Employment Rights (Amendment) (EU Exit) (No. 2) Regulations 2018
Baroness Burt of Solihull Excerpts(7 years ago)
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Baroness Burt of Solihull (LD)
I thank the Minister for his explanation. These four statutory instruments have been somewhat of a revelation to me. I was not aware that Northern Ireland has a different system of rules, although it comes under the same European legislation as the rest of the United Kingdom. I hope that the Minister and other colleagues will forgive me if some of the questions I am about to ask seem a little naive: I do not have the same level of expert advice, and hope that the Government and the Official Opposition will bear with me. I also did not get the TUC paper referred to by the noble Lord, Lord Monks.
Two of the statutory instruments obviously relate to Northern Ireland, and I was surprised to discover that legislation which presumably covers the same European Union rules differs. Why, under the same general legislative EU framework, does Northern Ireland go its own way, to a degree? In what way do the Northern Ireland regulations differ?
The regulations for mainland UK and Northern Ireland cover paternity and adoption pay, fair employment tribunals, industrial tribunals, shared parenting, working time, posted workers, small businesses and so on. I saw no reference to TUPE regulations in the Northern Ireland statutory instruments. I am sure that that is my omission, but do those elements operate differently? Surely TUPE exists in Northern Ireland as it does in the rest of the United Kingdom.
I also note that the statutory instruments amend primary as well as secondary legislation, so presumably the instruments cover areas where the primary legislation is amendable by secondary legislation. Can the Minister confirm that that is correct?
I have another question on the instruments relating to England, Wales and Scotland. Paragraph 12 of the main regulation relates to statutory paternity pay where a person has worked in the EEA. Can the Minister confirm that statutory paternity pay will not be affected by our exit from the European Union for fathers working in the rest of Europe?
Finally, I get twitchy when I read examples such as in part 1 of Schedule 1, paragraph 2, which states:
“In section 79(2) (entitlement to parental leave—supplemental) omit subsection (3)”
of the Employment Rights Act 1996. There are several such examples throughout the SIs. Can the Minister assure us that no existing rights are being omitted or weakened in any of the statutory instruments we are considering this afternoon?
In discussing the withdrawal Act—it seems a long time ago now—we sought assurances from the Government that employment rights would not be weakened post Brexit. Our fears were echoed by the noble Lord, Lord Monks. We do not know what will happen; indeed, one needs a crystal ball to predict what will happen next week, let alone after any possible Brexit. Will the Minister assure the House, as much as he can, that employment rights will not be diminished?
In conclusion, I hope that none of these instruments will ever need to apply, unless we commit the wilful act of self-destruction of leaving the European Union without a deal. The Minister alluded to that. Is he still feeling optimistic?
Lord Balfe (Con)
My Lords, I draw attention to my various interests in the register to do with trade unions. I am very pleased to follow the noble Lord, Lord Monks, a distinguished former general-secretary of both the TUC and the European TUC. Many of us in this House forget that the European TUC is a very powerful body that represents workers from all over Europe and has had a decisive impact on much legislation that has covered workers.
I have also been extremely pleased recently to see that the Government, on the road to Damascus, are now again talking to the unions. It must be two and a half years since union leaders last met a Prime Minister. When I was working as trade union adviser to David Cameron, one of my jobs was to ensure that that scenario never existed. I hope that the present Prime Minister will realise that a regular dialogue with the trade union movement is for the good of Britain, because it enables trade union leaders, who have a very good bird’s eye view of what is going on in Britain, to contribute to the national wealth.
We have spent most of today talking about things which we really hope will never matter—in other words, that we will not leave the EU without a deal and that therefore none of what we have dealt with today will come into force. I noticed that both of the main SIs state that they can be,
“deferred, revoked or amended”.
My first question is whether consideration has been given as to which one of those three is likely to come into force. I would like them never brought into action and revoked straightaway, but the word that worries me the most is “amended”. In other words, they would no longer be SIs if we leave without a deal but would be amended in some way to accommodate a deal.
My next point is on the enshrinement in law of workers’ rights in the side agreement that we had with the EU. When I met Gavin Barwell, the Prime Minister’s chief of staff, I specifically asked: “How strong is this agreement and how enforceable is it?”. He confirmed to me that it was not enforceable. When legislation comes to this House to deal with post Brexit when there is a deal on the table, a number of Members will be looking to write those agreements on workers’ rights into Bills, to make them fully enforceable.
I want to make one or two points on the documents in front of us. I will try not to copy what the noble Lord, Lord Monks, has said. However, there is concern about workers’ councils. They play a valuable role and we will be looking to the British industry part of workers’ councils to maintain a commitment to them—in other words, not to use the absence of Britain from the EU as a way of weakening the ability of workers from the British side of workers’ councils to continue to participate in them. We will be looking for the Transnational Information and Consultation of Employees Regulations to be kept fully in force.
What will happen if an external request is made for a new European workers’ council from a European country? I notice that companies that operate in Switzerland often include Switzerland within their scope and include Swiss worker representatives as EWC members. Switzerland is not in the EEA—that is one reason why I use this example—and the provisions do not appear to make provision for workers’ councils continuing to include the UK within their scope on a voluntary basis. I would like to know what the Minister sees as the future in that area.
On the updating rights, the Minister can enact legislation to keep UK law in line with EU law. I would like to think that we will do our best to do that. Has he had any thoughts on that?
I turn briefly to the other regulations. I agree completely with the noble Lord, Lord Monks, that we need a much clearer definition of what “TUPE-like” means. This looks like something, but is not quite the same. I would like to see an agreement that TUPE-like means that TUPE, as practised at the moment, will be the standard to which Ministers will try to hold any future statutory instrument or legislative developments.
I thank the Minister for bringing this to the House tonight. I look forward to his responses and promise him that when labour relations matters come up, I will continue to represent the 30% of paid-up trade union members who vote for the Conservative Party.
Home Care Workers
Baroness Burt of Solihull Excerpts(7 years ago)
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Baroness Burt of Solihull (LD)
My Lords, the Minister says that the law is clear, but the problem lies with its enforcement, as the noble Lord, Lord Wills, has said. Too many home care workers get confusing pay packets which can obscure the fact that they are not being paid for travel time. Could it not be made a legal requirement that employers separate out travel time and make pay packets clearer on the different elements of pay?
Lord Henley
The noble Baroness is right to draw attention to transparency in pay packets, and I can give an assurance that legislation will take effect in April of this year for the first time entitling all workers to receive a pay slip. Where a worker is paid with a reference to time worked, the pay slip will now also detail the number of hours worked.
Brexit: Consumer Rights
Baroness Burt of Solihull Excerpts(7 years ago)
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Lord Henley
The noble Baroness, who has great experience in this field, is right to draw the House’s attention to the high levels of consumer protection that we have in this country. I was grateful to the noble Baroness, Lady Burt, for stressing from the Liberal Democrat Benches only yesterday that they are higher in this country than in most other countries in the EU. Obviously, as the noble Baroness will be aware, we want those protections to be maintained—that is what we have made clear—and we do not think that consumers should see any immediate differences in protection between UK law and that of the member states immediately after exit. It is quite right and proper that UK enforcers should continue to co-operate with their colleagues in other EU states wherever possible. That was also something I was keen to stress in yesterday’s debate.
