acquire purpose-built residences for our students.
I thank the Minister for setting out the background to the legislation typically clearly and for the analysis of the provisions contained in it. He has considerable experience of business and of the problems caused by late payment. I also thank him for graciously acknowledging the role played by Conservative Governments.
Like other noble Lords, I am very much in favour of this legislation, which has received a general welcome from many relevant organisations such as the CBI, the Federation of Small Businesses, the Institute of Directors and the Institute of Chartered Accountants. Small businesses constitute the backbone of our economy, as has been said. The fact that some 14,000 businesses per year close because of late payments is a flashing light that has been ignored for too long. I welcome that the unscrupulous and unfair exercise of superior bargaining power by some large businesses is to be outlawed by this legislation.
This legislation seeks to combat the unfair and unscrupulous practice of delayed payment by rendering late payments—essentially those over 60 days for private businesses—illegal, and by imposing mandatory interest provisions where there is late payment of 8% above the Bank of England base rate. Previous legislation, no doubt well-intentioned, has been ineffective, as it has been easy to circumvent. It was pretty much optional—more of a signpost of desirable conduct than a requirement of that good conduct.
However, I have several questions for the Minister. The first relates to the 60-day period permitted before the legislation bites in the private sector. An extensive consultation was engaged, in which many people and small businesses participated. I wonder why the 60-day period was alighted on. Like many others, I wonder why a period of 30 or 45 days would not have been more appropriate, as raised by my noble friends Lord Lansley and Lord Risby, and the noble Baronesses, Lady Thornton and Lady Bennett of Manor Castle. Why 60 days? It seems to me that that is quite a long period. The point made by the noble Baroness, Lady Bennett, about the practice in the Ministry of Defence, is illustrative of the fact that we could bring it down considerably.
I have a question relating to retention practices. I recognise that retention practices can be used unfairly and harshly against small businesses, and often that is the case. The sort of scenario demonstrated by the Carillion collapse and the consequent damage done to so many small businesses is illustrative. However, does not an outright ban on retention after the transition period merely shift the danger? Purchasers will require performance bonds, cash escrows or some other security which would require an outlay of cash at the outset rather than a retention, which may may be more damaging to small businesses. I am not necessarily against the provision, but I am not convinced that it is the total answer. Retention can be useful and used by some businesses quite reasonably. It is abusive retention that we should be focusing on, and I would welcome the Minister’s thoughts on that. My concern is that there is a danger of shifting the problem for small businesses; I am unconvinced that every retention is wrong or abusive.
I welcome the extended role of the Small Business Commissioner and the power to find late payers—though the commissioner does not cover construction contracts, a point made by the noble Baroness, Lady Alexander. I too wonder whether it would not be better if we were to put construction contracts within the competence of the Small Business Commissioner. I would welcome the Minister’s thoughts on that point as well.
Finally, I have a point on the devolved nations. I appreciate that the law in this area is a reserved matter for the Westminster Parliament, but clearly the Bill is largely a UK Bill, and there are impacts for the devolved Administrations. With a change of Administration in Wales, I wonder what discussions have been ongoing and what engagement there has been. Some of the provisions certainly impact on the devolved Administrations —for example, Clause 26 expressly does—so I wonder what is happening in that regard.
On the whole, as has been clear during the debate, this legislation is, remarkably, uniting all sections and corners of the House and all parties. I am sure it will be given a fair wind and that any amendments we make will be to tighten it up and make it more effective. With that, I give it a very warm welcome and look forward to the Minister’s response.
Lord Mendelsohn (Lab)
My Lords, I am grateful to take this opportunity to speak in the gap and to warmly welcome the Bill. I pay tribute to the Minister not just for his eloquence in introducing the Bill but for his experience and expertise, and the Bill certainly bears their imprint. He was gracious and correct to acknowledge the steps taken by the previous Government, but he should be proud of the extent and scope of what he has introduced to this House. It will undoubtedly be transformative, even if it may not be the end of the journey.
As someone who has drafted a previous Private Member’s Bill on this issue, I think the Bill is impressively drafted and there is a good impact assessment. I am sure that, with the issues that have been expertly raised during the course of this debate, we will have a good opportunity to see if we can improve or clarify some of the elements outstanding in the Bill during our discussions.
I will add a couple of points that I would be keen for the Minister to consider. Before that, I pay tribute to the fact that the Bill as drafted and the impact assessment are a recognition that this is not just about bad actors. The realities of the business environment are properly acknowledged, along with issues that concern businesses and the challenges they have with cash flow. It is good that it has been done in a proportionate and balanced way. I continue to be concerned that it is just about large businesses to small businesses, where there are indeed problems with supply chains, with large businesses not featuring in the bilateral relationship, but I hope that we are able to consider how that may be addressed.
Although I and many others have always thought 30 days to be the right standard—there can always be consideration of a phased approach—I bear the same concerns that others have that marking 60 days may reverse the massive progress that has taken place in reducing the overall number of days. While we are looking at timing, clarity is essential. The Bill does not currently include a clear statutory definition of when payment is legally deemed to have occurred. The point at which the clock starts must be equally clear and resistant to manipulation. I hope that it can be made clear that the proposed 60-day verification period should be incorporated within the 60-day maximum and not added on top of it, which would de facto create a 90-day limit.
On mandatory interest, I would welcome confirmation from the Minister that the large businesses will be required to apply interest automatically when settling a late invoice, rather than leaving the burden on suppliers to claim it—something which most would be unlikely to do.
It is time to consider late payments by public bodies and to merge those into the same regime. The last exercise that was done looked at FoI data. Public sector bodies identify the interest payments that they should be paying but none has ever been claimed. The last comprehensive exercise identified that £3 billion of interest payments should have been paid to small businesses. Some NHS trusts and local authorities pay over 80% of their SME suppliers late—over 30 days. It is time to consider joining up those regimes.
We must consider whether we are looking at predatory payment terms and other things in the right way. Most importantly, the journey that the Small Business Commissioner has gone through and where it has ended up in the Bill is encouraging. I urge the Minister to consider not just its resources but its scope, to make sure it retains the role, across all areas, to help advise the Government on further steps ahead. I welcome the Bill.
Baroness Kramer (LD)
My Lords, I am stepping in today for the noble Lord, Lord Fox, who unfortunately cannot be here. I will do my best to channel him, but I know the House would have had more incisive comments, as this is not my field of expertise. I will take the opportunity to discuss an issue that very much concerns me; it will not surprise people that I will raise an in my comments whistleblowing.
Late payments have been one of the most persistent and damaging barriers facing small businesses, sole traders and the self-employed. We all know that it is not a new problem. Successive Governments have promised action, yet too many small firms still find themselves acting as unwilling lenders to much larger organisations, waiting months for money that they have already earned and that they are already owed.
We all know the consequences are not merely administrative; they are economic and they are human. Recent research commissioned by the Small Business Commissioner found that late payments cost the UK economy almost £11 billion every year, affect around 1.5 million businesses, and contribute to the closure of some 14,000 firms annually—what a waste—and around 38 businesses every single day. Businesses affected spend an average of 86 hours a year chasing overdue invoices rather than growing their companies, investing in new products or serving customers.
As Liberal Democrats, we have long argued that strong action is needed. Our 2024 general election manifesto committed us to strengthening prompt payment requirements and ensuring that large organisations could no longer evade responsibility. We therefore welcome the central provisions of the Bill.
The introduction of statutory maximum payment terms of 30 days for public bodies and 60 days for most private sector transactions is an important step forward, as is the decision to prevent parties from contracting out of statutory interest. Large purchasers have been able to use their bargaining power to impose terms on smaller suppliers that they have little practical ability to refuse. We therefore also strongly support the intention to give the Small Business Commissioner real enforcement powers and regard this as a significant part of the Bill.
The current commissioner has done valuable work, but moral persuasion alone has never been enough. There must be meaningful consequences for persistent offenders. The ability to investigate poor practices, adjudicate disputes and impose financial penalties represents a significant shift in the balance of power. It is encouraging that so many organisations representing small firms—the Federation of Small Businesses, Enterprise Nation, the Institute of Directors and the ICAEW—have welcomed the direction of travel in this legislation. We are also very pleased to see action being taken on retention payments in the construction sector. Specialist contractors and subcontractors have campaigned for years against a system that allows money to be legitimately earned but then withheld indefinitely and sometimes lost entirely when a contractor becomes insolvent. Ending this practice is both fair and overdue.
However, support for the principles of the Bill does not remove the need for scrutiny of its detail. We will examine the protection of complainants very carefully. The success of the new regime will depend heavily on whether small businesses feel able to come forward. Many suppliers rely on a small number of customers for a significant portion of their income; they may fear that making a complaint will damage future commercial relationships. It is a very real fear for many small companies. We therefore want assurances that robust safeguards will exist for complainants and that information can be provided to the commissioner without exposing vulnerable businesses to retaliation.
That brings me to a subject which, as many know, is close to my heart: whistleblowers. A key power for the SBC is the power to investigate where poor practice is suspected. I do not think that the SBC can rely solely on the information that it gets from complainants. To do that, it needs broader information, and that means that it needs a safe channel for whistleblowers.
