Small Business, Enterprise and Employment Bill

Baroness Neville-Rolfe Excerpts

Tuesday 3rd March 2015 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)]

My Lords, I thank the noble Lord, Lord Mendelsohn, for his amendments on the important matter of late payment and for the general support that he has given to the Bill’s provisions. I also thank him for his diligence and interest. I am grateful, too, to the noble Lord, Lord Lea, to my noble friend Lady Harding, and the noble Lord, Lord Mitchell, with their business experience, to my noble friend Lord Cope and to my noble friend Lord Stoneham for his perceptive and practical comments about the risk of unintended consequences—gleaned, I think, from his very careful study and attendance every day in Committee.

Before turning to the amendments, I want to reassure the House about the Government’s unwavering commitment to tackling late payment. The measures we are taking forward in the Bill form part of a comprehensive package of measures to bring an end to the UK’s late payment culture. The Government are absolutely clear that large companies should lead by example and pay their small suppliers within 30 days. We need to shake up corporate culture to drive home our message—that it is not fair and not right to pay your suppliers late or use unfair payment terms.

That is why we are taking action in the Bill to require the UK’s larger companies to report on their payment practices, and we have already consulted on the detail of what this might look like. We proposed that companies report quarterly against a comprehensive set of metrics, including the proportion of invoices paid beyond 30, 60, 90 and 120 days and the average time taken overall to pay invoices. Therefore, there is a real incentive to show that you pay promptly and on time, and an opportunity for companies to explain if payment is late. It is a strong brake on bad behaviour, as my noble friend Lady Harding suggested.

This reporting will be rigorously monitored, with a company director required to sign it off, and breaches will be sanctionable by a criminal offence. Importantly, we will require companies to make this information public, so there will also be the power of transparency. The new reporting requirements will mean that poor payment practices are exposed, and it is this transparency that will drive a fundamental change in corporate behaviour. I also highlight that on Monday the Government published a summary of responses to our consultation. While the Government are still considering the evidence received, I am pleased that a clear majority of stakeholders agreed with our overall approach, although there were concerns about some aspects, including our very rigorous reporting requirements.

Last week, my right honourable friend Matthew Hancock MP also announced significant changes to the Prompt Payment Code. I know that the noble Lord, Lord Mendelsohn, and others have encouraged us to strengthen this, and the code will now promote 30-day payment terms as standard and enforce maximum 60-day terms. The change will be rigorously enforced by the new code compliance board, which will include people from business representative bodies who will investigate challenges made against signatories to the code by their suppliers. The compliance board will remove signatories found to be in breach of the code’s principles and standards. This will shine further light on poor payment practices. The Government are also seeking views on how to provide business representatives bodies with additional legal powers to challenge grossly unfair contractual terms or practices, which will build on existing protections for small businesses.

The noble Lord, Lord Mendelsohn, highlighted the issue of Lidl. The Government are clear that large companies including Lidl, which is a leading German supermarket chain, should lead by example and pay their small suppliers within 30 days. It is neither fair nor right to use unduly long payment terms. As I said earlier, we are already taking action in the Bill to require such companies to report on their payment practices through very tough requirements, including the detailed metrics that I have already described.

The noble Lord, Lord Lea, talked about the situation in the insurance industry and I will certainly look at the points that he raised. The noble Lord, Lord Mitchell, gave us a list of companies reported to be squeezing suppliers. This is further evidence, frankly, of the need for change and the action we are taking in this Bill and in the regulations made under it. He mentioned Diageo, which is already being investigated by the Prompt Payment Code administrator. The Government are being tough for small business, and we will take the necessary steps to stamp out poor practices.

I turn to the specific amendments. I recognise the strength of feeling that has been expressed and I am pleased to say I have been persuaded by some of the noble Lord’s arguments. I can confirm today that we will table amendments at Third Reading to insert the word “performance” into Clause 3, which was a concern that the noble Lord pressed in Committee to which we have listened. I also commit that we will use this power to require companies to report on the amount of interest owed on late payment because we agree that this will help to exert the necessary pressure on companies to make sure that their suppliers are fairly compensated. We will make express reference in the Bill to interest owed and paid. We will introduce amendments on both these points at Third Reading.