Baroness Burt of Solihull (LD)
My Lords, I am getting a sense of déjà vu all over again as this is the third time this week that this question has arisen. I do not believe that the Minister has managed to answer the question once, so will he indulge me again? How will British consumers be protected—if and when we leave the EU—regarding the terms and conditions of purchase before we buy, and afterwards in the event of purchasing faulty goods?
Lord Henley
My Lords, I too feel like this is the latest in a series of number 11 buses coming along together. I have been keen to stress on all occasions—on Tuesday, yesterday and today—that UK consumers should not see any immediate difference. As always, they should continue to read the terms and conditions and I am grateful to the noble Baroness for reminding them of that. They should take advice where appropriate from Citizens Advice and, as I said in response to my noble friend Lady Wilcox, there will still be funding for at least one year for the UK European Consumer Centre. We will consider whether to extend that during the course of the year.
Brexit: Consumer Protection (European Union Committee Report)
Baroness Burt of Solihull Excerpts(7 years ago)
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Baroness Burt of Solihull (LD)
My Lords, we are here to take note of the European Union Committee report on the effect on consumer protection of withdrawal from the European Union, and I certainly commend the committee and the noble Baroness, Lady Kennedy of The Shaws, for undertaking this very important work. I was not a member of the committee, so I am extremely grateful for the clear and very interesting account that she gave of what happened on it.
The report tries to be positive, but I sincerely doubt whether any situation that we try to construct for ourselves from outside the EU to protect consumers will ever measure up to the protection that our own consumers—and EU consumers—currently enjoy through the complex and intertwined relationships that have developed to protect them over the past 50 years.
However, paragraph 20 of the report makes the point that our national law often provides for a higher degree of protection than the EU. That is true, and I truly hope that we will continue to be leaders in the field of consumer protection policy. But, since the interaction that we will have with our hitherto European partners will be so severely diminished, opportunities to learn from each other and create legislation to more effectively protect consumers will be severely limited. Consumers in the EU and the UK will be the poorer.
However, the government response to this is that existing consumer protections that are based on EU law in the UK will be retained. That will be fine when UK customers buy from UK-based traders—and ONS figures tell us that 82% of UK online purchases come from the UK-based companies. But, of course, if we are buying from EU-based companies—or EU citizens buy from UK-based companies—the situation will be different and protections will not be the same, particularly ongoing.
In paragraph 60 of the report, the Government is requested to address specifically the rights of UK citizens who visit EU 27 countries post Brexit. In their response I am unable to see anything that is particularly clear or helpful, other than the fact that they are working on it. I ask the Minister: have I got this wrong? If I have not, can he confirm when we will know what protections UK consumers visiting the EU 27 will enjoy?
A key issue raised by the report concerns how the Government are going to maintain access to the cross-co-operation mechanisms that facilitate the protection of European consumers. The noble Baroness, Lady Hayter, referred to this in the statutory instrument that she, the Minister and I took part in last night, on preparing the UK law in the event of a no-deal Brexit. She said that the Government had ended,
“the requirement on our enforcement bodies to help other EU states in the interest of their consumers. They have made it voluntary rather than a requirement. That was never necessary”.—[Official Report, 15/1/19; col. 208.]
Can the Minister explain why this step was taken? If consumers on both sides benefit, what would be the reasoning for discontinuing it?
In paragraph 84 of the report, grave concern was raised by the Select Committee about the clear evidence that national regulatory and trading standards bodies are already struggling to fulfil their important roles because of financial constraints, even before the additional complications and challenges of Brexit. The noble Baroness, Lady Kennedy, has already mentioned this. All the work that our consumer protection bodies do needs to be properly funded. If it is not being sufficiently funded now, what hope is there for protecting the needs of consumers in the future?
Finally, in the Government’s response to this question and others, they say that,
“the Government is fully committed to securing the … best possible deal for consumers”.
Surely the best possible deal is the deal that we have now.
Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2018
Baroness Burt of Solihull Excerpts(7 years, 1 month ago)
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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, this instrument is part of our EU exit contingency planning. It will not be needed should the UK conclude the withdrawal agreement with the EU.
Several laws allow for collective redress where infringements of consumer protection laws take place. The first of these is the consumer protection co-operation regulation, known as the CPC regulation. The reciprocal arrangements that this EU law sets out require enforcers to act on requests from their counterparts in another EU member state. They are required to investigate and, if necessary, take action to end infringements of EU consumer law where the collective interests of consumers in another member state are being harmed.
The second of these laws is the injunctions directive. The reciprocal arrangements in this EU directive allow enforcers to take action in the courts of other member states to stop the relevant infringement. In the UK, Part 8 of the Enterprise Act 2002 implements the injunctions directive as well as providing the UK’s enforcement mechanism for the CPC regulation. It enables certain UK and EU enforcers to apply for enforcement orders to stop the infringement in question, where listed EU consumer laws are being breached— known as community infringements—and the collective interests of consumers are being harmed. Lastly, UK enforcers are given the necessary investigatory powers through Schedule 5 to the Consumer Rights Act 2015.
After EU exit, and in the absence of a deal, the CPC regulation and injunctions directive will no longer apply to the UK as we will cease to be a member state. In consequence, UK consumer enforcers such as the Competition and Markets Authority will no longer be part of the reciprocal cross-border enforcement arrangements. This instrument therefore revokes the CPC regulation, which will otherwise continue to apply in UK law. This prevents a situation in which UK enforcers are required to assist their EU counterparts while EU enforcers are not under the same obligation.
The instrument also amends the Enterprise Act so that EU enforcers cannot apply for enforcement orders in the UK courts. This prevents a situation whereby EU enforcers remain able to take legal proceedings under the injunctions directive in UK courts while UK enforcers lose their equivalent right to take proceedings in the EU. However, the instrument does not prevent UK enforcers co-operating with their EU counterparts. UK public bodies will remain able to share information that they hold in their capacity as enforcers under Part 8 of the Enterprise Act to assist their counterparts abroad, although we recognise that cross-border enforcement co-operation to protect consumers will become more limited in a no-deal scenario.
The instrument also ensures that UK enforcers retain the powers that they have now to continue, within the UK, to investigate and address infringements of UK consumer law, including retained EU consumer law, after exit day. These laws are set out in the new Schedule 13 to the Enterprise Act inserted by this instrument.
In conclusion, these changes are a necessary use of the powers of the EU withdrawal Act and I commend the instrument to the House.
Baroness Burt of Solihull (LD)
My Lords, I thank the Minister for his letter of 7 January to my colleague, my noble friend Lord Fox, explaining much of the reasoning behind this statutory instrument. I sincerely hope that we will never ever need the provisions within the instrument; the effect of the vote that has just been held in the other place on the prospect of no deal remains to be seen. The letter says that the regulations,
“form an essential part of the government’s preparations to ensure a functioning statute book should the United Kingdom leave the European Union without a deal on 29th of March 2019”.