A whistleblower is not the same as a complainant, and it is important not to confuse the two. A whistleblower who is an employee of a construction company, for example, may be key in providing necessary information about that company’s persistent poor practice over retention payments, say, but I checked and the SBC is not a prescribed person, so the employee providing that information does not even have the protection that, in many instances, would be available under the Public Interest Disclosure Act—confidentiality and the ability, if there is retaliation, to go to an employment tribunal. That does not exist and I would like the Minister to address that.
I always find the Public Interest Disclosure Act to be very limited in scope, as many know. A supplier that is not complaining about itself but that has come across key information—these people will be crucial to the effective work of the SBC—has no protection from retaliation at all. Since informal blacklisting could easily happen, because a large company would have friends all over the place, contacts and connections, there has to be some mechanism for suppliers that provide information on bad practice in the sector to be protected from retaliation. I would like to know from the Minister how that gap will be remedied.
We also question whether the Government have been sufficiently ambitious on payment timescales. That issue has been raised around the House today. There is significant support for a 45-day maximum payment period, and we will explore whether that should be the eventual goal.
The Bill rightly introduces limits on when payment disputes may be raised, but there is less clarity about how quickly those disputes must be resolved. There is a risk that an unscrupulous purchaser could simply raise a dispute and then allow the matter to drag on indefinitely, exerting commercial pressure on a smaller supplier to accept a reduced settlement. Are stronger safeguards needed or does the Minister think that they are already embedded in the Bill?
Much of the Bill’s effectiveness rests upon the capacity and independence of the Small Business Commissioner. Powers on paper are not the same as powers in practice. We want to understand how the commissioner will be resourced, how enforcement priorities will be determined, whether penalties will be sufficient to deter large multinational firms rather than simply being treated as the cost of doing business, and how Parliament will scrutinise the exercise of these important new functions.
Finally, we note that significant elements of the framework are left to future regulations. Delegated powers may be necessary in some circumstances, but Parliament should be cautious whenever fundamental aspects of a regulatory regime are deferred to secondary legislation. We will therefore examine closely whether the balance between primary legislation and ministerial discretion is the right one.
The Bill addresses a genuine and long-standing injustice in our economy. Small businesses should not be forced to bankroll large ones. They should not have to spend weeks chasing invoices instead of serving customers and creating jobs, and they should not face insolvency because another business has chosen to treat prompt payment as optional. We look forward to working constructively across the House to ensure that the final legislation delivers the robust protections that small businesses, contractors and the self-employed have waited to see for many years. Consequently, I support the Bill.
Lord Sharpe of Epsom (Con)
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.
Lord Leong (Lab)
My Lords, I thank all noble Lords—especially the noble Baroness, Lady Kramer, who stepped in for the noble Lord, Lord Fox—for an informed, thoughtful and constructive debate and for their kind words about my opening speech. The quality of today’s debate has demonstrated not only the breadth of expertise in your Lordships’ House, but the seriousness with which Members regard the persistent problem of late and unfair payment practices across our country. I will try to respond to as many noble Lords’ questions as possible within my allocated time. If I am unable to address every point raised today, especially some of the technical and more detailed questions, I will ask my officials to review Hansard carefully, write to noble Lords accordingly and place copies of those responses in the Library of the House.
First, there was broad agreement throughout today’s debate on one fundamental principle: businesses that do the work should be paid on time, and that includes social enterprises, as indicated by my noble friend Lady Thornton. The noble Lord, Lord Lansley, again showed the knowledge he brings to the House. He asked whether there should be additional responsibilities on auditors of large companies to sample payments and report on them. The noble Lord, Lord Risby, asked whether some form of register could check on the payment practices of these large companies. As noble Lords know, credit rating agencies exist, and many of them are well known for their credit reports on big companies, although it might be necessary to pay for their services. I will take this idea back to the department and share it with colleagues to see whether it is possible. Obviously, there is the question of how much such a register would cost; nevertheless, I will bring this idea to the attention of my officials.
While the Bill does not impose new duties on auditors, I hope I can reassure noble Lords by saying that in 2025 the Government introduced legislation to require large companies to report on their payment practices in their directors’ reports. Noble Lords will appreciate that there were also some changes to the definition of some of these businesses, and the impact assessment has found in favour that some companies have been moved from medium-sized to small, which basically reduces their reporting requirements as well. That is a good sign. We have to be mindful of the point that the noble Lord, Lord Sharpe, made about the definition of SMEs. I for one have had many conversations with him about that, and it is something that we have to bear in mind. For the purposes of the Bill, we have to define it as it stands, and I will refer to it in another part of my winding up. I confirm that we intend to introduce secondary legislation requiring boards of audit committees of underperforming large companies to explain poor payment performance and outline improvement plans.
Various noble Lords have asked about the number of days and whether it should be 45, 60 or even 30. From our consultation, 60 days seems to strike a fair balance between helping small businesses get paid in a timely manner and recognising that in many sectors 30 or 45 days may have been a step too far at this stage. Take the publishing sector, for example: some smaller publishers would need more than 30 or even 60 days to pay some of the larger publishers, and they have a special arrangement for that. That is provided for within the limited exemptions in the Bill where the purchaser is a much smaller organisation than the larger one.
We will continue our work to encourage businesses to pay even faster. For that matter, there is no reason why businesses cannot pay within 60 days—or 30 or 45—if they offer a discount, which many businesses do. Those practices are currently in place and, as many noble Lords have mentioned, a matter for private commercial negotiation between companies. The maximum is 60 days, but there is no reason why businesses cannot pay faster. Obviously, we will work closely with the Small Business Commissioner, who operates the fair payment code.
The noble and learned Lord, Lord Thomas, asked whether the Bill could apply to foreign or overseas companies. The noble Lord, Lord Risby, also asked a question about that, particularly where UK firms are owed money by companies based abroad. I confirm that the Bill applies to commercial contracts that fall within the scope of UK law, including where a qualifying business is operating in the UK or where the contract is governed by UK law. Subject to consultation, we intend to introduce an exemption from the 60-day maximum payment term for contracts for imports and exports. That is to ensure that UK-based companies trading overseas with non-UK-based companies are not disadvantaged by having to offer much stricter terms. Noble Lords will know that the whole process of import and export requires time after goods arrive in the country for customs clearance and so on, so additional time will be required for some of these payments to be made. Measures in the Bill such as maximum payment terms, statutory interest on late payments and stronger rights to redress will therefore apply where the contractual relationship is within scope.
I turn to the questions from the noble Lord, Lord Leigh. First, on how the Government intend to define the size of a business, I mentioned that earlier in relation to the point from the noble Lord, Lord Sharpe, about the different definitions. For the purposes of the Bill and the exemptions to the maximum payment terms, we intend to define business sizes through secondary legislation following further targeted consultation. For the purposes of the Small Business Commissioner’s new functions, the definition of a small business is included in Section 2(1) of the Enterprise Act 2016.
The Bill provides a revised definition of larger businesses at paragraph 12 of Schedule 4 to the Bill. A small business is a business that has a headcount of fewer than 50 staff, whose registered office or principal place of business is in the UK and that is not a statutory authority. On businesses not using the adjudication scheme due to a conflict with these suppliers, while some small businesses may be reluctant to take action forward against a larger business, that does not mean we should not help businesses that are prepared to take it.
The Small Business Commissioner handled over 700 late payment cases last year, recovering over £1.5 million of late payments for small businesses. This is an alternative dispute resolution scheme designed to support businesses to resolve their disputes in a fair and impartial way. It is a very cost-effective way, rather than going through a costly and lengthy legal process.
On the definition of persistence, I assure the noble Lord that a larger business that persistently engages in poor payment practices is one that engages in poor practices on a sufficient number of occasions for it to represent a pattern of behaviour; it is persistent and regular bad practice. In deciding whether to carry out an investigation, the commissioner will have to consider the extent and impact of suspected poor payment practices, the resources needed to carry out that investigation and whether it is proportionate to do so.
On the point about draft regulations, I assure the noble Lord that there is a statutory duty to consult regarding the regulations, which the Government intend to commence as soon as possible after Royal Assent. The Government will also need to secure the consent of all devolved Governments where relevant, as mentioned by the noble Lord, Lord Bourne. Parliament will have the opportunity to scrutinise the draft legislation and actively approve it before it becomes law.
I turn to the various points mentioned by my noble friend Lord Mendelsohn. I thank him for his engagement with me so far, and I look forward to meeting him next week to discuss his thoughts on the Bill. In our engagement with small businesses on the issue of late payment, the question of cleared funds, where money gets cleared in the bank account, has not been cited as a primary concern. Consequently, we have deliberately avoided prescribing cleared funds in statute as that would introduce rigidity, risk disputes over banking processes beyond a payer’s control and constrain innovation in payment systems and practices. We have to practise what we preach. For comparison, my department, the Department for Business and Trade, currently pays 95% of its invoices within five days and 99% within 30 days, and that is a pretty good record.
On the point about verification, the Bill includes restrictions and makes clear that these must be proportionate and not used to delay payment unnecessarily. Taken together with stronger transparency and enforcement, these measures materially improve suppliers’ position while preserving the flexibility needed for the framework to operate effectively across a modern and evolving economy.
