Baroness Byford
Main Page: Baroness Byford (Conservative - Life peer)Enterprise Bill [HL]
Baroness Byford Excerpts
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is an interesting amendment and worthy of further debate. Before I go any further, I ought to apologise to the Committee and the House for not having been present for Second Reading. Unfortunately, I was abroad, but I have obviously read the debate with care. I need to declare various interests, all of which are on the register of your Lordships’ House. I am a director or chairman of various companies both public and private; I am a regulated person under the Financial Services and Markets Act; I have undertaken various reports for the Government looking at difficulties involving the growth of small business, particularly in the charity and voluntary sector; and I am currently undertaking a review of Part 2 of the transparency in lobbying Act for the Government. All of those cross over various parts of the Bill, so it is important that I get that on the record at the beginning.
I am concerned about the situation with regard to what the Minister writes in her response:
“I want the Commissioner to act as a disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them assert themselves in contractual disputes and negotiate more effectively”.
What the Government propose to do is splendid, but I would like it to go a bit further—in fact, I would like it to go rather further than the noble Lord, Lord Stoneham, suggested in his opening remarks—to make it possible for public authorities, in particular, to be brought within the purview of the Small Business Commissioner. I know that this is an issue with which the Federation of Small Businesses is concerned, and I suspect that Members of the Committee will have received briefings from it.
When I prepared for the Government the report called Unshackling Good Neighbours, which looked at the inhibitions that were affecting small businesses, particularly in the charity and voluntary sector—whether they were voluntary groups, community enterprises or, indeed, limited companies—it was clear that such organisations are playing an increasingly important role in the delivery of services to some of the most challenging and challenged parts of our society. The Government can provide the vanilla flavour solutions, but local organisations can provide answers to what are often very deep-seated and difficult challenges because they are more flexible and responsive to local conditions.
In all those cases, a public authority will directly or indirectly be the employer. The difficulty that those organisations have with public authorities can be widely demonstrated and evidenced, and it is a pity that the Government, who want a vibrant voluntary third sector, are not prepared to allow this to be part of the remit of the Small Business Commissioner. There are three particular aspects of the relationship of those groups with public authorities: the issues of commissioning, operating and payment. I could make a long speech about all of those, but I will not, I will just pick out a couple of points on each.
For commissioners, it is always easy to make a safe award: to award the contract to a big business, not a small one. The sunk costs of competitive tendering are not always understood. If you have a contract for £250,000 or £400,000, of course you need to get value for money for the public, the taxpayer, and you need to have some competitive tendering, but you must remember that if you ask 10 different voluntary groups to tender, nine of them will lose money because there is only one winner and the costs of their submissions are lost. There is not always clear enough consideration of the costs of making each and every tender in relation to the costs of the tender itself. This puts small companies, charities and voluntary groups under a very great disadvantage. The Minister might like to ask her officials to give her a copy of the report, published about 10 days ago. It states:
“Commissioning is failing charities and failing those they support … Commissioning is a significant challenge for small and medium sized charities for many reasons but not least their difficulty in competing against large, national and/or commercial providers who typically win larger contracts. These are often priced to work with those with less complex problems and those who are easiest to help—when small and medium sized charities are typically working with those with more complex needs who require more help. The commissioning process promotes competition over collaboration, making it harder for smaller organisations to participate and work together to benefit those they reach. Too often if they are involved they end up as ‘bid candy’”.
That is the position that the small business community should be able to consider. The same is true of operations. The monitoring costs of these contracts can be out of all proportion to the value of the contract. Not only that, but half way through the contract the basis for monitoring is changed, so that the small business is put under considerable administrative costs or has to change the way in which the contract is being looked at. They also come up against the operational requirements of other government departments. One of the examples I came across was from the Medway towns, in which a small voluntary group wanted two or three volunteers to assist the expansion of its operation. It asked the local jobcentre for help and 40 CVs were sent. They had to be considered and when requests for interviews were sent out, only about 15 turned up, and in the end it made only one of the three expected appointments.
When we inquired why that was the case and why 40 had been sent, the jobcentre said that it was interested in fulfilling its requirements for jobs offered and could put 40 ticks in the box if it sent along 40 CVs. If it had sent only 10, it would get only 10 ticks in the box. These are the sorts of practices and burdens imposed on small businesses, particularly in the voluntary sector, which the Small Business Commissioner should be able to tackle. The commissioner can do so by publicising difficulties, intervening to prevent repetition and facilitating co-ordination between government departments, but to do that, the commissioner needs to have the power when necessary to stand up and get involved with public authorities.