There has been much speculation about what would ensue should that happen, and we know that no one—or very few individuals, anyway—would want us to be in that situation. However, I wonder if the Minister knows how many more statutory instruments there are to come before 29 March in his own department alone? I understand that many have not yet even been drafted, but I would be very grateful, and I am sure the House would be too, for his best estimate of just how much work remains to prepare for that potentially disastrous eventuality.
The UK has a proud record of close and complex co-operation with the EU on consumer protection matters, but we know that if there is a no-deal withdrawal, UK consumer protection enforcement bodies will no longer be a part of the reciprocal cross-border enforcement arrangements in the consumer protection co-operation regulations or the injunctions directive. If the EU and the UK lose their mechanism for cross-border collaboration, we will all be the poorer for it. We will no longer benefit from reciprocal rights under EU law. As the Minister said, the instrument introduces the concept of a “Schedule 13 infringement”. I think I understood what he was saying but I would be grateful if he elaborated on how this might work in practice.
The letter says that the instrument will,
“protect UK consumers in the case of infringement of EU derived UK consumer laws”.
Could the Minister give an example? We know that purchased items that were manufactured in the EU but supplied through UK-based suppliers will be protected under UK rules, which will cover the vast majority of our purchases of EU-manufactured goods. Could the Minister give an example of when this Schedule 13 infringement power might be required and how it might be enacted?
It looks to me as though UK enforcement bodies can retain powers to protect UK consumers but are not obliged to co-operate with their European partners. I am sure the Minister will have some reassuring comments to make about that; it is certainly in nobody’s interest not to co-operate, but it is unfortunate that we potentially find ourselves in this position.
My final question relates to the UK European Consumer Centre, which the Government will be keeping open for at least a year, until March 2020. All well and good, but what happens to EU-purchased goods after that date? If you buy something and it develops a fault after March 2020, to whom will you go for advice?
In conclusion, the UK has been a leader in consumer protection issues and has helped to shape much of existing EU legislation. The letter says that the Government are,
“fitted to agree high levels of cross-border co-operation on consumer issues”.
It would be very helpful to know what this co-operation will look like and when it will happen. Any explanation the Minister can give about proposed timescales and content would also be appreciated.
Competition (Amendment etc.) (EU Exit) Regulations 2019
Baroness Burt of Solihull Excerpts(7 years, 2 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, the UK has a world-renowned competition regime, but currently the domestic system is highly integrated with the EU competition system. The primary aim of this SI, therefore, is to remove provisions in domestic legislation associated with being part of the EU competition system. While the draft withdrawal agreement with the EU sets out separation arrangements on competition, the Government are preparing for all contingencies. Should we leave the EU without an agreement in place, this statutory instrument will minimise the litigation risk for the Competition and Markets Authority and provide legal clarity and certainty for businesses and consumers; that is why the statutory instrument is before the House today.
The Secondary Legislation Scrutiny Committee has drawn this SI to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of special interest. As the Scrutiny Committee correctly noted in its report, this statutory instrument makes amendments to the Competition Act 1998 and the Enterprise Act 2002, and makes provision for incorporating European block exemption regulations. I will set out the main changes made by the SI, including those raised by the Scrutiny Committee.
First, the Competition Act 1998 sets out prohibitions against anticompetitive conduct in the UK and empowers the CMA and sector regulators to investigate and take enforcement action against infringements of those prohibitions. The Competition Act, together with EU regulations, also empowers the CMA to investigate and take enforcement action against infringements of EU competition law and provides for investigation co-operation between the CMA, the European Commission and member states’ national competition authorities. This SI amends the Competition Act to remove the CMA’s power to investigate anticompetitive agreements under EU competition law, as it will investigate solely under UK law after exit.
The Scrutiny Committee noted that the SI makes provision for the continued application of pre-exit EU competition case law of the Court of Justice of the European Union after exit. The committee is referring to changes the Government have made to Section 60 of the Competition Act. Currently, Section 60 of the Competition Act provides that competition regulators and UK courts must interpret UK competition law in a manner consistent with EU competition law. The statutory instrument revokes Section 60, as it is inappropriate and contrary to the withdrawal Act to require UK courts to follow ECJ case law after exit. It introduces a new Section 60A, which provides that UK courts and regulators will continue to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but they may depart from that case law where appropriate in specified circumstances. This approach aims to provide consistency and clarity in the law for courts, regulators and businesses, which look to legal precedent when interpreting the law, while also allowing the competition regulators and UK courts to depart, where appropriate, from EU case law.
With respect to private damages claims, claimants can currently pursue follow-on claims in UK courts, based on enforcement decisions of the European Commission and the CMA. After exit, claimants will still be able to bring private damages claims in UK courts; however, UK courts will not be bound, as a matter of statute, by European Commission decisions. This approach aligns with the European Union (Withdrawal) Act, which provides that UK courts will not be bound by decisions of EU courts after exit.
Under the current system, the European Commission makes block exemption regulations, which exempt certain categories of agreements from EU competition law, where they are believed to have a neutral or beneficial effect on competition. Agreements which benefit from an EU block exemption are also exempt from UK competition law. At exit, all of the seven current block exemptions will be incorporated into UK law, as retained block exemptions. Agreements that meet the terms of the retained block exemptions will continue to be exempt from domestic competition law. This statutory instrument amends the retained block exemptions so that they operate effectively in domestic law. It also empowers the Secretary of State to vary or revoke the retained exemptions.
I turn to the Enterprise Act 2002, which contains the rules on mergers. Currently the CMA is responsible for investigating mergers to ensure that they do not have anti-competitive effects in the UK market. However, if a merger triggers the turnover thresholds set out in the EU Merger Regulation, it is reviewed by the European Commission, including the UK aspects of the merger. After exit, the EU Merger Regulation will no longer apply in the UK, and the UK dimensions of mergers will be reviewed solely by the CMA. The statutory instrument amends the Enterprise Act to remove references to the EU Merger Regulation and other provisions related to being part of the EU’s one-stop shop for merger clearance in the single market. This statutory instrument also makes transitional arrangements for CMA anti-trust and merger cases that are live at the point of exit, so that those cases can continue to be managed effectively.
Anti-trust law protects consumers from anti-competitive behaviour. Similarly, merger control is an important component of a healthy and growing economy. It is vital that we safeguard the legal framework that protects consumers and our competitive market. This statutory instrument achieves these goals by maintaining the strength of the UK’s current competition system, while making only those changes designed to separate the UK competition system from that of Europe in a no-deal scenario. I commend the regulations to the House.
Baroness Burt of Solihull (LD)
My Lords, unlike my noble friend Lord Kirkwood, I have not sat on the scrutiny committee so some of my questions may appear a trifle naive to more learned Members, for which I apologise in advance. I ask the Minister to bear with me.
The regulations address deficiencies in competition legislation arising from our exit from the EU. As I understand it, we will no longer be part of the EU competition system. Can the Minister say how this is likely to affect our ability to tender for EU contracts? Currently we do very well in tendering for and obtaining EU contracts. Am I correct in supposing that we will lose our ability to tender for EU contracts? If so, what estimate have the Government made of the loss of value that this will have on the UK economy? Perhaps the Minister can help me; there is no impact assessment because, according to the text, the SI is supposed to have no effect on private businesses and charities.