The noble Lord, Lord Sharpe, asked about resources for the Small Business Commissioner. The SBC is required to publish an annual report and audited accounts, which will include details of staffing and resources as well as activity undertaken. The SBC will continue to provide information on its resources. The Government can confirm that the SBC will be provided with the additional resources needed to carry out its new functions.
I turn to the question from the noble Lord, Lord Bourne—several other noble Lords also asked about this—on the time needed to pay and when payment is due. We want businesses to be clear when the payment period begins and ends, helping to provide clarity for businesses about when they get paid. The events listed in new Section 2B(1) are applicable in all contracts related to the supply of goods and services, and form part of the existing statutory framework in relation to late payment. Requiring businesses to use one of the four triggers will help to provide clarity and consistency for businesses about when they will get paid.
In relation to devolution, I can confirm that my officials have had extremely positive conversations with officials within the devolved Governments and the newly elected Governments in Wales and Scotland. The Bill sets out the consent mechanism where powers impact on devolved powers. This respects the devolved settlements and I am confident that the devolved Governments will be able to recommend and grant legislative consent Motions to this Bill.
I turn now to the various points from my noble friend Lady Alexander and thank her for her contributions. With relation to the commissioner having jurisdiction over construction, the Small Business Commissioner will have the power to provide advice, information and training to all businesses, regardless of their sector. This will build on its work within the fair payment code, which includes 212 construction company awardees. The proposed adjudication powers for the Small Business Commissioner will not apply to construction contracts due to the existing statutory dispute resolution mechanisms under the Housing Grants, Construction and Regeneration Act 1996. However, if a construction business enters into a non-construction contract, the commissioner’s adjudication powers would apply.
On the definition of retention, which I think probably all noble Lords have mentioned, we believe that the definition is robust and comprehensive and are confident that it will capture all behaviours amounting to a retention practice. We have also provided the Secretary of State with the power to amend the definition in Clause 16. The power is intended to be used where there is evidence that the ban is being circumvented creatively, defeating the intention of Parliament.
On commitment to monitoring avoidance behaviours, the Government will work with the Construction Leadership Council and construction clients to develop practical approaches to minimising defects, as well as working with the financial services sector to identify ways of developing a surety product it can bring to market for the construction sector, including for small businesses through the supply chain.
Finally, on simplifying the transition arrangements, we recognise that abolishing retentions represents a significant change for the industry and its clients. Therefore, a transition period is required for industry to prepare and for the market in alternative surety products to develop. The requirements in the transition period also seek to address poor payment practices for retentions in the lead-up to the ban. The Government will also support industry implementation through guidance and stakeholder engagement, ensuring that the transition is clear and manageable, particularly for smaller businesses.
The noble Lord, Lord Hunt, and other noble Lords mentioned retention and asked how we can ensure that defects are addressed. Despite the existence of retention for over 100 years, it is clear from our consultations that this is not an effective means of preventing defects or even remediating significant problems. The Government are committed to working with industry and surety providers to improve quality and eliminate defects.
The noble Lord, Lord Hunt, also asked about funding for the Small Business Commissioner, aligning with the noble Lord, Lord Sharpe. The Small Business Commissioner is grant funded by the Department for Business and Trade and will be provided with the additional resources needed to carry out its additional functions. The commissioner will also have the power to recover the costs of investigations, enforcement and adjudication.
The measures in this Bill to deal with late payment are proportionate and will address persistent poor payment behaviour. However, they are not so punitive as to disincentivise doing business with small businesses. A 60-day payment term, for example, is perfectly reasonable and achievable. Looking at some debtors’ books and creditors’ ledgers, I would not say that 60 days is normal, but it can be bearable.
The noble Lords, Lord Holmes and Lord Risby, asked about public authorities’ payment terms of 30 days and 60 days. Public authorities are already required to pay within 30 days under the Procurement Act 2023. It is right that the Government lead by example— I mentioned the example set by the Department for Business and Trade—and maintain that high standard. In the private sector, the Bill addresses a wider range of commercial relationships, and a 60-day maximum strikes the right balance.
The noble Lord, Lord Holmes, asked about fining global companies. I think this is an opportunity to thank him for his contribution, especially his knowledge on AI and digital products and all that, which I will obviously share with my officials. The Bill applies to commercial contracts that have a sufficient connection to the UK and for government by UK law. The commissioner will have powers to address poor payment behaviour of those carrying on business in the UK.
I am running out of time. I will have to write to the noble Baroness, Lady Bennett, because she asked about a couple of technical points. I will ensure that she gets a letter from the officials—likewise the noble Baroness, Lady Kramer, on the question of a whistleblower and the FCC.
Throughout today’s debate, noble Lords from across the House have brought valuable expertise and experience. As this Bill progresses through Committee and subsequent stages, I look forward to constructive discussions with noble Lords across the House to ensure that the legislation achieves its objective in a proportionate and effective manner. Late payment destroys cash flow, it destroys confidence, and too often it destroys businesses altogether. This Government are determined to change that. Once again, I thank all noble Lords for their contributions in today’s debate, and I commend this Bill to the House.
Lord Leong
That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order: Clauses 1 to 9, Schedule 1, Clauses 10 to 17, Schedule 2, Clauses 18 and 19, Schedule 3, Clauses 20 to 25, Schedule 4, Clauses 26 to 32, Title.
Ecodesign for Energy-Related Products and Energy Information (Household Tumble Dryers) Regulations 2026
(1 day, 4 hours ago)
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19:32 - Division on Baroness Hoey’s Motion - Ayes: 13 / Noes: 66 - Baroness Hoey’s Motion disagreed.
Baroness Hoey
That this House regrets the process that led to the Ecodesign for Energy-Related Products and Energy Information (Household Tumble Dryers) Regulations 2026, because (1) the alignment with Northern Ireland the regulations seek to achieve requires the UK to follow EU law, and (2) they will lead to increased costs and lower efficacy associated with heat pump tumble dryers.
Baroness Hoey (Non-Afl)
My Lords, before I move my Motion, I have just returned from Northern Ireland and want to say how shocked people are in Northern Ireland at the terrible atrocity that took place last night. This is not the time to discuss it, but we do need answers and there will have to be proper inquiry. I am sure we want to send all our best wishes to the victim and his family.
Some regulations are very technical in nature, and the effects are not felt widely by the public immediately, but the regulations before us today have a very clear and practical effect that will impact the lives of most households in the country, particularly families. Very simply, this regulation bans the sale of new conventional tumble dryers—that is, convector and vented tumble dryers—from January 2027. From then on, the only new tumble dryers that people in England, Wales and Scotland will be able to buy will be heat-pump tumble dryers. Quite apart from the nanny state restriction of choice because of the Government’s obsession with net zero, the legislation is problematic.
While some people may say that they might be cheaper to run—there are real disputes about that—there is no doubt that heat pump tumble dryers are markedly more expensive to buy than conventional tumble dryers. The last thing that people need at the moment, I would have thought, is those extra costs. The most important thing to me on this is that heat pump tumble dryers work only at ambient temperatures, so they will not work in garages or outhouses in winter, unless and until people start to heat those rooms that previously went unheated. I am not sure how the Minister can say how that is an environmental win.
If we are to understand this SI, we have to look at it in the wider context and at what happened in March last year. Legislation was then published that banned shops in Northern Ireland buying in any new conventional convector or vented tumble dryers from 1 July that year; they were given until March this year to clear their existing stock. Since then, the only new tumble dryers that Northern Ireland shops have been able to buy in are heat pump tumble dryers. Yesterday, a shop in Northern Ireland explained that it has 11 brand new condenser tumble dryers that it will have to scrap, because to sell them would be illegal. How is that going to be good for the environment?
The Explanatory Notes for last year’s regulations explained simply that:
“Northern Ireland continues to apply EU rules on ecodesign and energy labelling, as per the terms of the Windsor Framework”.
So in Northern Ireland we were bound by EU net-zero legislation under the Windsor Framework, which effectively partitions the United Kingdom, keeping Northern Ireland in the EU. The whole point of leaving the EU—as I thought, certainly—would be to make our own laws without being overruled by a majority of other countries.
Speaking about the matter in this House on 26 March last year, I highlighted how the EU legislation on tumble dryers was being imposed without even consulting people in Northern Ireland or businesses. It had to be imposed because the Windsor Framework required it. I said then that it demonstrated how the failure to deliver leaving the European Union for Northern Ireland
“is actually undermining Brexit for the whole of the United Kingdom, aligning Great Britain—drip, drip, drip—with Northern Ireland and thus the European Union”.—[Official Report, 26/3/25; col. 1778.]
In fact, the Minister in the other place said that exactly. She said that
“it is very likely that Great Britain will seek to meet similar standards … Our intention is to apply the measures on a UK-wide basis and maintain the UK’s internal market”.—[Official Report, Commons, First Delegated Legislation Committee, 31/3/25; col. 4.]
In this context, we should be clear that the reason why the sale of new vented and condenser tumble dryers is being banned in England, Wales and Scotland is that the EU has already banned it in Northern Ireland and having the ban in one part of the UK but not the other does not work if we are to maintain any semblance of a common market across the whole UK. But of course we must see that what is really going on is an object lesson in relation to the problems with the Government’s much more ambitious dynamic alignment project to avoid divergence with Northern Ireland, as set out in the European partnership Bill. This approach is fatally flawed for Great Britain, as it is for Northern Ireland. Rather than respecting the once-in-a-generation referendum, the legislation before us today, set out in the broader context of the European partnership Bill, is part of a larger effort to not only undermine that vote, in the sense of using divergence problems flowing from the denial of leaving in one part of the UK to undermine Brexit across the rest of the country. It is actually almost worse than rejoining the EU.