I now turn to the proposal to require companies to prepare a compensation plan on each instance that they fail to pay late payment interest. I am afraid that, on this point, I continue to believe that introducing this measure would lead to unintended and undesirable consequences. For example, businesses could lengthen their payment terms to avoid accidently having to pay out. If they do get caught by the requirement, there could be debates about whether payment plans provided cover for delaying tactics. While we are committed to tackling late payment, we are equally committed to trying to incentivise prompt payment with as little bureaucracy as possible. The discussions that we had with stakeholders indicated support for this view. These discussions reinforced the findings from our 2012 consultation that introducing further penalties would not tackle the problem of late payment. Instead, respondents called for greater transparency on payment practices, which this Bill delivers.

The noble Lord gave us some interesting feedback on the website. He will be glad to hear that BIS has just awarded the Chartered Institute of Credit Management £50,000 to improve that very website, so he is on the money. The improved website will go live later this month and I can only thank him for identifying this issue and sharing it with the House. I shall take it away and ensure that it is addressed urgently.

It is clear that the noble Lord and I are united in our mission to tackle late payment, but we must make sure that any interventions will work to the benefit of the very small businesses that we seek to protect.

I turn to the question of ensuring the report’s accuracy. Our consultation proposed that the reporting frequency be quarterly, as companies’ ability to pay or practices in paying trade creditors can change quickly. Therefore, we are not proposing that companies report in their annual report. Instead, we propose that the report should be signed off by the company’s director, with breaches sanctionable by criminal penalties, using the power in the Bill to mandate reporting. The summary of responses we have published shows broad support for this proposal. Respondents clearly feel that these measures would suffice to ensure the report’s accuracy and I therefore do not agree that we should require further assurances from an auditor.

I am grateful to noble Lords for their significant contribution to the scrutiny of these provisions. We have considered very carefully the proposals set out in the amendment and I hope that, with my commitment to bring back some changes at Third Reading, the noble Lord will feel able to withdraw the amendment.

[Lord Mendelsohn]

I thank the Minister for her extensive response to these amendments. I shall go through a few issues and then come back to them. In general, I thank the Minister for her very constructive and open approach throughout to these issues and to making improvements to the Bill. We share a great interest in and concern for helping to develop small businesses and doing what we can for them.

I am very grateful to the noble Baroness, Lady Harding. I had the great pleasure of talking about her, and our close connection, when she made her maiden speech. She is a remarkable business figure and I will address a number of the issues that she raised. The criticism has been made that we are trying to change culture through legislation. That is not our approach; it is the Government’s. The noble Baroness talked about the limitations of this. I have no doubt there are benefits to it, which I support, but I do not find myself on the same side of the argument as her on that one. We are adding duties and obligations because we have come to the conclusion that that is the way to address the size and scale of the problem. It is certainly true that legislation rarely changes the heart but, as the phrase goes, it can restrain the heartless. There are times when you have to use legislation as a lever to make things happen. I agree that the reporting requirements are an obligation, but they are a necessary one, and I hope that her support for them is heard by many other people in business.

I do not think that the issue of how customers and suppliers contract with each other comes up until the next set of amendments. They are slightly more complex so I will address that issue then. I want to say to the noble Baroness that I have become a bit of a junkie on the website. I am grateful that it is to get a £50,000 refresh, and perhaps even an app. Having looked through the Prompt Payment Code, I noticed that TalkTalk is not a signatory to it. We are talking about changing the culture, but if someone sitting in this House does not yet have a sense of how that culture should change, it is an issue when we come to address business at large. It is my feeling that culture change is insufficient in and of itself.

The noble Lord, Lord Stoneham, talked about being overly prescriptive, and he raised those concerns in Committee. I listened carefully to what he said and I have done my research on it. I felt at the time that the point was insufficient because of the scale of the problem and the way it is growing. When we look at how other countries with far less significant economic problems, or even problems in how to deal with this issue, we can see that they are the ones that have been infinitely more prescriptive. We can look at Ireland, while legislation in Germany passed just last year shows how that country has moved forward. It is only by being more prescriptive that we get clarity and avoid unintended consequences, which are more likely to arise in circumstances where a variety of alternative payment terms or arrangements are allowed to be put in place.