The regulations come into force on exit day. But when, if ever, will exit day be? Unless the very worst happens, presumably it will not be 29 March 2019. We understand that we are not going to crash out—that is not going to be allowed—but, on the legal information to which we have not been privy and on which they are voting right now in the other place, presumably exit day could be years away, if ever. The only way that the British people can know is to have a say on the deal that Mrs May has negotiated and vote to end the madness and remain.
We have the advice of the chief legal adviser to the EU that we could pull out of Brexit with no penalty right now. I appreciate that if Brexit continues to prevail, we have to have a plan. Having retained much existing EU law, we have to pick through the bits of legislation which will not apply or which are unlikely to work once we have left. These regulations relate to inconsistencies in competition law in the event of the worst possible piece of self-harm that the British people have done for generations—a no-deal Brexit.
The regulations relate to infringements of and exemptions from competition and merger law. Part 2 of the regulations is “Amendment of the Competition Act 1998”. Part 3 is “Amendment of the Enterprise Act 2002”. Part 4 is “Amendment of other primary legislation”. Part 5 is “Amendment of subordinate legislation”. Part 6 relates to amending and revoking retained EU law, and part 7 is “Saving and transitional provision”.
I am no legal expert, as I am sure has already become apparent to noble Lords, but the fact that no impact assessment has been produced because no significant impact on the voluntary or private sector is foreseen suggests to me that it is hoped that this is merely a tidying-up exercise. It may be technical, but I still fail to see why there is no impact assessment on what impact this competition crisis will have on our ability to trade and compete with our biggest market, indeed, the biggest single market in the world.
Lord Berkeley (Lab)
My Lords, my understanding is that these draft regulations will apply only if we crash out or similar with no deal at the end of March next year. As the noble Baroness said, there are some interesting questions, to which we need answers.
I should like to get some answers from the Minister about what happens to some of the cases that are being considered at present by either the CMA or the European Commission competition authorities. Such cases run for years. They may have started now, but they certainly will not finish. Presumably anything that starts before 29 March next year will continue to some conclusion by the competition authority in the Commission. Is there a time limit on that? How will the relationships between the UK parties, if you like, and the Commission and the other parties be handled in that transition period, which may go on for a great deal longer than any transition that the Prime Minister may be negotiating? Some of these competition cases go on for years.
One case I have got slightly involved in watching is between two railway manufacturing companies, Siemens and Alstom. Siemens has its head office in Germany and Alstom has its head office in France, I think. They have been proposing a merger of all their businesses for several years now. The European Commission has got to the stage of issuing something that is not technically an opinion, but seems to me to be an opinion, which suggests that a merger would be a bad idea for competition across Europe in the whole railway sector. The companies appear to have been trying to promote the merger as a way of preventing Chinese industries taking over everything in Europe, including the UK. Both companies have subsidiaries in the UK; some make trains, some make signalling and some do other things. If that merger went ahead on the continent—in Europe—could the CMA stop a merger between their subsidiaries in this country, or vice versa? How would it work? If they wanted to merge in this country, would the CMA’s decision apply in Europe?
Presumably, if any of this is to work at all, there has to be some communication between the CMA and the European Commission’s competition department on issues such as this. I would welcome a comment from the Minister as to how that conversation—it may be only a conversation—would happen and the extent to which a decision by one party would be binding on the other. I look forward to his comments.
Postal and Parcel Services (Amendment etc.) (EU Exit) Regulations 2018
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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
The Government are confident that an agreement on EU exit will be achieved, but, as I said earlier, we must be prepared for all outcomes. If the UK leaves the EU without an agreement in place, these regulations will provide legal clarity for the regulator and postal operators. These draft regulations are made under the powers conferred by the European Union (Withdrawal) Act 2018, and correct deficiencies in the statute book associated with exiting the EU.
The Secondary Legislation Scrutiny Committee agreed with the Government’s recommendation that these regulations should follow the negative resolution procedure, when the draft was originally presented in July. However, at the time, the European Statutory Instruments Committee in another place felt that further explanation was required regarding the changes that these draft regulations present because of exiting the EU, and recommended that the draft regulations should be upgraded to the affirmative procedure. The Government accepted that recommendation.
If approved, the regulations would not change the operation of postal and parcel services beyond the changes that are necessary to ensure the regime is fully functional on exit day. There are four necessary changes. First, they amend the Postal Services Acts 2000 and 2011, to remove or replace references to EU obligations which will no longer apply once the UK leaves the EU. They also remove provisions which impose duties to notify the European Commission. Secondly, they remove from statute the Postal Services Regulations 1999, which implemented Article 22 of the postal services directive and required member states to designate a national regulatory authority for the postal sector. Thirdly, they revoke the European Commission’s decision of 10 August 2010 that established the European Regulators Group for Postal Services—the ERGP. Finally, they revoke Regulation 2018/644 on cross-border parcel delivery services. I will explain each in turn.
The Postal Services Acts 2000 and 2011 set out the minimum requirements of the UK’s universal postal service. The amendments to primary legislation governing postal services in these regulations will not affect the UK’s universal postal service. These regulations ensure that any remaining obligations under retained EU law are maintained in the Postal Services Act 2011 and remove redundant provisions. The regulations also remove obligations of the EU postal services directive, such as sharing information with the European Commission, because the UK will no longer be subject to the directive’s provisions or to the authority of the European Commission after we leave the EU.
The Postal Services Regulations 1999 designate Ofcom and the Secretary of State as the UK’s national regulatory authorities for postal services, a requirement of the postal services directive. Duties and functions of Ofcom and the Secretary of State relating to postal services are set out in the Postal Services Acts 2000 and 2011, so there is no longer a requirement to “designate” them under separate regulations.
The 1999 regulations will become redundant when the UK leaves the EU and are revoked in full by these regulations. The European Commission decision of 2010 established the European Regulators Group for Postal Services. The group consists of national regulatory authorities of member states. It provides advice to the European Commission and aims to facilitate consultation and co-operation between national regulatory authorities of member states.
Ofcom is a member of the group as the UK’s national regulatory authority. After we leave the EU, the UK will no longer hold membership status, as it will cease to be an EU member state, and therefore Ofcom will not be entitled to participate formally as a member of the group. The regulations therefore revoke this EU decision which contains a list of members, one of them being the UK.
The withdrawal from the ERGP was an issue of interest for the House of Commons sifting committee. The House requested further information on the effect of the UK’s non-participation in the ERGP and any alternative future arrangement. Ofcom intends to seek permanent observer status after the UK has exited the EU, in the way that NRAs of the European Economic Area states, Switzerland and EU candidate countries participate at present. Although observer status would remove Ofcom’s right to vote, the impact would likely be minimal given the co-operative nature of the forum. The group generally makes decisions based on consensus. If required, issues that would be voted on are the final work programme, published reports or opinions and the elected officials of the ERGP; that is, the chair and two vice-chairs. If granted observer status, Ofcom will still be able to engage in strategic discussions, negotiations and the sharing of best practice after we exit the EU.