The Minister might tell me—I expect he will—that I should be pleased that we now have a Government committed to bringing GB into alignment with the EU, because this will help mitigate GB-Northern Ireland border difficulties. Quite apart from the fact that it will not mitigate the customs border in any way, while an SPS deal might reduce frictions it will not remove the SPS border because their proposed SPS deal is a GB deal and not a UK deal. I hope the Minister will explain that, because what we need is a more profound and patriotic way of looking at this. In this context, if anyone thinks that the answer to the injustice of the disenfranchisement now of the people of Northern Ireland is to have that same disenfranchisement for the people of the rest of the United Kingdom, I am not quite sure that they have not lost the plot.
The difficulty with this particular set of regulations has been further compounded by the fact that the Government have brought them forward on the proposed basis that they become law by default, with no parliamentary debate or vote, under the negative assent procedure. The only reason we are having this debate today is my Motion. Even in the democratically elected House next door—the other place—there is now a prayer standing in the name of some 46 Members, including the leader of the Opposition, the right honourable Kemi Badenoch. It still has not been given time for a debate. Six parties have signed it including, I am pleased to see, a Labour MP.
Finally, I want to point out that there is now a very real shortage of new tumble dryers in Northern Ireland, because Northern Ireland is having to get its heat-pump tumble dryers from Great Britain, yet a significant portion of those tumble dryers currently being sold in Great Britain are not allowed to be sold in Northern Ireland. There seems to be confusion about why this is, with some suggesting that to be legal in Northern Ireland they must contain a certain kind of gas, while others have suggested that there are some heat-pump tumble dryers on the market in GB that do not meet the 80% condenser efficiency minimum required by the EU regulation. Whatever the reason, though, the advice last week was that the new heat-pump tumble dryers meeting the Northern Ireland specification will not be ready to be shipped to Northern Ireland from GB until the autumn.
I have five specific short questions for the Minister. Will the GB market be ready to provide the requisite number of heat-pump tumble dryers—
Captain of the King’s Bodyguard of the Yeomen of the Guard and Deputy Chief Whip (Baroness Wheeler) (Lab)
Excuse me. Will the noble Baroness sit down, please? Can the noble Baroness sit down, please?
Baroness Wheeler (Lab)
No, can the noble Baroness sit down? This debate is limited to an hour. Her time is up, please.
Baroness Hoey (Non-Afl)
What assessment have the Government made of the environmental impact of people having to start heating garages and sheds during the winter?
This is a ridiculous way of dealing with an important issue. We get one hour now on a statutory instrument and people have to put their names down in advance, which is why there are so few people speaking today. I beg to move my Motion, but it has been handled extremely badly by the Government.
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
I remind noble Lords that this is a time-limited debate and we need to respect the time limits.
Lord Davies of Brixton (Lab)
I have to start by declaring an interest as the owner of a heat-pump tumble dryer. There is a real question as to who is losing the plot in this debate. I am sorry that there are not more people here interested in the issue of tumble dryers. I have become a bit of an expert over the last few days, since deciding to speak in this debate.
First, I have a question: how many tumble dryers are manufactured in the United Kingdom for domestic use? The honest answer is that specific figures for tumble-dryer manufacture in the UK are hard to come by from publicly available sources, but what is clear is something significant: there is very little domestic manufacturing to measure. The UK market is heavily reliant on imports from Turkey, China and Poland. In practice, virtually all tumble dryers sold in the UK are manufactured overseas. The major brands operating here—Bosch, Beko, Whirlpool, Electrolux, Samsung and Miele—are all produced elsewhere.
This suggests that the idea that this is some sort of Brexit issue, let alone making it about Northern Ireland, is fallacious. Even without these regulations, tumble dryers in the UK—and on both sides of the Irish Sea—will in future be the heat-pump version anyway. All this stuff from Brexiteers about being a rule-maker rather than a rule-taker is nonsense when it comes to domestic electrical equipment. The shift in European rules about such equipment that is already under way has taken the decision away from us. It is nothing to do with Brexit; it is about our position in the world economy. We do not make them. We buy them from elsewhere, and other people are not prepared to produce something that does not have a mass market. The market for condenser dryers in the UK is miniscule. These regulations simply recognise and govern the inevitable consequence of where we are.
My second question is: do we believe in net zero? I have to say I despair at the mover of the Motion’s idea that this is something about a nanny state. I and the majority of people in this country believe this is about saving the planet. To attain net zero, there are big steps we have to take in terms of power generation, but achieving our net-zero target requires myriad tiny steps. This is one of them. This is a small step on the way to saving the planet. For those of us who are concerned about the future, these regulations are an essential element in the overall policy.
The question has been raised of how significant these regulations are. Unfortunately, the regret Motion is simply wrong. It refers to
“increased costs and lower efficacy associated with heat pump tumble dryers”.
As far as cost is concerned, there are costs involved in the switch, as set out in the impact statement, but these are initial costs that are more than outweighed by the subsequent savings in running costs.
Page 9 of the impact statement sets out quite clearly:
“While costs in the early years of the policy are positive, due to the increased cost of purchasing Heat Pump tumble dryers over other technologies (around £40 on average), in later years of the policy costs turn negative as the much longer lifetime of heat pump tumble dryers mean consumers will not need to replace them as often … As energy bill savings (as well as Carbon and air quality savings) are realised across the policy lifetime, in addition to the product cost savings, overall NPV”—
net present value—
“is positive”.
I have done some research on tumble dryers. I looked at a recent edition of Which? from the Consumers’ Association. I do not think it has a particular axe to grind on this issue, and the magazine confirms the impact statement. Which? found that the heat pump versions cost less than half as much to run as the old-fashioned versions. Most tellingly, all the tumble dryers in the Which? report rated as best buys were heat pump versions. They work better, as assessed by the Consumers’ Association. I have a couple more quotes—I have got the time—from Which?:
“Heat pump tumble dryers recycle warm air for better efficiency. This makes them by far the most energy-efficient of all the tumble dryer types available”.
These are not theoretical advantages; they are there and endorsed by Which?
It appears, as the impact assessment also suggests, that the cost differential is declining. The noble Baroness, Lady Hoey, asserted there was a big cost difference but did not provide us with any figures. Well, they are all there in the Which? report. The cheapest best buy heat pump tumble dryer was £299—only £60 more than the cheapest condenser version, which had a significantly lower test score. In other words, that £60 in the figures calculated by Which? will be recouped in less than a year. Heat pump tumble dryers get higher ratings from Which? and it has assessed that they are cheaper to run within a year. I think we really need to look at this in a sensible way, rather than trying to make it a Brexit or even a Northern Ireland issue.
Baroness Miller of Chilthorne Domer (LD)
My Lords, I am grateful to the noble Baroness, Lady Hoey, for the opportunity to debate this important SI—although I am still a bit mystified as to why she is so unhappy, since this realigns the UK with the EU, and this would seem to mean that Northern Ireland is in alignment too. More importantly, given the existential climate crisis and household energy bills, I would have thought everybody would support this SI. It is such a win for both consumers and the environment. As the noble Lord, Lord Davies of Brixton, said, we need to take every step we can. The climate crisis means that every possible effort needs to be made not to use energy unnecessarily and to be as efficient as possible in its use.
I think there is a hierarchy in how to dry laundry, and I have long thought that tumble dryers should probably be at the bottom of the hierarchy. For those lucky enough to have outside space, using a tumble dryer is a thoroughly bad use of energy, except on really rainy days. I have been a bit of an evangelist about this, to the extent that I have given friends nice wooden clothes pegs as a hint when they are always talking about using their tumble dryers but they have outside space.
Before noble Lords ask, “What about the rainy days?”, I have lived nearly all my life in the West Country—Somerset and Devon. Even on the wettest of West Country days, it is rare to get three of them consecutively that are such rainy days that you cannot hang the washing out. Hanging out the washing, of course, takes extra time. That is the biggest downside. Besides the big energy saving of using wind and sun to dry things, it makes clothes last longer, in my opinion.
Before I turn to the detail of the SI, I must ask the Minister whether the Government will consider bringing in a provision for flat owners and renters that would make freeholders not unreasonably withhold the right to dry laundry on balconies or in courtyards. I declare an interest as a flat owner where the freeholder forbids laundry to be dried outside, even though we have a nice courtyard where the breeze would dry it. The Government recently brought in the right for people to request to have pets, which should not be unreasonably withheld. I hope that the Minister can have a look at whether freeholders might be asked—or it might even be legislated for—not to unreasonably withhold the right to hang your laundry out. That is the first thing that you should be doing if you possibly can.
One thing that really surprised me in this SI, when I read through the comparisons, was how a heated airer is not very efficient compared with a heat pump tumble dryer. The heat pump tumble dryer is the most energy efficient overall. There are 17 million tumble dryers in the UK, and they account for 2% to 3% of UK energy use. With heated airers, you sometimes need to run a dehumidifier alongside them, and that might add 0.2 kilowatts to 1 kilowatt during the drying period. With that, the combined energy is often similar to or lower than a conventional condenser dryer but not lower than a heat pump dryer. It is quite clear that the heat pump dryers really are the way to go.