The noble Lord, Lord Cope, raised similar issues in Committee. Again, I listened carefully to him and I decided to take my cue from the GOV.UK website on the question of how we look at the dates. The website explains when a payment becomes late. It states:

“If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either: the customer gets the invoice”,

or,

“you deliver the goods or provide the service”.

That is how we reach the point where this can be tested.

I am grateful to the Minister and we are encouraged by some of the changes that have been made. We feel that the areas of performance and being able to identify the interest payments are useful steps. However, I am bound to say that my noble friend Lord Mitchell made a powerful speech, going through yet again those companies that have good records in a variety of areas but allow themselves to do what has become far too natural and far too easy in the context of the UK. We stand out from others because we are not as strong as we should be on dealing with prompt payment and people who get into late payments. The prize is there. We are talking about close to £60 billion, so putting even a small proportion of that sum into the economy will have a huge accelerating impact. We on this side think that being on the side of small businesses means getting more money racing through the economy. The need to increase employment prospects requires us to press the amendments and push to see whether we can get the economy moving by getting these late payments to small businesses sorted out much sooner than would otherwise be the case. Therefore, I wish to test the opinion of the House.

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[Baroness Neville-Rolfe]

I thank noble Lords for tabling these amendments on unfair practices and the noble Lord, Lord Mendelsohn, for sharing his experience, including points of agreement. Unfair payment terms and practices hit small businesses the hardest and are simply unacceptable. I consequently have considerable sympathy with the intention behind these amendments.

Our intention is to drive a fundamental shift in payment culture—a paradigm shift in UK corporate behaviour to stamp out poor payment practices. Obviously, the key question is how we achieve this. One option is to seek to tackle each and every harmful practice as we spot it, but I suggest that this is futile. As the previous debate suggested, if businesses want to exert undue pressure on their suppliers, they are likely to find ways to do so. Because banning individual practices only tackles the symptoms, it will not drive a change in underlying corporate culture. We are doing something different and using a new transparency to drive change in corporate behaviour. The power of the new reporting requirement should not be dismissed. It will subject companies’ payment practices to full public scrutiny, thereby allowing poorer-performing companies to be named and shamed. In so doing, it will exert significant pressure on companies to move away from unfair practices.

The noble Lord, Lord Mendelsohn, mentioned the case of Premier Foods, which I believe shows that transparency can successfully lead to swift change in practices. Following public scrutiny of its “pay to stay” practice, which the noble Lord, Lord Mendelsohn, rightly described as egregious, Premier Foods moved quickly to simplify its controversial supplier list scheme. The Government are clear that large companies should not be using their economic power to place further strains on already hard-pressed small businesses. The Secretary of State has already asked the Competition and Markets Authority to consider the available evidence on “pay to stay” clauses, which I hope will be welcome to the noble Lords, Lord Mendelsohn and Lord Mitchell. The new reporting requirement will also elevate poor payment practices to become a boardroom issue. We have proposed that a company director signs off the report to ensure it is taken seriously at the very top.

We have tested this proposition with stakeholders, and most have shown little appetite for greater regulation on specific practices. Businesses in the UK value the freedom of contract that has been built up over hundreds of years but they strongly agree with the Government that increased transparency will help us to take significant steps to address the current imbalance in economic power which noble Lords have described so graphically. That is why we must focus our efforts on getting transparency right by putting in place a comprehensive, robust reporting requirement for all the UK’s larger companies. Clause 3 is already drafted sufficiently widely to allow the Government to require reporting on the subject of these amendments through secondary legislation.

I turn briefly to the detail of the amendments. Late payment legislation already sets a maximum 30-day period to quibble after the receipt of relevant goods and services. We sought views on this issue during our recent consultation. There continues to be little appetite for legislation. Our stakeholders tell us that they are reluctant to use current avenues to challenge due to fears of damaging relations with customers—a point which has already been made. We also heard concerns that the change, as proposed, could result in unintended consequences, with companies starting to dispute more invoices as a means of gaining time to review them. Our stakeholders have instead called for increased transparency on dispute resolution processes. The Government will therefore require companies to report on these as part of the mandatory reporting requirement.