I turn now to Regulation (EU) 2018/644 on cross-border parcel delivery services. The aim of this EU regulation, which came into force in May this year, is to increase regulatory oversight and price transparency of cross-border parcel delivery services within the EU. These regulations revoke the EU regulation in full. The EU regulation requires regular submission of information on cross-border parcel delivery services to the European Commission with the aim of publishing tariff information on member states’ cross-border parcel operators. This duty should no longer apply after the UK leaves the EU, as the UK will cease to be a member state and will no longer be subject to the authority of the European Commission. In any event, the principal information-gathering powers of Ofcom, the UK’s postal regulator, are provided under the Postal Services Act 2011. Ofcom already draws on this as part of its regulatory monitoring of postal services.
These regulations are a sensible and necessary use of the powers of the withdrawal Act, which will ensure that postal and parcel services continue to operate effectively after the withdrawal of the United Kingdom from the European Union. I commend them to the House.
Baroness Burt of Solihull (LD)
My Lords, I am grateful to the Minister for his explanation. My understanding of this piece of legislation is that it pulls us out of retained EU law that will no longer be applicable on our withdrawal from the EU if we get no deal and crash out; unfortunately the noble Lord, Lord Framlingham, who asked the “crashing out” question, is no longer in his place. Again, there is no impact assessment. I take the point that the Minister made earlier but I ask for his patience and for assurances on a couple of issues. I am sure he will be able to supply them.
My first question relates to the directives that we are rejecting which opened up the sector to competition and defined a universal postal service as a right. What will the situation be post Brexit for remote communities, for which the universal postal service is vital, even though it might not be economically viable to provide? As the Minister said, Regulation (EU) 2018/664 increases price transparency and regulatory oversight of cross-border parcel delivery services. Can the Minister explain for the ignorant what difference this is likely to make to price transparency and the prices of cross-border parcels to and from the UK?
Finally, what do the Government assess will be the effect of removing us from these EU regulations? Will our ability to send and receive parcels cross-border be affected in the future? I am not asking the Minister to look in his crystal ball here, although it would be helpful if he had one to hand, but does he think that it will be harder or easier? The Government have produced no impact assessment, but how can there be no effect of withdrawing from this legislation?
Lord Stevenson of Balmacara (Lab)
My Lords, again, I am very grateful to the Minister for the very full letter about this SI that I received last week. He covered all the points that he has made in his speech—and, in fact, a few more—and it was very useful in getting us ready for this debate.
However, there was one thing that I wanted to pick out relating to the Postal Services Regulations 1999, which were set to become redundant and will be revoked in full. I presume that the rationale for wishing to revoke them is that they are derived from an EU directive, I think, rather than a regulation, and they require member states to designate a national regulatory authority in the UK. In this case, Ofcom is the designated authority. The letter goes on to say that the functions of the Secretary of State and Ofcom in regulating the sector are set out in the Postal Services Acts 2000 and 2011, but I question whether the removal of the 1999 regulations, which designate Ofcom as a specific post of national regulatory authority in the UK, does not in some way discriminate against Ofcom as being the likely regulator for postal services in the UK. It is really a question of whether there will be any diminution in Ofcom’s authority as a result of this. I would be grateful for reassurance that there will be no change in substance, even though there will be a change in the legal basis on which it is appointed.
The noble Lord has spent a lot of time discussing the role of the ERGP and the future of that body with Ofcom as an attendee. It is an obvious point but attending is not the same as being a participant, and even though it is an informal body largely operating by consensus, there will still be a difference, so we will be a rule-taker and not a rule-maker in a very real sense. Again, I would like reassurance that there is no question that we will lose out in terms of how our postal services flow and our parcels are delivered in the future.
I have two further points. Like many noble Lords, I am sure, we have received a number of representations from those involved in cross-channel activities, particularly about getting access to goods and bringing them through the Channel Tunnel to make sure that markets in the UK are satisfied. Therefore, this is about inward goods but it is also about external goods. A lot of material flows out through the tunnel to other places, and a particular issue is time-sensitive goods. Is there anything that the noble Lord feels it appropriate to share with us, particularly in relation to recent comments by his colleagues in the Department for Transport about the difficulties in ensuring that goods move backwards and forwards? Would that impact on anything that these regulations should do? Time-sensitive goods are obviously the most important, such as fresh goods and other materials that need to arrive at a particular time. These will be affected by blockages and changes in the overall system. Where they are postal, additional regulatory authority and other issues may be engaged, and there may be costs involved that we are not yet aware of. I would be grateful for some comments on that.
Finally, paragraph 7.6 of the Explanatory Memorandum deals with Article 7 of the EU parcel delivery regulation. I recently saw documentation from the Institute for Government, which has been looking at the Government’s readiness for Brexit in the case of a no-deal crash out. One issue flagged as red, and therefore not ready, is parcels. Does the Minister have any information on that, given that it falls within his brief? Is there a problem here and, if so, is it something that he wishes to share with us? The Explanatory Memorandum makes the point that the EU parcel delivery regulation is largely covered by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. It goes on to say:
“Therefore, the EU Parcel Delivery Regulation will become substantially redundant following the UK’s exit from the EU”.
But “substantially redundant” is not the same as “completely redundant”. Will the Minister spell out the differences that are envisaged?
Business Contract Terms (Assignment of Receivables) Regulations 2018
Baroness Burt of Solihull Excerpts(7 years, 3 months ago)
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Baroness Burt of Solihull (LD)
My Lords, these regulations address a problem that I did not know existed. The colloquial expression for “assignment of receivables” is factoring, and that is what I know it as. Why would companies build these terms into contracts, with the exceptions permitting, unless there was a question mark about their payment? I will be interested to hear the Minister’s comments about that. It seems unjustified. I understand the importance of being able to get hold of money for your contract early on, but if companies paid in a more timely way, factoring would perhaps not be necessary. Those are just a couple of comments, but I wholeheartedly welcome the regulations.
Will the Minister explain paragraph 10.13 in the Explanatory Memorandum? It is headed “Additional Exclusion”. It states that contracting parties need to be certain that they are dealing with each other rather than an assignee. Does the Minister understand that to mean subcontracting? If he does not, are there other examples of what could be meant by that? Other than that question, I welcome this legislation.
Lord McNicol of West Kilbride (Lab)
I am grateful to the Minister for the introduction to this SI. This is my sixth week in your Lordships’ House and it is a pleasure to be speaking on my first SI. If I make any procedural or other errors, please forgive me. I am still learning and have a long way to go.
Invoice financing as set out in paragraph 7 of the Explanatory Memorandum is one way of securing working capital. More simply, it is the ability to borrow money against unpaid invoices to improve cash flow. We on this side agree that invoice financing has its place, but it is not always the solution to the problem. When laying these regulations, Her Majesty’s Government have missed a great opportunity to sort out the wider issue, which the Minister touched on, around payment culture. The recent consultation on prompt payment received some very good responses on the wider issue of late payment which simply must be addressed soon. In excess of £2 billion a year is owed to SMEs in late payments—payments past the agreed invoice payment date. Does the Minister agree that this is a far larger and more easily solvable problem?