A good reason to do it sooner—and I am glad that the date is set for pretty soon—is that we do not want to become a dumping ground for the manufacturers of the old design of less efficient dryers when the EU is no longer a possible market.
In conclusion, heat pump tumble dryers use much less energy. They are better for people’s household bills and, over the 20 years, the impact assessment says that there would be a household saving of about £910 per household. But actually the upfront costs when you buy the new heat pump tumble dryer would be paid off in about two years. All in all, there is everything to recommend this SI, and nothing against it.
Lord Dodds of Duncairn (DUP)
My Lords, I am grateful for this opportunity to speak in the gap. I want first of all to join with the noble Baroness, Lady Hoey, in her remarks about the incident in north Belfast—the area I had the honour to represent in the other place for almost 20 years—and totally endorse what she said about that horrific incident. I also want to congratulate her on bringing this SI debate forward, because without this regret Motion we would not be able to debate the matter and hear the contributions of noble Lords.
The noble Lord, Lord Davies, asked what this was about in terms of Northern Ireland. Paragraph 13.1 of the Explanatory Memorandum states that this SI
“does … relate to the withdrawal of the UK from the EU”.
On its relevance to Northern Ireland, paragraph 4.2 states that it is bringing the law
“into line with Great Britain’s requirements … This alignment is intended to maintain regulatory consistency with the European Union, as well as Northern Ireland further to the Windsor Framework Agreement”.
So it is relevant, as set out in the Government’s Explanatory Memorandum, because otherwise they would not have mentioned those issues. Of course it is relevant, because this legislation has been the law in Northern Ireland since 4 March 2025. Nobody in Stormont debated it, nobody in the other place debated it, and nobody in this House debated it, but it has been the law in part of the United Kingdom for many months—for over a year.
The noble Baroness, Lady Hoey, has raised important issues about the expense and the extra costs, and I hope the Minister will respond. But whatever your views on this SI, whether you think it is a good thing or a bad thing in substance, the important point is that people in Great Britain have the opportunity to debate it and decide. In Northern Ireland, we are not afforded that luxury at all. It has been imposed upon us—and that is the point the noble Baroness has sought to bring forward.
It is a matter that should be of fundamental concern to every democrat in the United Kingdom, not just those in Northern Ireland. It should concern legislators in Northern Ireland, it should concern legislators elected to the other place, and it should concern us here. Why on earth do people want a situation where a form of colonialism is going on? This SI affords us the opportunity to bring that out.
As for aligning, I have the utmost respect for what the noble Baroness who spoke previously said, but as the noble Baroness, Lady Hoey, pointed out, aligning piecemeal, bit by bit, here and there, does not solve the problem of the trade arrangements with Northern Ireland. It leaves in place the customs barrier and the distinct situation whereby Northern Ireland is subject to laws across 300 areas of our economy and wider, made by a foreign political entity in its interest and imposed on the people of Northern Ireland.
I congratulate the noble Baroness and thank her for bringing this matter to our attention.
Baroness Suttie (LD)
My Lords, I, too, begin by sending our thoughts to the victim and his family in north Belfast. I believe we have an Urgent Question on this matter tomorrow, and we will be able to express our thoughts more fully at that time.
I, too, thank the noble Baroness, Lady Hoey, for allowing us to have this debate today. As I have said in previous such debates, it is very important that Parliament has an opportunity to debate these matters. However, I also welcome the introduction of speaking lists for regret Motions. Although it is important that we debate these matters, it is equally important that the time allocated to them is proportionate and representative of a cross-section of views from across this House.
These regulations seek to ensure that in future, tumble dryers are more energy-efficient heat pump models, and that consumers have better information about the tumble dryers they are purchasing. More energy-efficient machines will result in lower running costs for the consumer. I note that the noble Lord, Lord Empey, has not put his name down to speak today, but I think he would have wanted to ask a question about the additional costs for colder parts of the UK, including my original home country of Scotland, as well as Northern Ireland.
I note that heat pump dryers have been available in the UK since 2010 and that, by the time these regulations were being developed, three-quarters of new tumble dryers sold in the UK were already heat pump models. From these Benches, we support these measures as a step in the right direction—although, as my noble friend Lady Miller has just made clear in her speech, for many people these measures do not go quite far enough.
The regret Motion from the noble Baroness, Lady Hoey, raises two points of concern: on the process, that is to say, the fact that Great Britain is aligning itself with the EU’s legislation on tumble dryers, and on the substance of the statutory instrument itself, which she has said will cost consumers more. I shall take each of these points in turn, starting with the substance of the regulations.
Tumble dryers consume around 9% of domestic energy consumption, so a reduction of energy usage will have a substantial impact. Heat pump dryers are not only more energy efficient but have a longer lifespan, as others have said, potentially saving the consumer more than £900 in terms of energy usage across the machine’s lifespan. I hope that the Minister will confirm these figures in his closing remarks. Any additional upfront costs of purchasing these new, more energy-efficient machines should be offset against the savings to the consumer in energy consumption.
I have to say that I have never understood why people are against progress towards using less energy at a time when energy is becoming increasingly expensive. It should also be noted that these measures apply only for future purchases. People can continue to use and repair their current tumble dryers until they need new ones. I am somebody who has lived in flats and apartments for the last 30 years and I have had to use tumble dryers as outside drying options are not available: drying clothes on balconies is frequently prohibited and drying spaces in shared garden spaces, as my noble friend Lady Miller has said, are often just not available. People who rent flats are usually going to be much more concerned about the running costs than about the purchasing costs of tumble dryers.
I welcome the detailed impact assessment carried out on these regulations last year, but we query why the consultation took place between 17 July and 14 August last summer. Can the Minister say why they chose a time when many people might have been on their summer holiday? Can he say a little more about the consultation process, including whether consultation took place with representatives across the whole of the United Kingdom?
Tumble dryers can be a major cause of house fires. Can the Minister give reassurances that the heat pump household tumble dryers are less likely to be a fire hazard than older types of machine, such as gas, air vented or condenser models? It is not strictly to do with this statutory instrument, but I would also be very interested if the Minister could say a little about recycling measures for old domestic tumble dryers.
Although these regulations are not covered by the three policy areas of dynamic alignment, as such, they are an example of the kinds of issues we will face if and when we align more closely with the EU. That brings me to the second point in the regret Motion from the noble Baroness, Lady Hoey: namely, the process of aligning on these matters with the EU. In previous regret Motions, many colleagues from Northern Ireland have understandably expressed their concern about Northern Ireland being treated differently from the rest of the UK through the Northern Ireland protocol and then the Windsor Framework, and about creating a border in effect across the Irish Sea.
Speaking to the Conservative Post about the regulations we are debating this evening, Jim Allister MP, a firm opponent of the Windsor Framework, said in April this year:
“Although the tumble dryer legislation is not formally part of the Reset, it reflects its underlying logic, bringing Great Britain into alignment with EU law, partly to prevent divergence between Northern Ireland and Great Britain”.
In that sense, I agree with my noble friend Lady Miller that it is not entirely clear why those who oppose the Windsor Framework should not welcome these provisions. The whole UK will be following these EU proposals, which will reduce energy consumption by our citizens.
As we move towards greater dynamic alignment, I believe it is increasingly important that both your Lordships’ House and the House of Commons have a role in decision-shaping, as well as parliamentary oversight of the Government, in this process. When we were still in the EU, we had a direct role in decision-shaping, through our participation in the EU institutions. These are, no doubt, matters which we shall return to—over many hours, I am sure—in the EU partnership Bill, but it would be very useful to hear from the Minister what progress is being made in his department on how we can feed more effectively into the decision-shaping process as we align more with the European Union.
Lord Moynihan (Con)
My Lords, we on these Benches fully associate ourselves with the opening remarks of my noble friend Lady Hoey following the appalling tragedy in Belfast. I move on from that, with great difficulty, to say that I welcome the fact that she has brought this issue to the attention of the House. She made a characteristically powerful speech, and I take this opportunity to say that in many respects she is right.
The noble Lord, Lord Dodds, made the important point that there is differential treatment between Northern Ireland and the rest of the United Kingdom. I say to the noble Lord, Lord Davies, who I respect very much indeed—I will come back to some additional comments that he made—that I think we underestimate at our peril the importance and depth of emotion that is felt in Northern Ireland when measures are brought forward that have a significant difference in implementation between Northern Ireland and the rest of the United Kingdom. Of course, it is important to recognise that that will be the case under various agreements in the past, but the point that the noble Lord, Lord Dodds, made, and that I emphasise, is that there has been no debate accorded to this measure in Northern Ireland. That is not something we should be proud of in this House or proud of in the United Kingdom. I think that the point was worthy of being made, and it underpins the depth of emotion that was behind the comments of my noble friend Lady Hoey. She is right: these regulations will impact the lives of many households across the country.
