BHS

Debate between Baroness Burt of Solihull and Lord Mendelsohn

Monday 6th June 2016 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I draw attention to my registered interests, in particular my involvement with a distressed investment and restructuring vehicle.

I thank the Minister for her Statement on the collapse of the BHS chain in its entirety. We share the particular concern for staff and their families, and for the small businesses affected by this collapse. It is always difficult when a decision is made that the existing owners can no longer operate such a business, which must then change ownership. Huge difficulties are faced when trying to sell a loss-making business, especially—as in this case—when the business has a negative value. In these circumstances, it is not uncommon for its equity value to be nominal, the transactions supported by cash left in the business and by vendor loans. In that regard, we welcome the Insolvency Service investigation, once sold, into what transpired in the year or so of trading under Retail Acquisitions. We do not plan to continue a running commentary on this but it is a very important investigation.

I will focus on three issues and seek the Minister’s observations on these matters, which have a much wider significance. Certainly, with the collapse of Austin Reed and the problems with Tata Steel, this illustrates that there are problems with our current system of dealing with pensions, particularly defined pension schemes; in dealing with the administration and insolvency process, and the attempt to rescue as much of the business as possible; and, finally, in dealing with what can be done to transition 11,000 workers back into some sort of work and economic security.

On pensions, the current arrangements are really designed for a different era. In the post-financial crisis world, and as a result of quantitative easing, the return on gilts and low interest rates make the job of pension trustees to ensure a viable tracking strategy very difficult. Many of the schemes now in deficit had performed reasonably but are now very distressed. This has affected even our largest and most profitable businesses. In the case of BT, there are £47 billion of IAS 19 liabilities and a £6 billion deficit. This is a company with a £42 billion market cap. These conditions exist in many companies and in local authority pensions, too.

On BHS, the reports and statements confirm that extensive discussions have been going on for many years. We know that these discussions were going on in many different places. The Pensions Regulator said in its annual funding statement, released on 13 May, that the average company paid 10 times as much in dividends as it did in deficit recovery contributions. It went on to say that the increase in deficits could be in the region of 20% to 35%, depending on the scheme’s valuation date and hedging strategy. With this in mind and its own findings indicating that there is a wider problem than just that seen with BHS, what action is the Pensions Regulator taking to avoid another such crisis? Is the number of companies needing such discussions increasing? If so, are Ministers drawing up plans to deal with these problems?

Secondly, we have great concerns about the process of administration. Naturally, it is a great tragedy that the whole business unfortunately had to fold. It is certainly unfortunate that BHS was unable to seek supplier support and, therefore, the prospect of being able to sell the business became ever more difficult as the working capital requirement made it untenable for any bidder. In regard to this, we are also concerned that it seemed that the business was to be sold only in its entirety. Further activity and restructuring were not undertaken to save some of the business during the administration process.

For us, many of these issues are those present in a “creditor in possession” model versus a “debtor in possession” model. The Minister knows that we have a keen interest in these matters. While we do not propose to replace the “creditor in possession” model, this example certainly suggests that further consideration should be given to a “debtor in possession” model, one that would allow the company to operate and ensure that there were such regulations and laws so that suppliers were able to continue to support a business during restructuring and administration. Indeed, we proposed a model to the Minister some time ago. Certainly, it would not have been able to save such a business in these circumstances—it is very difficult to talk about a particular example—but it would certainly have given the administrators further time to look at restructuring the business and perhaps saving some or a portion of the jobs. We hope that the Minister will consider this.

Also in relation to the administration—we have also raised this with the Minister—recently there has been great concern about the position of creditors, certainly the seniority of creditors. Is it not time that we reconsidered the generous arrangements that allow bank loans always to be repaid first, and whereby taxpayer liabilities in the shape of VAT, national insurance and PAYE are always relegated to second position? We should also consider redundancy costs. Does the Minister consider that they should be paid first, in line with other secured creditors?

We are concerned that the Government should do what they can to support the workers in finding new employment. We welcome the fact that their attention extends to the workers at Austin Reed as well. We hope that the preparations they have made will be activated more quickly than appears to be the case from the Statement. We would be grateful to the Minister if she would give us more of an idea of when the intervention will occur. What more can be done actively—as opposed to plans in preparation—to allow jobcentres to contact the company more broadly? Will the Government consider appointing somebody to “hub” the activity on behalf of the department and all the different agencies of government? In relation to the Minister’s observations about the rapid response service being on standby, on what basis will this be activated? Does she consider that such a test has already been met and that it would be worth while activating the service immediately?

[Baroness Burt of Solihull (LD)]

I, too, thank the Minister for repeating the Statement. Our thoughts are with the staff and their families. We welcome the support that has been given and the Government’s ongoing investigations. The Labour spokesperson has just commented on the position of creditors, which has irked me for some time. However, the Government’s complacency and short-term approach is very concerning. Eight thousand jobs have been lost and there are 3,000 in the supply chain. However, the Statement says that,

“the retail sector as a whole is resilient”.

What does the Minister make of the British Retail Consortium’s forecast that 900,000 retail jobs will be lost by 2025? We need a retail strategy, just as we need a manufacturing strategy. Why do the Government wait for disaster to strike? We have seen it three times now, with British steel, Austin Reed and British Home Stores. The people affected need to be retrained to do different jobs. They need lifelong learning and continuous professional development as part of a working life they enjoy and in which they can take pride. If we had a retail strategy, we could look at making the high street a destination of choice—somewhere that people want to visit as well as being able to order goods online. However, at the end of the day, if you lose your job to a computer, you had better learn how to programme one.