I was general secretary of the Labour Party before coming here. The Labour Party led on this by example and had 30-day payment terms. More widely, there is the absurdity of having a voluntary prompt payment code. Many large firms are signatories but there is no enforcement, so in real terms the code is worthless, especially as many companies have 60-day terms.
What if a company breaches those terms? Let us not forget that Carillion was a signatory but then went on and changed its payment terms to 120 days. Does the Minister agree with me that a sensible term for the code, even in its voluntary state, would be 30 days? Why has the prompt payment code not been made compulsory? Why has consideration not even been given to making it so? These reforms would help to solve the problem that IF looks to solve.
The correspondence with the Secondary Legislation Scrutiny Committee touched on the question of implementation dates. I note the Government’s response supporting the status quo, but do they still believe that there is any point in having common commencement dates? The CCDs of 1 October and 6 April each year are introduced to help businesses to plan for new regulations and increase awareness of the introduction of new or changed requirements, yet these regulations are to be introduced 21 days after they are passed. As the correspondence with the Secondary Legislation Scrutiny Committee reveals, it is not as if there has been a great rush to get these regulations in. As we can see from the Explanatory Memorandum, the first discussion paper was published in 2013, so I am sure that another few months’ delay to ensure better regulation would not have hurt.
I congratulate the Business, Energy and Industrial Strategy team on their detailed and helpful work on the impact assessment and the Explanatory Memorandum. Having said that, I think the committee has done a brilliant job of sorting out the documents before us and holding the Government to account for a certain amount of confusion. It might have taken time, but I believe it would have been better if the Government had issued new documentation following the consultation. As the Minister said, substantial amendments to the regulations were made, so was the impact assessment carried out after they were made or before, in 2013?
I turn to the substance of the regulation. Could the Minister satisfy me that no problems or unintended consequences of these regulations may arise in the accounting treatment following the introduction of these regulations? I am thinking particularly of when income from invoice financing is to be recognised in the accounts of a trading company when that is not done through factoring. If the Minister is unable to give me a direct answer today, I am more than happy for him to write to me.
Paragraph 7.4 of the Explanatory Memorandum states that this regulation will help diversify finance markets and encourage competition. Could the Minister expand a little on how exactly that will happen? The bit that confuses me is the exclusion of large companies from IF. Could the Minister explain why they have been excluded, especially as paragraph 10.7 of the Explanatory Memorandum, as he touched on earlier, outlines the problem with large commercial contracts, not large commercial companies or businesses per se? Paragraph 10.8 then outlines the solution of banning large companies from IF. This appears to be a completely different answer to a completely different question. Maybe the Minister could explain what the persuasive arguments by the legal profession were and how these led the Government to exclude large companies from IF.
In the Explanatory Memorandum, under the heading “Territorial Extent”, the paragraph following Paragraph 10.14 is labelled 10.1. I think that this is just a typographical mistake but it should be picked up on. The serious point here is that the regulations appear to interact with powers devolved to the Scottish Parliament. Is that right? If so, did the Government consider seeking a legislative consent Motion? If not, why not?
As I said at the start, the Opposition will not oppose these regulations on invoice financing, but it is a shame that the Government missed the opportunity to bring forward legislation to improve invoice payment practices within these regulations.
Prompt Payment Code
Baroness Burt of Solihull Excerpts(7 years, 9 months ago)
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Baroness Burt of Solihull
To ask Her Majesty’s Government what is their assessment of the effectiveness of the Prompt Payment Code.
Baroness Burt of Solihull (LD)
My Lords, I am very grateful for the opportunity to raise this issue, which is arguably the biggest threat to small and larger businesses’ ability to thrive in the UK today: late payment. I thank the SEC Group, the FSB and the AAT for their extremely useful briefings.
Much has been said about the demise of Carillion, but many noble Lords may not be aware that Carillion was signed up to the prompt payment code. The code is a voluntary code of practice run by the Chartered Institute of Credit Management with the backing of the Department for Business, Energy and Industrial Strategy. Members promise to pay their suppliers on time, give clear guidance to suppliers and encourage good practice in their supply chains. These members undertake to pay their suppliers within 60 days and work towards adopting 30 days as the norm. Nevertheless, Carillion, like many other companies, was using money belonging to its suppliers to shore up its own cash flow.
There are plenty of ways in which the big suppliers exploit their supply chain today. Long payment periods are, of course, the obvious one; there are others that I do not have time to include here. During 2017, Carillion’s average payment delay was 43 days, and 5% of its contracts took 120 days to be paid. Its collapse left 30,000 small firms unpaid, with creditors only expected to cover less than 7p of every pound that they spent. Most suppliers to Carillion were not insured against it collapsing, and insurers are expected to pay out only about 3% of the total losses.
Why has the prompt payment code not solved some of these issues? Because it is a voluntary code of practice, it has largely failed to protect supply chains from late payment; it needs to be given more teeth. The AAT comments that the code has been undermined by the fact that the signatories to the code basically fall into two categories: those who already took this issue seriously and those who believe that, as it is voluntary, it does not have to be taken seriously. Carillion falls into the second of those categories.
The situation with public sector contracts, through which suppliers are contractually obliged under the Public Contract Regulations 2015, is quite dire. Under these regulations public bodies have a statutory duty to ensure that all subcontracts and sub-subcontracts contain 30-day payment clauses. Needless to say, Carillion did not have these clauses in its contracts and, as far as I know, no one picked it up on it. Unfortunately there is no effective enforcement mechanism under which to complain, except for the anonymous mystery shopper scheme. Even anonymously, in construction most will not complain because of the climate of fear existing in the industry.
However, there is a ray of hope in the form of payment practice reporting. From this April, large businesses must provide details every six months of their standard payment terms, how they resolve payment disputes and the percentage of payments they make within 30 and 60 days. It is naming and shaming and shines the harsh light of reality on what has been going on below the surface for many years. Of those businesses that reported in December 2017, before the statutory requirement to report came into force, only 52% of invoices were paid within 30 days; and nine of the 10 largest companies that reported their practices paid fewer than 10% of their invoices on time. Reporting is beginning to reveal the scale of the problem but we wait to see whether businesses will change their practices as a result of being shamed.
Tangential to the code, but nevertheless crucial, is the issue of retentions. These can be withheld from construction companies for many years and can often get caught up in insolvencies further up the supply chain. It is estimated that Carillion owed about £800 million in retentions alone. The Government have held a consultation on retentions and we look forward to receiving their conclusions—soon, I hope. Perhaps the Minister could indicate how soon.
A practical and realistic option has been presented in Peter Aldous’s Private Member’s Bill, which receives its Second Reading on 15 June. It seeks that when a cash retention is used it should be ring-fenced within a deposit scheme. This will protect it from insolvencies and incorporate a standard payment process, ensuring no unnecessary delays or time-consuming chasing. The Construction (Retention Deposit Schemes) Bill is supported by 120 cross-party MPs and over 350,000 companies. Could the Minister indicate whether the Government are minded to support it?