We also consulted on unilateral changes to payment terms. As a matter of contract law, unilateral changes cannot be imposed on a contracting party after the contract has been agreed. However, in reality, smaller companies, as has been said, may feel that they have no option other than to agree when such changes to an existing contract are proposed by bigger companies. A ban as proposed would not prevent this practice, as it would not prevent bigger companies from seeking changes and would not address the reasons why smaller companies feel unable to resist such changes—while effectively rewriting the core principles of contract law. Instead, therefore, our stakeholders supported increased transparency to shine a light on poor behaviour. I again propose to mandate reporting on this in our reporting requirement.

Charging suppliers to join or remain on supplier lists and seeking to reverse fixed payment and apply retrospective discounts and charges are deeply concerning practices. Although we could put in place a blanket prohibition on these practices, they are but two of the ways in which larger companies can seek unreasonable commercial advantage from smaller suppliers. Our stakeholders believe that bans on specific practices would be easy to sidestep.

Once again, increased transparency will help address the economic imbalance involved. Our stakeholders support increased transparency on the use of “pay to stay” clauses. I can commit to requiring companies to report on these practices in the reporting requirement. We also commit to holding further discussions with stakeholders to discuss whether reporting on other practices mentioned, such as retrospective discounts or charges, should be mandated in the prompt payment report—which, of course, we have the power to do. I hope the noble Lord agrees that I have sought to address his concerns through the medium of transparency and, on that basis, will feel able to withdraw his amendment.

[Lord Mendelsohn]

I thank the Minister for that reply, although I have to say that I remain extremely concerned about part of the approach. I know that the Minister shares a great deal of the concerns about this and that she is a very practical person who has looked at different ways to deal with it. Talking about transparency, culture and the possibility that there will be attempts to sidestep this is rather similar to closing the door after the horse has bolted. We are in that situation now. The Minister says that doing something more prescriptive will obviate what she is trying to do on culture, but I happen to think that it will work, while her approach will not.

I will give the example of a good friend of mine—perhaps they will not be after I have raised this—who is a senior member of a company that uses a method called central distribution charges, which is effectively “pay to stay” by another means. It uses it in the UK, but not in Germany, France or Italy. In the end, that is because it is not allowed to use it, as it is not a proper term. My concern is that we can say, “They will sidestep it”, but we are in that situation now.

Companies come to all sorts of arrangements. We hear great stories from companies such as Next, Dunelm or John Lewis, where the price you pay is the price you pay, but there are far too few of them. Many others use a variety of measures to ensure that they meet a margin way in excess of what they have agreed the contract should deliver. That is our concern. It is wrong to say we can do this using the means of the reporting mechanism, because there are other contract terms you can use to sidestep the reporting mechanisms that we have. A much better and more effective way of doing this and stopping every such method is to create the architecture and a framework to look at what you can stop.

A very famous online company has a 40 to 50-day payment period. At 90 days they send fines, which you then have to contest. There is no individual you can speak to—it has to be done online. Eventually, you will get your payment terms, possibly within 180 days. They extend it through a variety of mechanisms which would not be covered by the existing provisions or by the transparency arrangements. Those are the problems which we are still some way from meaningfully addressing. It is very important for us to consider how we go further on these asymmetries and poor practices and to look at the sorts of things which others, using more prescriptive means, have been able to address through legislation or regulation.

There is a strong case for these amendments. I am conscious that the Minister has made some progress, if it is somewhat glacial compared to what I would prefer. However, on the basis that we can get the Government to take these matters seriously and that they are prepared to deal with the most egregious examples and to start dealing with where companies and poor practice ends up, I beg leave to withdraw the amendment.

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[Lord Stevenson of Balmacara (Lab)]

My Lords, Amendment 5 is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a practising solicitor who deals with construction contracts. When we raised this issue in Committee I made the following points. Recent research shows that about £3 billion is outstanding within the construction industry, and only in that industry, by way of cash retentions; that the practice unfairly enhances the working capital of the party deducting them; and that most of those who retained moneys openly accepted that they added cash retentions to their working capital or actually reinvested them. The effect is that bodies that are commissioning work are also in effect borrowing from the small firms that are carrying out the work. This is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.