I hope that my noble friend will be able to reflect on this as we work our way through the Bill and we come to the later stages. It is in line with the Government’s thinking, and it would help greatly in the development of a vibrant civil society.
Baroness Byford (Con)
My Lords, I apologise to the Committee that I was unable to speak in the Second Reading debate. I had a funeral to attend elsewhere.
My contribution is very small but I want to enforce what my noble friend has just said. Having worked in the voluntary sector for many years, I can say that it was always one of the problems we had. It has become increasingly more difficult over recent years with the economic climate in which local authorities have to work. We can understand in some ways why this has been geared up. It is a very real issue. Perhaps I should declare an interest. I do not have many to declare but one of them would be affected by this. I am president of the Leicestershire group for young people. It used to be called Clubs for Young People, but it is now called Young Leicestershire. It is a good example of an organisation that looks to get some financial support from local authorities. Again and again, it is a matter of how much information has to be given, how much possibility of acquiring it, and how much time is given to it. I hope the Minister can reflect on this because if we do not include the public authorities, it would be an opportunity missed. Unless the Minister can tell us that it is already covered by something else, it is an issue to which we will return later. I encourage her to reflect on it.
Baroness Neville-Rolfe
I was trying to make the point, with rather a long list of what we tried to do in the public sector to put our house in order—alongside the noble Lord, Lord Stoneham, for a number of years—that we brought in the Public Contracts Regulations 2015 and a number of changes, and we are trying to measure and look at that. It seemed that what we are doing there and how we are monitoring is relevant to the issue of what the priority should be for the Small Business Commissioner that we are setting up. We believe that the prime focus of the commissioner should be on late payment, particularly when there is an imbalance of power between big business and small business, which has been a recurring issue that noble Lords on both sides of this House have been worrying about.
Baroness Byford
My Lords, before the noble Lord comes back again, I thank the Minister for that clarification. In particular, in the first instance, I think we are all concerned about late payments. As for public authorities, the instance I gave is about looking at local authorities as well. I am not sure whether the amendment, as it stands, would include both local and national authorities. On the charity side, negotiations invariably take place with local government, which is key. At the moment, with the economic pressures that local authorities are under, clearly it is putting extra pressure on those who are bidding for commissioning and everything else that goes with it. Therefore I was not quite clear whether the noble Lord’s amendment would include local authorities as well as national ones.
Baroness Neville-Rolfe
The mystery shopper and the arrangements I have described obviously cover local authorities as well as other public authorities, and I suspect that the amendment does the same for the same reason.
Lord O’Neill of Clackmannan
My Lords, I am very pleased to come in on this point. The problems of small businesses can very often be summed up as that they spend a lot of time financing bigger businesses. They do so because they are not getting paid and the bigger businesses have the money which they should have been paying further down the supply chain. We all recognise that this is an issue and, in some respects, the establishment of the Small Business Commissioner is evidence of that. However, it is equally significant that we have got to give the commissioner a chance from the very start. He has powers and teeth and he has support. Big businesses will not be allowed to set aside their responsibilities in respect of payment. This group of amendments covers both public and private sectors. In many instances, we have supply chains where the initial payment for work done comes from the public sector but there are many casualties going down the chain. The 30-day rule may be applied by some, but not by all. We do not need to wait on the commissioner asking for powers. We need to be able to say that this is the arena in which you will be operating and these are the powers and weapons you will have with which to take on the recalcitrants.
The amendments are a bit imperfect at the moment, but the principle is there. It is up to the Minister to come to us and say that the Government think, like noble Lords on this side of the Room, that something needs to be done. If this is not adequate, then by all means let us look at it again at subsequent stages, and in the other House, if necessary. Without this kind of clear backdrop, the Small Business Commissioner will be disadvantaged and will not be able to make the significant take-off, in respect of payments, that everyone would like to see right from the word go.
Baroness Byford
My Lords, I have a couple of questions for the noble Lord who moved these amendments. The theme of our discussions in the Room today has been that the powers in the Bill are felt to be ineffective. That made me think back to the discussions we had when we set up the Groceries Code Adjudicator not so many years ago, when the powers and effectiveness of that role were discussed fully. My first question, which is also for the Minister, is whether we learnt anything from that adjudicator that might have a bearing on the issues raised in our discussions. Secondly, in light of that, might a transitionary scheme be an advantage in the long term? It seems a shame not to learn from things we talked about in great detail in the past. One of these was the question of whether the powers were sufficient and would bring reward.