I recommend to the Minister a number of options that can deter large companies from paying their subcontractors late and protect small businesses when large contractors fail. First, the Government must be prepared to enforce the Public Contract Regulations so that recipients of major government contracts pay their suppliers within 30 days. I welcome the news last month that the Government will exclude suppliers from major government contracts if they cannot demonstrate fair and effective payment practices with their suppliers. However, we have yet to see the detail and I would appreciate the Minister providing more detail on how this will work, either in his response or in writing.
Subcontractors need to have the confidence to speak out, so I welcome the Government’s announcement that they will have greater access to buying authorities to report poor payment performance.
My second recommendation is that the Government should either accept Peter Aldous’s Private Member’s Bill or introduce something similar on retentions.
Thirdly—and, for the construction industry, arguably most importantly—project bank accounts should be introduced for all public sector construction projects over, say, £2 million, which is already the case for Northern Ireland, Scotland and Wales. PBAs could be used to ensure that payments are made within 30 days by holding the funds in a central, ring-fenced bank account. Highways England uses them, and third-tier subcontractors are paid within 18 days of the evaluation of the work under the main contract. No more Carillions would then be able to exploit their supply chain, using their money and pushing them over the financial edge into liquidation.
Finally, the Government should consider how to give the prompt payment code more teeth. Perhaps all listed companies, or those with turnover over a certain amount, could be required to sign up to the prompt payment code. It could levy fines for poor compliance, which could be used to fund its administration and support subcontractors in distress.
Getting paid fairly and on time will always be an issue for some companies, but these four measures combined would make a significant impact on poor payment practices, which would provide a legacy of which this Government could be proud.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, I am grateful to the noble Baroness, Lady Burt, for securing this debate and for all the expertise and advice that has come from all other noble Lords who have spoken in it. I think particularly of the noble Lord, Lord Palmer of Childs Hill, and his account of some of the bullying practices used by some of the larger clients. I heard his desire that we should be not just naming and shaming but actively broadcasting the behaviour of some payers. These matters can certainly all be taken into account in the various consultations and decisions that we have to make in the future. As I said, I am grateful to all noble Lords for speaking, but I am sorry that we have lost my noble friend Lord Cope, who felt that he must be dragged away for another debate. I well understand that it was right that he should not speak if he was speaking in another debate.
As I hope to set out, we are actively taking steps to make the United Kingdom’s payment culture fairer while simultaneously providing a base of support for all our small and medium-sized businesses, which are the backbone of our economy. It is right that I should start with remarks about the Prompt Payment Code, the voluntary attempt by which the Government started the process of trying to ensure that companies should lead by example in paying their suppliers promptly and fairly. I am a great believer, as the Government are, in always trying a voluntary approach as a first step. We should not make a point of rushing into legislation but there are occasions, and enough examples have been given to me by all noble Lords in this debate, where the behaviour of certain companies—that of Carillion has been highlighted—leads us to a view that further action possibly needs to be taken. That will be considered and I hope I can set out just how we are going to consider all that.
However, I certainly take on board, for example, everything that the noble Lord, Lord Mendelsohn, said about these matters and what we ought to do in this field. I will certainly look at his Bill when he introduces it in due course; I cannot comment on it in advance of that, just as I would not want to comment in advance on what our attitude is to my honourable friend Mr Peter Aldous’s Bill. But any measure that is introduced to address the unjustified late payment or non-payment of retentions needs to be simple, consistent and transparent. It is premature to commit on those things but we will consider them in due course, as we will consider all the points that noble Lords have made.
I am grateful to the noble Baroness, Lady Burt, for highlighting the fact that there was Carillion. I rather expected that she would raise it and that if she did not, the next speaker would—and if not the next, then another. In fact, I think that nearly every speaker raised it.
Baroness Burt of Solihull
I am conscious of the fact that I talked quite a lot about Carillion. I restrained myself from naming and shaming any companies that are currently working still but there are plenty more that could have come under the aegis of this debate.
Lord Henley
The noble Baroness knows that she has considerable freedoms in what she can say in this House because of the various protections that she has. Perhaps she ought to take advice from her noble friend Lord Palmer of Childs Hill about not necessarily naming and shaming but broadcasting these points. I merely make that offer to her. My point was that I was pretty sure that Carillion would be mentioned because when one has a code of this sort, it is rather embarrassing that a large company which the Government have made use of, even if it no longer exists, quite obviously signed up to that code without—I will be polite—thinking about the consequences of what it had signed up to.
The fact is that we have a code and it performs a function. We should think about that function and not necessarily completely dismiss it as it is. We know that signatories to that code must pay 95% of invoices within 60 days, in all but exceptional circumstances, and work towards 30-day payment terms as the norm.
In recent years we have strengthened that code and all the Government’s strategic suppliers have signed up to it, as well as some of the UK’s largest businesses. That represents the 2,000 signatories that the noble Lord mentioned; as I understand it, that includes most of those that the Government deal with. This is an important step in moving towards a gold standard across the largest businesses in the United Kingdom, and I hope it will assist us in getting into the position that the noble Lord, Lord Aberdare, talked about, in being in a better state than other countries. If a business believes a signatory is not complying with the code it can challenge its status, and the compliance board will take that into account. I think that I have dealt with the point that the noble Baroness made about Carillion.
The Chartered Institute of Credit Management, which administers the code on behalf of the department, works with all the signatories and challengers to recover payment debt and educate businesses of all sizes on the importance of good credit management and a positive payment culture. The principles of the code are effective only if taken seriously both by signatories and by the suppliers of signatories, which is why we are now exploring how the code can be strengthened and enforced. The noble Lord, Lord Stevenson, and others were looking for more teeth. That is why we will be inviting views on this, as well as on wider payment matters, within the forthcoming call for evidence on unfair payment practices. The code is an important tool for setting best practice, but it is just one of the measures that the Government are using to promote fair payment.
In April last year we introduced a statutory duty for the UK’s largest businesses to report on their payment practices, policies and performance so as to increase transparency and provide small business suppliers with better information about those they intend to trade with. So far some 1,500 reports have been submitted on GOV.UK, and can be accessed easily by the public. Small business suppliers, journalists, academics and others can use that data to compare and contrast, and to hold large businesses to account for their payment practices.
As the noble Baroness and the noble Lord, Lord Aberdare, will be aware, we launched the Small Business Commissioner in December last year, following the appointment of Paul Uppal in October. I realise that the noble Lord, Lord Mendelsohn, had a debate on this subject in January, and I think I am right in saying that he has visited Paul Uppal and discussed these matters. Mr Uppal has an important role in supporting small businesses to resolve payment disputes with larger businesses, providing advice, and helping to bring about a culture change in payment practices and how businesses deal with each other.
The commissioner considers complaints by small businesses against their larger clients, but we also encourage businesses to report poor payment practice and cases of late payment in public sector contracts, including late payment through the supply chain, to the Cabinet Office’s mystery shopper service to investigate. I think that it was the noble Lord, Lord Aberdare, who referred to that. That service provides a further route for suppliers to raise concerns about public sector procurement issues, including payments. It works closely with all public sector contracting authorities to broker a resolution to cases, and makes recommendations to improve procurement. I can assure the noble Lord that the mystery shopper service has handled some 1,300 cases since it was established in 2011, and is widely used by small businesses.