The noble Lord, Lord Davies, is also right to say that the operating costs moving forward should lead to savings for households and consumers, but he might have added that the upfront capital costs are quite significant. At a time when there are serious problems in the economy and people are really feeling the effect of high costs in their household budgets, adding significantly to the capital costs is important. It is therefore true that initially, through the capital cost element, these regulations are regressive and they will add further costs to the working men and women of this country, only to see the benefits in between two and four years, depending on whether you take the Which? report or additional reports on the subject, which have been manifold. From just six months’ time, people will be able to buy only heat pump tumble dryers, which are markedly more expensive up front. No wonder that, as a result, there is already a rush to buy the remaining stock of convector and vented tumble dryers. The important point was made that mandated models will work only at ambient temperatures, restricting their use in previously unheated rooms in domestic dwellings, which will then add to the operating costs.
Of course, I say that there has been little respect for Northern Ireland as part of the United Kingdom, because the point has been made very clearly that the Government have already banned shops from buying in any new conventional convectors or vented tumble dryers, on the Government’s preferred altar of EU net-zero legislation. This has already, as we have debated at significant length, increased costs in Northern Ireland, not least because of the increased costs of ferries and goods made in Northern Ireland, without attention to the increased costs imposed on the people and the companies living and operating in Northern Ireland. My noble friend Lady Hoey was completely right when she said that
“it demonstrates how the mistreatment of Northern Ireland is creating pressures, not for this mistreatment to end, which would be great, but for attempts to be made to limit the destructive effects of divergence with the rest of the country”.—[Official Report, 26/3/25; col. 1778.]
The noble Baroness, Lady Suttie, made the key point about divergence. She touched upon it, and she rightly emphasised that this will be debated in the future. I think the debate this evening is an object lesson in the problems with the Government’s much more ambitious GB dynamic alignment project to avoid divergence with Northern Ireland as set out in the European partnership Bill. My noble friend made the important point that a significant proportion of heat pump tumble dryers do not yet meet the EU minimum condensation efficiency of 80%, which the Northern Ireland tumble dryer regulations now require.
In the short time available, I will pick up on just one or two other points that are relevant to this debate. One is the consistent reference to a more circular, resource-efficient economy. It is misleading—particularly when referenced, I think, four times in the Explanatory Memorandum—to suggest that the circular economy is inherently desirable. Does the Minister agree with me that there are some inherent disadvantages with the circular economy in this instance, including the high initial costs? Businesses often face steep upfront investments to redesign products and implement new technologies. Also, there is the importance of changing consumer behaviour patterns.
Worst of all is the related and critical fact that the Government need, in our view, to bear down on the increasingly high electricity prices, which have now reached historically high levels. These high levels are borne by consumers, and they are key because these dryers are major electricity users. I very much hope that the Minister will take on board that the level of electricity prices in this country has to be addressed.
We on these Benches suggest—this is so important—that the Government would be wise to come forward with measures that address scrapping the carbon tax; axing carbon tax pricing to reduce artificial mark-ups on wholesale electricity prices; abolishing legacy renewable subsidies; temporarily scrapping the 5% VAT on domestic energy bills for three years; and lifting the ban on new oil and gas exploration licences to increase domestic supply and reduce reliance on expensive imported energy. I accept that that would not immediately impact on the price, but it would generate Treasury income, maximise job opportunities—not least in Aberdeen, where 1,000 jobs are being lost every month—and reduce emissions.
The impact assessment points to the relentless justification of central planning:
“The recent increase in electricity prices combined with consideration of pressure on the grid illustrate the need to ensure only the most energy efficient products are available on the market”.
The argument that is being put forward to us tonight is that the energy price increases, a result of the Government’s policies, justify making dryers more expensive—a punitive policy to offset another policy.
In the last 15 seconds, I reinforce strongly from these Benches the importance of the comments that have been made about the differential treatment between Northern Ireland and the rest of the United Kingdom. This is vital, and we should always respect views that are put forward in this House on this important subject.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, I am grateful to all noble Lords who have contributed to today’s debate. Since we are talking substantially about Northern Ireland, I join noble Lords who have remarked on the horrific events over the last day. I very much endorse the Prime Minister’s statement on this matter and salute the bravery of those Northern Ireland citizens who intervened and certainly prevented a life being lost. My thoughts are with the people of Northern Ireland tonight, as I think are those of the whole Chamber. I am also grateful to the noble Baroness, Lady Hoey, for proposing this Motion and will come to one or two things she said. I very much welcome her initiative, inasmuch as it gives me the opportunity to set out clearly why the Government believe these regulations are important and necessary.
The regulations form part of a long-standing framework that seeks to improve the energy performance of products, reducing bills for consumers and supporting a more secure and efficient energy system. At their core, ecodesign and energy labelling policies aim to improve the energy efficiency of products, reduce energy consumption and carbon emissions, and save consumers and businesses money over time. They are therefore very much in line with what my noble friend Lord Davies of Brixton mentioned about the whole question of whether we believe in net zero and what we do about the emissions, efficiency and energy output of the products and services we consume.
Energy labelling complements this by ensuring that consumers have clear, comparable information at the point of purchase, allowing them to make informed choices and driving the market towards more efficient products. These principles are well established, and the framework was brought into domestic GB law by the last Government following the UK’s exit from the European Union, at which point we retained the ability to update and amend such regulations over time.
Before turning to the specific matters related to the content of this SI, I think it is important to address the process that has been applied here. This instrument has been made under the negative parliamentary procedure, which is provided for under the existing ecodesign and labelling framework regulations for alignment measures. It is important to note that this SI does not establish a new policy framework but operates within an existing one, updating requirements for a specific product group in line with those frameworks. As such, it is consistent with how Parliament has previously agreed that these matters should be handled.
I turn to the issue of Northern Ireland’s alignment with EU rules driving wider UK market decisions. The Government do not replicate EU rules for the sake of it. Our guiding principle is the appropriate regulatory landscape for UK consumers and businesses, removing unnecessary barriers to trade and ensuring protections for the UK’s internal market. These updated standards, as noble Lords have mentioned, have applied in Northern Ireland since July 2025. Prior to this legislation, we have therefore had a split in requirements between Great Britain and Northern Ireland that has created complexity for manufacturers and retailers. We took interim action to address this before the advent of this measure.
When we look at the regulatory landscape for household appliances, the Government have to take a pragmatic view on what is the right approach for the UK. When we consulted industry, it strongly supported this approach. Manufacturers and retailers made it clear that they want a single, coherent, high-standard set of requirements. They do not want the inefficiency of separate production lines. AMDEA, the Association of Manufacturers of Domestic Appliances, has repeatedly called on the Government to move at pace in aligning with EU requirements, reflecting the practical benefits of avoiding duplicate production lines, testing and certification. On tumble dryers specifically, AMDEA said that the
“adoption of these proposals is seen as essential for ensuring consistency in product design and construction, reducing market fragmentation, and supporting manufacturers’ ability to seamlessly supply tumble dryers across the British Isles”.
Lord Frost (Non-Afl)
The Minister has said several times that this legislation is justified on the grounds of simplicity and avoiding two different regimes. Could he therefore explain why the EU regulations on which it is based are only 10,000 words long, whereas the UK statutory instrument is 21,000 words long? How is that providing for similarity? Is there perhaps a bit of gold-plating going on here?
Lord Whitehead (Lab)
The similarity is in the provisions, which are very straightforward. They require new energy labels, a maximum energy efficiency index, an eco programme on the tumble dryer, minimum power on standby, having spare parts more accessible—this is very important for the circular economy aspect of the use of these parts—and meeting a minimum 80% condensation efficiency rate. That is in both the EU regulations and the UK regulations as they now apply. I suggest that the fact that the UK regulations are a little longer means that we are not slavishly aligning with the EU but putting in our own regulations; they closely mirror a number of the provisions I have set out from the EU but are not the same. I welcome the noble Lord making that point.
By establishing a unified approach, we are driving the market towards cutting-edge energy efficiency, permanently lowering household utility bills and reinforcing a strongly competitive and integrated UK market.
I turn to the impact of these regulations on costs and performance, particularly in relation to heat pump tumble dryers. The Government’s wider analysis of ecodesign measures is that improved efficiency leads to lower operating costs over the lifetime of the appliance, that consumers benefit from reduced energy consumption and that new requirements can deliver improvements in repairability and product life. For tumble dryers, analysis indicates that consumers will benefit from lower operational costs and improved repairability under updated standards.
I can confirm to the noble Baroness, Lady Suttie, that tumble dryers account for around 9% of electricity use in the UK, so improving their efficiency will have a sizeable impact on household energy bills and the cost of living. A more efficient tumble dryer may have a slightly higher upfront purchase cost—perhaps £40 on the average £500 that a tumble dryer costs at the moment—but this cost is expected to be recovered within at most two years through improved efficiency. Even modest improvements in efficiency, as the noble Baroness mentioned, will translate directly into lower bills for millions of households. Over the 12-year lifetime of a standard tumble dryer, consumers can expect a net saving of approximately £200 on average, taking account of combined energy savings and deferred replacement costs. Even then, with the longer life of heat pump dryers, the benefits are greater over a 20-year period, particularly with the enhanced arrangements for repairs, with an estimated saving of over £900 on bills.
So, overall, while some products may cost more up front, they are cheaper to run, maintain and own over time. I therefore do not recognise what the noble Baroness, Lady Hoey, said about additional expenses, costs and what have you. This SI is basically a win-win for consumers, the environment and manufacturers. It is a proportionate and technical update within an established framework, consistent with the procedures and powers set out in assimilated legislation and directed at delivering lower energy costs, lower bills and products that last longer and are cheaper to run and maintain.