Enterprise Bill [HL]

Debate between Baroness Burt of Solihull and Lord Mendelsohn

Wednesday 25th November 2015 Lords Chamber

[Baroness Burt of Solihull (LD)]

In Amendment 1 and this group of amendments, we see the Small Business Commissioner as a body that champions small businesses and seeks to protect them against imbalances of size and power.

We appreciate the amendments tabled by the Minister to give this body greater independence and its own staff, which we will deal with in the next group. We see those amendments as a great step forward in response to debate in Committee and thank her for them. We accept what the Minister said in Committee—that the commissioner will initially have to concentrate on late payments as it gets started—but payments are crucially related to other stages of the supply relationship, whether that is commissioning or operational experience, and the commissioner will need to delve, where necessary, into those areas to be effective. The commissioner should have the remit to do that when it is considered necessary.

Amendment 1 returns to the issue of providing for the widening of the remit so that the commissioner can be more effective and address issues which are not simply associated with late payment but are related. Imbalances of power lead to problems of commissioning and operational experience which become directly associated with payment problems.

The amendment seeks to include public sector organisations, whether national or local, as they are bodies that small businesses should be encouraged to deal with, where similar problems of size and power relationships will arise. Wherever there is an imbalance of power, there is an opportunity for exploitation, and that crosses public and private sectors. The Minister gave us reassurances in Committee that there was no need to involve the public sector because it is already being put in the right place by a whole series of measures, which she named: the mandatory period of 30 days for paying bills by public bodies, with interest owed afterwards; the mystery shopper scheme; the Public Contracts Regulations 2015; and the public policy commitment for central government to pay undisputed bills within five days. She accepted that the Small Business Commissioner would act as an important signpost to help small businesses with complaints with public bodies, but it would simply refer cases on. In most cases, this might be fine, but where it encounters delays and repeated bad practice in the public sector, are we saying that it should have no power to help the small business complaining?

If everything is rosy in the public sector, there will not be any problems, but will small businesses not benefit from a one-stop-shop approach? All they are interested in is getting their bills paid on time, and we want to see imbalances of power corrected. Either the Small Business Commissioner is all-embracing, across both the public and private sectors, or the new role will confuse small businesses and its reputation for effectiveness will be damaged. For these reasons, we believe that the remit should be capable of being widened beyond simply late payments, and the public sector should be included.

Amendment 10 returns to the issue of involving the Competition and Markets Authority where this is appropriate. The Minister reassured us in Committee that there is nothing to stop the commissioner referring a report or relevant information to the authority, but we would like this to be formally recognised in the legislation to counter abuse of market power and give the commissioner added authority to do this. I beg to move.

[Lord Mendelsohn (Lab)]

My Lords, these amendments principally deal with the core issues of the office of the Small Business Commissioner: what it does and who it deals with. We accept the argument presented by the Government about making sure that the Small Businesses Commissioner has a focused remit. Our criticism is not about the principle of having a focus; it is about whether we are providing the means for that focus to be delivered and whether the focus is too slight to have an impact.

Little seems to have been learnt from the Australian experience over the last 13 years—gained through the establishment of the state Small Business Commissioners and the federal one—about the importance of providing a very sensible focus on improving the business environment for small businesses. In fact, one thing that could have been learnt from the Australian experience is that the one thing that the commissioner does not do very well, and should not be its focus, is late payments, and that legislation ensuring compulsion is a much better approach.

I will broadly set out the concerns that we had at the time of Second Reading. First, we accepted that, while there is a need to address the late-payment information due to arise from the Small Business, Enterprise and Employment Act 2015, defining the late-payments role as being for the Small Business Commissioner was probably the incorrect focus and would short-change small businesses, considering the support that they could have had if the brief were wider. Secondly, we said that its scale was far too narrow, as the Government anticipated that it would deal with only 500 cases a year. We thought this was too small to be able to make a big impact on what it was trying to achieve.

We also believed that, at its very core, the definition of the role and purpose of the Small Business Commissioner was far too limited, and that using the experience of others—including Mark Brennan, the very impressive and successful first Small Business Commissioner in the state of Victoria, and subsequently the Australian Small Business Commissioner—could improve the quality of the business environment by reference to the two enduring core responsibilities of government: namely, the provision of information and justice. Access to information is a key component of a competitive marketplace, and the enduring responsibility of government when intervening to regulate business is to provide an appropriate system of justice, manifested through policy to ensure fair competition and fair dealings between commercial entities and between themselves and consumers.

There is probably a consensus that the distinctive characteristics and functions of the Small Business Commissioner would cover: access to information and education; advocacy to government; investigation of small business complaints and business behaviour; facilitating the resolution of disputes, including and especially through mediation; influencing small business-conscious government and other key stakeholders, including regulators, media and the business community; and ensuring that such a commissioner would operate with an attitude of being concerned with substance rather than technicality and a dedication to resolving disputes by encouraging commercially realistic attitudes. It is also the case that an effective Small Business Commissioner improves the environment for all businesses and is not just there to operate solely for the interests of small businesses, to the detriment of others.