The Government are alert to the specific difficulties, particularly in certain sectors: construction has been named. In October last year my department published two consultations on payment practices within the construction sector. We are actively considering the responses and options for future policy. We are also consulting on how we should exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors. The consultation, to which I believe the noble Baroness, Lady Burt, referred, will close early next month, on 5 June. The noble Baroness asked in her usual optimistic manner when we would respond to it, and I will give the usual response: we will respond shortly. I want to make it clear that we will consider the responses very carefully, and will respond in due course.
We believe that the voluntary approach is a good one, but sometimes it does not work as it should. The recent collapse of Carillion has shown there is still more that needs to be done to protect small businesses. It is with this in mind that a call for evidence is being launched by my department on how we can eliminate the continuing problem of unfair payment. The call for evidence will build on the Government’s existing late payment policies to drive an end to all the unfair payment practices that the noble Lord, Lord Palmer, highlighted when he talked about invoices and cheques being “in the post”, or getting lost in the post, or whatever.
All the steps I am announcing amount to a package of measures that will ultimately strengthen, as we need to, support for small and medium-sized enterprises. It is important, as we all agree, to do what we can to enable them to grow and create jobs by providing an environment in which they can flourish. I am grateful, as are the Government, for all the suggestions from those who have taken part in this short debate. Those suggestions too will be fed into the process. I hope that I have answered all the questions—or at least, I cannot answer them all, because these are matters that need to be considered. What I can say is that we accept that the voluntary approach is the right one to pursue, but it does not always get quite as far as it might, and there may be occasions when we have to look into taking things further in the future. I hope that that deals with all the points that have been made, so I will end my speech.
Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018
Baroness Burt of Solihull Excerpts(7 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, these changes will extend the Government’s powers to intervene in mergers that might give rise to national security implications. The powers to make this secondary legislation are found in the Enterprise Act 2002.
The changes contained in the instrument will amend the share of supply test to allow the scrutiny of more mergers in three areas of the economy: military and dual-use technologies, and two parts of the advanced technology sector encompassing computing hardware and quantum technologies. Subject to parliamentary approval for this affirmative procedure statutory instrument, a second negative procedure statutory instrument will be laid to amend the turnover test to allow the scrutiny of more mergers in the same three areas of the economy.
Before I explain the changes in detail, I will say a few background words about the Government’s position relating to national security and mergers. The United Kingdom economy is open to the world. Core to our economic approach is to trade with and invest in other countries, and to welcome foreign investment into our economy. To facilitate this open economy, our framework of laws and policies on protecting national security and on the conduct of mergers must be continuously reviewed and updated. This tradition of periodic refinement has enabled the United Kingdom to remain a place where people can invest with confidence.
The Enterprise Act 2002 is the key legal means for the Government to examine mergers for the purposes of national security and other specified public interest criteria. In the light of technological advancements, economic developments and changes in the national security threat, it is now time for reform. Last year we set out a two-stage approach, beginning with action through this instrument and the proposed related instrument amending the turnover test.
I will briefly expand on the amendments. The changes made by this order and the proposed order amending the turnover threshold relate to mergers involving businesses active in three areas of the economy. First, the instrument covers businesses that produce military and dual-use technologies. Military technology includes such items as arms, and military and paramilitary equipment, while dual-use technology could have both military and civilian uses. These items can pose clear and immediate risks to the United Kingdom, our people and society. Furthermore, the acquisition of items that provide the UK with its military advantage can raise significant national security concerns. The instrument ensures that businesses involved in the development or production of goods that form parts of the UK’s export control regime will be in scope.
Secondly, the instrument addresses the risks created through advances in computing hardware, which now mean there are ubiquitous goods with the potential to be directed remotely should a hostile actor obtain access or control. Thirdly, it will bring quantum technology within scope. The huge technological potential offered by this area also presents national security challenges.
As a result of the changes made by the instrument, the Government will be able to intervene if the target business in a merger has a share of supply of at least 25% before the merger. The acquiring party will not need to have any share of the supply of the same goods or services for the test to be met.
We are making these changes because we are concerned about possible scenarios whereby a business with no existing share of supply in the UK buys a business in one of these three areas of the economy. Such a merger would not result in an increase in the share of supply in the UK and, therefore, the current share of supply test set out under the Enterprise Act would not be met. The changes will apply only to the areas of the economy that I have set out.
The amendments made by the second, negative statutory instrument will mean that the Government are able to intervene in a merger if the target firm or business being taken over has a UK turnover of more than £1 million, rather than the Act’s current £70 million threshold, in the same three areas of the economy covered by the first instrument. Microbusinesses are excluded from the scope of the revised thresholds, ensuring that the Government take as proportionate and focused an approach as possible to delivering our policy intention.
We have incorporated the constructive feedback from our consultation last October into the substance of these reforms. We have published an impact assessment and guidance to provide greater clarity to businesses and investors.
We will continue to assess risks in other sectors. If there is evidence to suggest that the Government should take action in additional areas of the economy, they will bring forward further legislation. In the longer term, the Government will bring forward primary legislation to make more substantive changes to how they scrutinise national security implications of foreign investment. We consulted on the proposals and are analysing the responses. A White Paper will follow in due course. I commend the order to the House.
Baroness Burt of Solihull (LD)
My Lords, as the Minister said, the United Kingdom prides itself on having an open economy—open to trade and open to takeover and mergers, in the UK as well as overseas.
However, in some areas, mergers may be open to threats to our national security in the fields referred to in this order of dual-use military technologies, computing hardware and quantum-based technology. Examples of such threats might be espionage, disruptive or destructive actions, or exploiting investment as inappropriate leverage in other negotiations. I therefore understand why the Government might want to strengthen their powers to scrutinise mergers and takeovers which fall into these areas.
However, I hope that the Minister will forgive me if I express a few concerns, and a number of questions are worth putting to him. First, some of the responses to the Government’s consultation were quite hostile. Why did the Government reject the opinion of several legal firms that the proposals were “inappropriate” or “disproportionate”? Why is the special public interest regime, meant to deal with mergers below the £70 million threshold, considered inadequate? Why have the Government decided on these three sectors specifically? Why does the order not cover other sectors that could have national security implications?
While the Government are not doing it at present, we need to be wary of significantly expanding the national security grounds for intervention because they could be used spuriously, as we see President Trump doing. We need to ensure that Parliament can keep the Government accountable for this power. We are currently far from the situation that exists in the USA, with President Trump using national security concerns spuriously to protect US economic interests, but will the Minister commit to coming to this House regularly, as the Secretary of State has done in connection with GKN, so that Parliament can hold the Executive to account for how these powers are used? In addition, we have been calling for a public interest test that could widen the grounds for ministerial intervention. However, this is controlled at EU level so would require EU agreement or would need to be done post Brexit. Does the Minister agree that the grounds for ministerial intervention in corporate takeovers, particularly by foreign companies, need to be expanded? For example, would he be prepared to work with the EU to consider the case for intervention in mergers to ensure that the UK’s research and innovation capacity is not restricted? I look forward to hearing what he has to say.