I fully recognise that issues of relationships with our EU partners and our regulatory frameworks will continue to be debated in this House but, on the subject of this instrument, the choice is more straightforward. To withhold support for these regulations would not remove the underlying challenges; it would simply risk greater inconsistency, less clarity, weaker outcomes and increased costs for consumers and businesses alike. For that reason, while I thank the noble Baroness for bringing forward this debate, I do not believe that the case for regret has been established.
Baroness Hoey (Non-Afl)
My Lords, I thank the Minister for that extensive response. I do not think that everyone in the Chamber will agree with his views on the question of costs. There is a dispute about that, but there is no dispute that these dryers cost more at the moment than conventional tumble dryers.
I was disappointed that I did not get to finish my questions to the Minister. As we still have a few minutes before the one hour is up, I will at least put them on the record. The Minister did not respond to my question about the fact that many people, particularly in rural areas, have their tumble dryers in their garages and elsewhere outside. That costs more. They will not work properly outside as they need a certain amount of heat, so that will cost people more.
The Minister also did not respond to the fact that there are now unused tumble dryers sitting in shops in Northern Ireland that they cannot sell. This is going to happen in the rest of Great Britain.
Finally, I want to say a few words about the way these SIs are handled now. The position has changed. We will have only one hour—a move presumably designed to stop Northern Ireland Peers, in particular, from talking late into the night on issues of great concern that cannot be raised in any other way. Also, if we get this new EU Bill that is coming through, we will see an awful lot more of these statutory instruments, and on a negative basis. So unless someone comes forward, there will be absolutely no debate and no discussion.
I think we should start to test that: to show that we will not be prepared to allow these things not to get debated and discussed. My Motion tonight is to regret the way this whole thing has been handled, and I would like to press it to a vote.
Clean Air Zones Central Services (Fees) (England) (Amendment) Regulations 2026
(1 day, 4 hours ago)
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Lord Hendy of Richmond Hill
That the draft Regulations laid before the House on 20 April be approved.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)
My Lords, this debate will deal with both the statutory instrument and the regret amendment laid by the noble Lord, Lord Moylan. These regulations make two principal amendments to the Clean Air Zones Central Services (Fees) Regulations 2020. First, the regulations extend the period during which local authorities may be charged for using the clean air zone central services website from 31 March 2027 to 31 March 2031. Secondly, they increase the fee that local authorities will pay to use the central services from £2 to £4 per transaction as a step towards full cost recovery. The regulations are intended to come into force on 1 September 2026.
As background, clean air zones encourage green travel by charging older, more polluting vehicles a fee to enter such zones. They have been introduced selectively where evidence shows that air quality is worse than the standards set out in the Air Quality Standards Regulations 2010; where they are the quickest way to reduce nitrogen dioxide in the local area; and where other options would not deliver the same results so quickly. There are currently seven clean air zones operated by local authorities in England: Bath and north-east Somerset, Birmingham, Bradford, Bristol, Portsmouth, Sheffield and Rotherham, and Tyneside.
The evidence indicates that clean air zones are having a positive effect. Between 2019 and 2024, in the areas of these cities, annual average concentrations of nitrogen dioxide reduced by between 18% and 46%, including by around a third in Bristol, 40% in Bath and north-east Somerset, and by more than 40% in Tyneside. These results matter. In the UK, it is estimated that exposure to air pollution has an annual impact on shortening lifespans equivalent to 29,000 to 43,000 deaths. This is about children breathing cleaner air, building healthier communities, preventing illness and protecting our National Health Service.
To support local authorities with the introduction and operation of these clean air zones, in 2021 the previous Government established the “Drive in a clean air zone” central services. This allows drivers to check on a website whether their vehicle meets the air-quality standards for that clean air zone and, where necessary, pay the relevant charge. It also provides support for those who do not use digital services to make payments and assists local authorities with enforcement.
This brings me to the issues raised by the noble Lord, Lord Moylan, who in his regret amendment suggests that the statutory instrument would risk additional costs being passed on to motorists, who are already facing high fuel costs; would fail to provide sufficient assurance that drivers will be protected from any direct or indirect increase in clean air zone charges; and would extend the charging period until 31 March 2031, despite the continuing financial pressure on motorists.
I should say at this point that I wrote today to the chair of the Secondary Legislation Scrutiny Committee, the noble Lord, Lord Watson, to clarify government estimates of cost recovery likely to result from this fee increase. This letter corrects information sent to the Secondary Legislation Scrutiny Committee in May. I copied that letter to the noble Lord, Lord Moylan, and the noble Earl, Lord Russell. We expect the fee increase to £4 per transaction to result in greater cost recovery, but this is not expected to be 100%.
To explain the history of this instrument, the 2020 regulations made by the previous Government permit a fee of £2 per vehicle until 31 March 2027. This was based on the assumption that by March 2027, the clean air zone central services would no longer be required, as local authorities would have achieved compliance with legal air pollution limits. The previous Government were not able to achieve this, and it is now clear that in some areas compliance with these limits will not be achieved until the early 2030s. Therefore, clean air zones will need to remain in place for longer than envisioned, and this instrument, by extending the charging period, is necessary to continue operating the central services.
The previous Government also failed to increase—at all—the central service fee designed to cover the Government’s cost of administering the service since it was introduced in 2020. Raising the fee to £4 will increase cost recovery to an estimated 90% for the lifetime of the central services from the financial year 2020-21 to 2030-31. To be clear, this still leaves the Government and the taxpayer subsiding these services to the tune of 10% of the overall cost. Through this fee increase, we are putting CAZ central services on a stable, sustainable footing.
I wish to reassure noble Lords on the question of the potential impact of this increase on motorists. We have been very clear with local authorities by letter that we expect them not to pass on any increase in costs to motorists. Tackling the cost of living is this Government’s top priority, and we are ensuring that this change does not add to the challenges many people face. This will be manageable for the relevant authorities as most of the schemes are currently running a surplus—significant surpluses in some cases. It is not right that taxpayers across the country should be subsidising surpluses, in these few authorities, generated from a scheme that is designed to clean up our air, and not to generate income. For example, from the information published by the council in Bristol, we understand its CAZ surplus has been running to several millions per year, and the fee increase could reduce it by around £400,000 in 2026-27, £1.2 million in 2027-28 and £1 million in 2028-29.
I further reassure noble Lords that, should any local authority be in a shortfall because of the operating costs relating to its clean air zone, this will be covered by the Government under new burdens rules. We have ensured both that any costs will not be passed on to motorists and that any additional costs to local authorities whose schemes are not in surplus will be covered by the Government.
The noble Lord raises a concern about rising costs to motorists, including fuel charges, but this issue is separate from the administration of a clean air zone service and the internal fees we are speaking about today. We are backing drivers and businesses by extending the 5p fuel duty cut and extending the 12-month road tax holiday for hauliers. This extension to the 5p duty is keeping taxes at a 16-year low and saving the average driver £120. The Government are also making record levels of investment in our road network, including a £7 billion commitment to tackling potholes and improving local road maintenance. Furthermore, we are delivering long-term funding through the road investment strategy, ensuring that a strategic road network continues to support economic growth and connectivity across the country. These measures demonstrate our commitment to easing the immediate pressures on motorists and investing in the future of our transport system.
I also wish to address the point raised by the Secondary Legislation Scrutiny Committee that the fee has not been reviewed or updated in line with inflation for six years and that charges set out in legislation should be reviewed regularly to avoid significant step changes in amounts. I cannot account for the previous Government’s inattention to this principle, as clean air zones have been operating for some years, but this Government now have the necessary data available from the past 12 to 18 months on the usage costs and revenue, and therefore it is an appropriate moment to revisit the fee structure considering the improved evidence base.
We will continue to monitor usage costs and revenue from the central services over the coming years, so that we can anticipate any further changes needed. Local authorities are expecting this fee change from 1 September, and officials continue to help them prepare. The Government will also work closely with the DVLA, which manages the clean air service, to ensure the smooth implementation of the revised fee when the regulations come into force. The Secondary Legislation Scrutiny Committee requested that, should further instruments be required to increase the fee or extend the period for which it is charged, the Explanatory Memorandum should include information, and we will do this in future, should it be necessary.
In conclusion, these regulations will ensure that the central services underpinning clean air zones continue to operate effectively and sustainably, supporting continuing improvements in air quality in towns and cities with clean air zones. I hope noble Lords will join me in supporting these regulations. I beg to move.
Lord Moylan
At end insert “but that this House regrets that the draft Regulations will increase the fee payable in respect of clean air zone payments processed through the central services website from £2 to £4; risk additional costs being passed on to motorists who are already facing high fuel costs; fail to provide sufficient assurance that drivers will be protected from any direct or indirect increase in clean air zone charges; and extend the charging period until 31 March 2031 despite the continuing financial pressure on motorists.”
Lord Moylan (Con)
My Lords, I start by saying that if the purpose of the recent changes in procedure for dealing with statutory instrument regret amendments and fatal amendments was to limit the scrutiny applied to government instruments, it has already proved very successful. What we see is that there are three speakers in this debate and they are all from the Front Benches. I suggest that the use of the list system for this purpose is already showing signs of failure. That remark of course is not addressed to the Minister, who is not responsible for the change, but I think it is important that it should be said.