The key issue is that cash retentions are being deducted from payments already earned. However, there is no statutory protection for the retained moneys that will ensure that they will in fact be available for release if, in the event, there are no uncompleted remedial works that need to be done. There is a good case for any retention funds to be kept separate from working capital, perhaps within an escrow account—as is now used for government contracts—or a separate trust account.

When the Minister responded to the debate, as well as outlining the new but still rather patchy approach to payments being adopted by the Government, she agreed that there were a number of issues of concern with the payment culture in the construction industry. But she said that the current statutory framework governing contractual terms on payment—which was introduced in 2011—with a prohibition on “pay-when-paid” clauses and a right to adjudication, would be sufficient to see out this unfortunate practice. She added that since 2014, the Government have been working with the industry to implement a payment charter that contains 11 commitments, including one specifically aimed at removing the need for retentions, with the intention of moving by 2025 to a position where retentions are no longer necessary.

The noble Baroness pointed out that the powers being taken in the Bill would be sufficient to gather the information needed for a review of current policy, and I take that point. But she was a little unconvincing about why it will take 10 years to gather the information about this issue, even if there were a need to go wider than just the construction industry. If this amendment is accepted, it would have far-reaching benefits for small businesses throughout the construction industry. They would not have to wait another 10 years before this practice is outlawed—but even if they did have to wait that long there is surely a case, which I have outlined above, for action now to require the use of escrow accounts for this type of payment. I beg to move.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord for this amendment and for providing the opportunity for us to look again at the important matter of retention payments. Following Committee we have been busy. We have consulted with stakeholders on payment terms, and it is clear that the practice of retentions is an issue, as we suspected, largely confined to the construction sector. As with other payment issues in construction, issues with retentions go to the heart of the industry’s business models. These models are driven by a broad and diverse range of customers—and, of course, there is an extensive reliance on subcontracting. The work is project based and frequently short term, with no ongoing relationships. Typically, low levels of capitalisation mean that the industry is heavily reliant on cash flow.

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[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Lord, Lord Mitchell, for proposing the new clause, for his survey of finance for small and micro businesses, and for his welcome for some of the positive innovations that there have been in this sector in recent years. It was also extremely useful to have the comments of the noble Lord, Lord Myners, with his great experience in the City and in government, but I also heard the concern of my noble friend Lord Cope about the sweeping nature of the power. It was good to hear the comments of my noble friend Lord Leigh of Hurley.

The noble Lord has proposed a new duty on the Secretary of State to publish a review on alternative forms of finance available to small and micro businesses within a year of the commencement of this Act. I start by reassuring noble Lords that the Government share their conviction that small and micro businesses need greater access to alternative forms of finance. Lending to small business, as has been said, is still concentrated within the four largest banks, which account for almost 90% of business loans by volume. Overall rejection rates for loans and overdrafts are declining, but still stand at around one in four over the past 18 months. Access to appropriately regulated alternative sources of finance can provide a real counterbalance to the mainstream banking sector.

I fully agree with the noble Lord that we should seek transparency on the availability of alternative forms of finance. I disagree, however, that a new review is necessary as it would duplicate existing publications on small business finance. One of these publications is the British Business Bank’s report on small business finance markets, which was published in December 2014. Its main focus was on the increasing use of alternative forms of finance by small business. I believe that this is what noble Lords are largely seeking from this clause. I can confirm that the British Business Bank intends to publish its small business finance report annually. I am happy to commit today to place this report in the Library of the House when it is published again this year.

The British Business Bank’s publication sits alongside a number of other independent pieces of research into this important subject, including the Bank of England’s quarterly Trends in Lending report, last published in January, the quarterly independent SME Finance Monitor, most recently published last week and Professor Russel Griggs’s report on the banks’ lending appeals process, published this week.

My response to the noble Lord would not be complete without touching on an even more important report—the work of the Competition and Markets Authority, the new, independent competition regulator. The CMA is conducting a market investigation into the retail banking sector, including the provision of banking services to small businesses. It has a wide range of powers available if it finds there are problems in the sector. The existence of this investigation helps to respond to the points made by the noble Lord, Lord Myners. The CMA is due to report by April 2016 and I know that it will be of huge interest to this House. The Government will then respond to any recommendations made within 90 days. Any legislation that follows this response would, of course, be subject to parliamentary scrutiny in the usual way. I believe that we should let the regulator do its job and not pre-empt its recommendations with a concurrent review by the Secretary of State of how the banking sector is catering for the needs of SMEs.