I know there is a slight difference between the Groceries Code Adjudicator and the commissioner we are setting up here. A lot of the adjudicator’s role was trying to solve the problems between suppliers and the people they were supplying. Fines and enforcement were nearly a last resort, but it was very important that they were there. My question, to both the Minister and the noble Lord, is about whether lessons have been learned, or whether there are other schemes out there which would give us more guidance on what the Bill proposes.
Baroness Neville-Rolfe
My Lords, we have had a very interesting debate on these amendments. I like the positivity of the noble Lord, Lord Mendelsohn, and will look carefully at his examples before we speak again. However, we believe it is vital to exclude certain matters from the scope of the complaints scheme in order to ensure, as I have said many times, that the commissioner’s work is targeted, does not duplicate and makes the best use of resources.
For example, a complaint will be excluded if it relates to the appropriateness of the price or proposed price for goods and services. The commissioner’s function is not to consider whether either party is getting a good deal financially but whether the approach to payment matters is fair and reasonable. I also agree very strongly with what the noble Lord said about the importance of what I would call working capital. By reducing late payments, you increase working capital. The noble Lord, Lord O’Neill, made essentially the same point. That is the background to this, where I think we have a lot of common ground. We think it is good practice for such a scheme to set out certain parameters, as we are doing here.
Amendment 45 is about imposing a maximum payment term. Obviously, I understand the intention behind this amendment. It seeks to address, as we are trying to do, the misuse of payment terms by larger companies when contracting with smaller firms. It seems quite wrong for larger companies to use unduly long payment terms when dealing with smaller suppliers. Indeed, frankly, you would expect them to do the opposite, because small suppliers have less capital behind them and are forces for innovation.
In the UK, legislation mandates a 60-day payment term for private sector bodies, unless companies expressly agree to a longer payment term that is not grossly unfair. It is true that some EU member states have gone beyond this to impose a maximum payment length. However, at the end of 2013, when we consulted on whether to introduce a maximum payment term, responses showed very little support for this. The most common argument was that companies value freedom of contract, and they need the flexibility to allow for different circumstances, notably the different practices of different sectors. Instead of more draconian measures, our stakeholders wanted to see increased transparency on payment terms and practices.
The Small Business, Enterprise and Employment Act does just that: it enables us to introduce a new reporting requirement for the UK’s largest companies. When implemented, this reporting requirement will see the UK’s largest companies reporting six-monthly against a comprehensive set of metrics, including the proportion of invoices paid beyond agreed terms, and the proportion of invoices paid within 30 days, between 31 and 60 days and beyond 60 days. We can legislate so that the Small Business Commissioner, once the office exists, will monitor and enforce this requirement—I think somebody asked about that. The commissioner will also make inquiries about payment terms, where a small business makes a complaint.
Amendments 42 and 43 concern the duty to pay. I have outlined our powers to implement a new reporting requirement for the private sector. The Act sets out how we can use the reporting power in relation to payment performance and interest owed and paid in respect of late payment. As we discussed earlier, the Public Contracts Regulations 2015 have recently introduced a requirement for all public sector buyers to have 30-day payment terms in their contracts and through their supply chains. They must publish annually on their payment performance, including interest paid to suppliers due to late payments and, from 2017, debt interest payments.
None of this is easy but we are striking a balance between ensuring transparency in this area and placing burdensome requirements on private sector companies and public sector buyers that we fear could have perverse effects on the UK’s largest companies and their supply chains.
The noble Baroness, Lady Byford, asked about the Groceries Code Adjudicator, who of course administers the Groceries Code, which was a remedy for a competition problem. The Groceries Code Adjudicator has adopted a similar approach to that which we intend for the commissioner. She has used informal approaches as a means of influencing behaviour and has had some success; for example, in retrospective forensic accounting.
The GCA, the pubs adjudicator and the new commissioner are each addressing particular issues identified after evidence-based research and full consultation. The Government have taken a proportionate response to these problems in each case. The first review of the GCA will take place in March—unfortunately, a little late for the Bill but in good time for the emerging work of the commissioner—and will give us the opportunity to consider the lessons further. I am sure that there is some other learning, but those were some first thoughts.
In Amendment 41, there is an important issue about further payment legislation; I am grateful to the noble Lord, Lord Stoneham, for his explanation of the way he sees this working. It permits the introduction of further legislation to tackle payment practice, so it would allow for a maximum term to quibble an invoice, for example. It would prohibit unilateral changes to payment terms and payment to join supplier lists.