I take as my starting point what the Minister said about the fuel duty. He claimed credit for not increasing the fuel duty in a way that was envisaged by the Treasury, but that occurred only because of a sustained and effective campaign led by the Conservative Party. The Government were embarrassed into falling back on that because of those efforts. It is wrong that they should claim credit for it. Any motorist who thought they might be able to relax in the light of that circumstance obviously has to think again because we now have, in effect, another stealth tax on motorists.
The instrument doubles the fee paid by local authorities to the Secretary of State for each clean air zone payment—namely, every trip that incurs a clean air zone payment charge—that is processed through the central service. That is for all the cities mentioned by the Minister; I believe that London is not part of that system, but all the other cities that he mentioned certainly are. It doubles that from £2 to £4. The Government are trying to get away with that as a cost recovery item, and they say that they do not expect it to be passed on to motorists by local authorities.
But, if you take the case of Birmingham, for example, where the daily charge is £8, this is now fully half of the fee. Of course this is significant, and local authorities will seek to recover it one way or the other. The Minister says that they do not need to do that because local authorities are generating a surplus—it is true that many of them are—and he imagines that local authorities just sit there with the surplus in the bank smiling at it and counting it as it accumulates. But in fact those surpluses are used for desperately needed transport improvements in their cities. So, if they are to be told, “You can’t pass it on and you will have a smaller surplus to spend”, something will have to give—and it will be local transport improvements. In fact, that is very unlikely because those expenditure plans, which are often laid several years in advance, will require funding, and that funding will no longer be available from this source, so it will come out of the motorist’s pocket.
I appreciate that today the Minister copied me into his letter to the chairman of the Secondary Legislation Scrutiny Committee, and he has explained the levels of cost recovery that are now expected as a result of this measure being implemented. But there is no transparency, and nothing has been offered to us to show that the central system is operating efficiently or that it needs fully half the revenue from the fee. It will not be half in every city, admittedly—it is half in Birmingham because the fee is £8, and in Bath it is £9—but it is approximately half. Fully half of the fee, or approximately that, is being snaffled for a processing system when it could be spent—and is being spent—on necessary and important improvements.
The burden of these fees, and the increase that I feel confident in saying will ensue, does not fall evenly. The vehicles that fail to qualify for these clean air zones are typically older vehicles likely to be owned by people on lower incomes, older motorists and so forth. This is not an abstract consideration about clean air; it affects people’s lives.
The clean air zones themselves should wind up in the very near future. They are, after all, a measure that work only if they achieve a certain objective within a certain timeframe. But we now find that the other effect of this instrument is that they are being extended out as far as 2031. The reality is that this is almost certainly redundant already. The vehicles that qualify for these charges are disappearing from the streets; that is happening simply through the passage of time and the fact that older vehicles are taken out of the fleet. I imagine that it could very easily be the case that the same effect could be achieved by 2031 as keeping these charges in place is likely to achieve.
We have all heard cases in the past where the Government have said that there will be a charge that will be levied for a certain period and then it will fall away. When the time comes for it to fall away, it is extended or kept in place, and sometimes it is even made permanent. The Government have more regard for their own finances—that is the simple fact—than they do for the life of the motorist. They should be ashamed of what they are doing. I beg to move.
Earl Russell (LD)
My Lords, I thank the noble Lord, Lord Moylan, for tabling this Motion to Regret. We are broadly supportive of most of it, but we have one central reservation about the framing.
There are seven clean air zones—CAZs—in England using the central service, as set out by the Minister. All of them will be affected by this instrument, with fees doubling from £2 to £4 per transaction from 1 September 2026 and extending for an additional four more years to 2031.
We support clean air zones. As the Minister set out, they are working and are delivering measurable and meaningful public health benefits. In Birmingham, the number of non-compliant vehicles has fallen from over 15% at launch to below 4%, and Bristol now sees close to 90% compliance. Nitrogen dioxide levels in Birmingham are down by 29% compared to 2019. That means fewer hospital admissions, fewer children growing up with impaired lung development and fewer premature deaths. Clean air is not only an environmental issue; it is a public health issue and an issue of inequality.
Our support for the policy is, however, separate from any contentedness with the quality of the instrument. The instrument has fallen short. The Secondary Legislation Scrutiny Committee once again had to step in. I recognise that that is partly because of the work of the previous Government.
The Explanatory Memorandum, as originally laid, contained no information on cost recovery and transaction data and no assessment of the impact on individual local authorities. The committee had to ask for that information and publish it, so that this House could properly scrutinise the measure. That is not how this process should work.
The lack of an impact assessment is also troubling. The Government say that there will be no impact on business, charities or the voluntary sector. While that is technically correct, it is not a complete picture. The cost falls on local authorities, which are responsible for delivering local transport strategies, and the law requires that net revenues from CAZs be reinvested in those strategies. While I recognise that CAZs were not set up to raise revenue and local authorities have known that fees would be subject to review, the committee was right to highlight the real-world consequences: where authorities fund these schemes from CAZ revenues, doubling the central service fee directly reduces the resources available for local transport investment. These changes mean less funding for buses, cycling infrastructure and sustainable transport alternatives.
The scale of that impact is also uneven. Birmingham and Bristol, with the largest volumes of chargeable transactions, are likely to face additional costs in the hundreds of thousands of pounds. Mid-sized schemes, such as Bradford, Sheffield and Tyneside, will face smaller but still material increases. For Bath and Portsmouth, the impact will be more modest. I understand that four local authorities are expected to absorb the increased fee from within their own revenues. Can the Minister say which four those are and what assessment has been made of the impact on their transport investment plans? For the authorities that will instead be supported by central government, what is the expected cost?
I will address the issue of timing. The fee has remained at £2 since 2020 and is now set to double. The department describes this as a timely change. The committee observed that charges should be reviewed more regularly, and we agree with it. If updated for inflation, the fee would be closer to £2.70. Instead, we are seeing it double in a single step, not a routine adjustment.
Since the policy aim is to achieve full cost recovery over the lifetime of the service, are fees being set higher than they might have been had they been previously reviewed? Can the Minister also confirm what the review cycle will be going forward? The period during which these fees are charged is now extended to 2031, but transaction volumes are beginning to fall as these policies are working and we have greater compliance. That raises an obvious question: has the department adequately modelled cost recovery on the shrinking transaction base? If the number of operating zones declines over time, what does that mean for the long-term viability and cost structure of the central service?
I turn to my reservation about the amendment itself. The amendment expresses concern about costs being passed on to motorists. As far as we can tell, there is no evidence for that happening at all in practice. Instead, the evidence suggests that these costs will not be passed on through any higher charges for motorists. The more credible risk is that they will be absorbed within local authority budgets, reducing investment in sustainable transport.
We support the concerns raised by the Secondary Legislation Scrutiny Committee. I press the Government for greater transparency, better analysis and a clearer account of who ultimately pays. To that end, will the department commit to publishing annual data on cost recovery for the central service, so that Parliament is not in the same position again?
Finally, I thank the Minister for his letter to the committee, his engagement with me ahead of this debate, and the words and reassurances that he has already given to the House.
Lord Hendy of Richmond Hill (Lab)
My Lords, I thank all noble Lords for their consideration of the draft regulations. The noble Earl, Lord Russell, referred to the observations of the Secondary Legislation Scrutiny Committee. I agree that, if we need to pursue this matter again, we should volunteer the information that the committee observed was not supplied in 2020 and again more recently.
The four areas with surpluses are Birmingham, Bristol, Bradford, and Bath and North East Somerset. I will write to the noble Earl with the information we have about how big those surpluses are. I put it to him and the noble Lord, Lord Moylan, that while the surpluses may be useful for local transport purposes, it would be foolish to guarantee that they existed simply because, as the noble Earl and the noble Lord remarked, the park of these vehicles and the income will change over time. Notwithstanding that I cannot give the figures, in the case of the larger local authorities they are not hugely material sums—but I agree that they are sums, and I will write to him detailing what they are.
The fee was set at £2 by the previous Government, without knowing the volume of vehicles that needed to pay the fee. I am sure it was not an unreasonable calculation and it would have been made by sensible people, but the review that we have done suggests that the taxpayer is making up the difference, rather than it being borne more locally and, in particular, by the authorities that make a surplus. We will review the matter again. I feel confident that in the next 12 or 18 months we will have another look. The noble Earl asked for annual data and we will look to publish something annually. I am not sure when it will start, but that is a reasonable point.
The major point is that this is an air quality measure and not a revenue measure. When local authorities are able to comply with the air quality standards for two consecutive years, they can close the clean air zone. That is what we want them to do. We do not want charging mechanisms; we want clean air for people in those towns and cities.
I think I have answered all the relevant points. I will not test your Lordships’ patience by going through again what I said 10 minutes ago. I commend the regulations to the House.
Lord Moylan (Con)
My Lords, it is not a revenue-raising measure, the Minister says—unless you are the Department for Transport, which will raise the revenue to cover its costs, as that is the prime directive it is following.
It has been a useful debate. There is little to be superadded to it at this stage. I beg leave to withdraw my amendment.