Finally, I draw the noble Lord’s attention to the positive measures in this Bill to promote access to finance. Clause 1 removes a contractual barrier to invoice finance. Clause 4 provides for greater sharing of information through credit reference agencies. Clause 5 provides for the UK’s larger banks to be required to refer rejected finance applicants on to alternative finance providers. These provisions got a good degree of support across the House in Committee. I believe that all these measures will make a real difference to the availability of alternative finance for small business. Given the activity described, I am not convinced that a further report as proposed in this clause would be of merit. I hope that the noble Lord will feel reassured by what I have said and that he will feel able to withdraw his amendment.

[Lord Mitchell]

I thank the Minister for her reply. I thank the noble Lord, Lord Cope, for his insightful addition to what was said and on reflection I think that he may have a point on Clause 4. I also thank the noble Lord, Lord Leigh. He and I know each other well. I have never before heard the statement that he made but he has my email so he knows exactly where to send it. I also thank the noble Lord, Lord Myners—I find it very hard to say that and am tempted to say “my noble friend”—for making the comments that he did. I have always felt that the banks are, and act like, a cartel and that you cannot tell one from the other. It is really good that they are now starting to change and are being forced to change. If my particular area—digital technology—is making that happen, so much the better. Crowdfunding has been very exciting but many of the new challenger banks have been able to come into this because of the technology they are using. That is absolutely fantastic.

I thank the noble Baroness for her comments and feel very reassured that the Government are working in this direction. The facts are really clear. Whether we are in government or not, I would like to be standing here in a year’s time having a conversation like this with the facts at hand. I beg leave to withdraw the amendment.

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[The Earl of Lindsay (Con)]

My Lords, I also have a problem with a large part of the amendment. I disagree with the argument of the noble Lord, Lord Stevenson, that putting some departments and regulators in the Bill would make it more flexible than using secondary legislation. The Bill provides a requirement for that secondary legislation to be debated by Parliament. My other concern is the very wide exemption that the amendment suggests for a large number of regulators that fall under the six departments cited. This would undermine and threaten a policy that has been developed specifically to support small businesses and would send an unhelpful message. The policy is simply aimed at improving the appeals and complaints processes of a regulator when dealing with small businesses.

We should not forget that driving greater efficiency, accountability and transparency into the interaction between regulators and those they regulate has to make sense, as does having a simpler, more effective, more transparent, less costly and better understood series of processes by which small businesses are able to challenge regulators’ decisions and behaviour. Ensuring that regulators have appeals and complaints processes that work well and are fit for purpose, that rectify wrongs with minimal delay and are sensitive to small businesses—and micro-businesses in particular—must be good news for the economy as well as for the objectives that regulators are seeking to deliver. I would be very uneasy at the thought of the Bill exempting the number of departments and the very large number of regulators that the amendment proposes. I agree about the EHRC, but I understand that the Government will use secondary legislation to exempt it from this section.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Stevenson, for his comments on Amendment 20, which would restrict the regulators to which the provisions on small business appeals champions can apply. It was also good to hear from my noble friends Lord Deben and Lord Lindsay.

Clause 18 already provides that the list of regulators to be covered by the appeals champions should be set out in regulations. A consultation on the list of regulators closed in January. We intend to publish a summary of the consultation and our response before Parliament rises, based on careful consideration. The Government’s response will then become the basis of the regulations which will bring regulators into scope. These regulations will be subject to affirmative resolution, so Parliament will have the opportunity to consider which regulators should be on the list. On other occasions, the noble Lord, Lord Stevenson, has called for just that affirmative resolution. Although the consultation has closed, we shall take into account representations that noble Lords have made during discussions on the Bill. I am coming on to reassure about the EHRC, but I encourage any noble Lord who has particular concerns about anything else to let me know: we will give them a fair hearing.

Listing inclusions and exemptions would make the Bill cumbersome and unwieldy. Pre-empting our case-by-case consideration through a blanket exemption is not the right way ahead. The amendment first seeks to exclude the EHRC. Noble Lords have linked this to the protection of the EHRC’s A status as a national human rights organisation. The Government share the determination to protect the commission’s status and we understand that, as a regulator, the EHRC is different and needs to maintain its independence from government.

The Government’s position is that the EHRC will not be in the scope of the champions policy. It was not included in our consultation on the list of regulators to be brought into scope. No specific regulatory functions of any other particular named body are listed for inclusion or exclusion in the Bill and it is not necessary to do so in relation to the regulatory functions of the EHRC. Doing so would set a precedent that might lead to overly complex legislation. We have never proposed to include the EHRC, and today I can make a commitment not to do so. The Government will not include the EHRC in the small business champions policy. I hope that noble Lords will accept that full, unequivocal and repeated assurance. In Committee, the noble Baroness, Lady Thornton, was kind enough to accept my assurance on this point, and the majority of noble Lords accepted similar assurances in respect of the growth duty during the passage of the Deregulation Bill. I hope that the House will be willing to do the same today.

The second part of the amendment proposes to exclude any regulator belonging to a list of departments. The proposal would exclude more than half of the regulators we propose to include. Many of them have considerable contact with small businesses. There is broad support for small business appeals champions to make sure that businesses have effective routes to regulators. The amendment would deny that assurance to care homes, which need to challenge rulings by the Care Quality Commission or businesses challenging inspections by the Health and Safety Executive. I do not understand why we should emasculate a policy that has such widespread backing.

The noble Lord, Lord Stevenson, asked whether the Government had decided to exclude a health regulator from the appeals champion policy. We have made no decisions yet, and we shall do so on a case-by-case basis. As I have said, if any noble Lord or regulator is in this situation, they should make representations to us. We intend to make a decision on the list and publish our response before the end of the Parliament.

This is not the growth duty. This is simply a policy that aims to improve public administration and provide an assurance that regulators have the procedures and processes in place to support business appropriately. We all agree that small businesses need a better deal, and we should be aiming to apply this policy to regulators where possible rather than looking at potentially wide exemptions. I hope that, in the circumstances, the noble Lord will feel reassured and that he will agree to withdraw the amendment.

[Lord Stevenson of Balmacara]

I thank all those who have contributed to the debate. Perhaps I may make one or two points about it. I would say to the noble Earl, Lord Lindsay, who obviously has great knowledge of and experience in this area, that I can understand why he might think so. However, I draw his attention to the fact that the intention in the second part of the amendment is to select a group of regulators equivalent or similar to the EHRC in the sense that they are required to be taken out of a broader approach. It does not attack all the regulators in a department. If he misunderstood that, I apologise, but it is clear that what we are trying to do here is to say that because we were not involved in drawing up the list of regulators, we are not absolutely clear which are in and which are not. In that sense, it is imperfect and we would have to be quite inventive, if the amendment were to be accepted, to come to the right conclusion. I accept that it is not as well done as it could have been. However, it has provoked a good debate and that is the point. Indeed, the noble Baroness has already accepted that there may be one or two regulators that might well be included in the list of the growth duty within the Deregulation Bill. That might not be appropriate for small businesses—and vice versa. We are in a situation where we are not sure how the lists will bottom out. It is that unease which I was trying to attack, and in that sense I hope that the noble Earl is reassured on the point.

It is worth reflecting on the fact that, to do what is required in the Bill, as I understand it, appointments would need to be made to various regulators at board level. That would have an impact on how these bodies operate. I do not think it is an entirely free-riding champion helping to resolve appeals. These are people who, by their constitutional and statutory position, will have to have an involvement in the day-to-day work of these regulators. By accepting this, we are accepting by implication that there will be a change—perhaps a beneficial one—to the way that some regulators will operate in the future; they will not do so as they were originally set up. Again, that is what I am trying to reflect in this debate.

However, I accept that, as presently drafted, the amendment would not achieve the ambitions we had for it and there may be better ways to approach this. It may be that the rather convoluted process whereby I think the noble Baroness was inviting individual Members of your Lordships’ House to write in with special and favourite regulators to be excluded will mean that we arrive at a resolution in an appropriate way. I am sure that this will come out all right in the wash, but at the moment it seems rather a complicated way of doing it.

I will say again that it will not be possible for either House of this Parliament to pick and mix within the secondary legislation. Either it must be accepted as it stands or we can vote against the whole of the SI. It is not fair to say that we will have a choice at the time when these regulations are going through. The choice will have to be made outside Parliament and before the Government, whichever Government they are, put forward the secondary legislation. We have to be realistic about the fact that there will not be the same level of scrutiny.

I broadly take the points which have been made. It will be interesting to see how they go through. We made it clear in Committee that we are not against the idea of there being appeals business champions, as it were. I think we agreed that we would call them “small business champions” in relation to regulation. It is a good idea but I am not quite sure whether it will work in practice; only time will tell.

Finally, on the EHRC, I am grateful to the noble Lord, Lord Deben, for his consistent support for this issue. If it is so clear in the minds of Ministers that the EHRC is not, will not and never can be part of the processes involved in this Bill or in the Deregulation Bill, why on earth can they not just accept that it would be sensible to table an amendment at Third Reading stating that the EHRC is not involved? That would peradventure put beyond doubt the question of whether the EHRC is ever around. There may be evil forces at work and there may not. We do not think there are, and we are not looking at it with suspicion. However, enough damage has already been done to the EHRC, for heaven’s sake, and what is left of it needs to be protected. It would be a positive and rather a noble thing for the Government to accept at this stage that it would be right to have that line in an amendment, just because the EHRC is so special, as the noble Lord said, and to be super-careful because of the particular nature of the commission. That is for the Minister to reflect on and perhaps to come back at Third Reading.

[Baroness Neville-Rolfe]

I very much take the point that the noble Lord has made. I am happy to consider whether we could put the EHRC into the Bill, but whether I can do that, I am not sure. Giving the commission that clarity seems to be widely supported around the House.

[Lord Stevenson of Balmacara]

That is a very generous offer and I think it would solve an awful lot of problems. Indeed, we have been discussing it week after week for the past two or three months. I would be very pleased if she can do this, but I repeat that I am happy to withdraw the amendment at this stage.

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Moved by

[Baroness Neville-Rolfe]

21: Clause 19, page 20, line 1, after “must” insert “—
(a) ”

[Baroness Neville-Rolfe]

My Lords, government Amendments 21, 22 and 23 respond directly to our Committee debates regarding the small business appeals champion and the business impact target. Regarding the champion, the noble Lord, Lord Mendelsohn, made a number of helpful observations about how it might work in practice. He was keen to ensure that any guidance issued to the champions should be laid before both Houses as well as published. I made it clear in Committee that this was already our intention and I am pleased to confirm it with Amendments 21 and 22.

I turn now to the business impact target. I thank the noble Lord, Lord Stevenson, for his comments in Committee regarding the scope of the target. In particular, he raised concerns around the clarity of the coverage regarding voluntary and community bodies. I have reflected on this issue and I agree that there is more that we can do in the Bill to clarify it. I have therefore tabled Amendment 23, which is a relatively straightforward provision to simplify Clause 27(5). It will remove the current membership threshold of at least 21 individuals for unincorporated bodies that do not distribute any surplus to their members. As I am sure many noble Lords will be aware from their own work in the voluntary sector, such bodies can be adversely affected by redundant, ineffective or excessively burdensome regulation, just as much as businesses can. Therefore, including them within the scope of the business impact target makes a lot of sense. It will not harm the voluntary sector, but will help to ensure that any burdens from new regulations are minimised and that there is transparent reporting of impacts.

This Government have already made a number of changes that have made it easier to set up and run charities and social enterprises. Those include providing greater legal clarity on volunteer liability and supporting proposals to make criminal record checks simpler and less onerous. The amendment will mean that such bodies are not excluded from the definition of “small” and “micro” businesses in Clauses 33 and 34, meaning that they can benefit from any regulatory exemptions made by reference to that definition. I hope noble Lords will welcome the amendments, and I beg to move.

[Lord Stevenson of Balmacara]

This must be the shortest amendment ever considered in my time in the House. I look to the clerks for further guidance on these matters. The Minister suggested that we might welcome the amendments; we do welcome them.

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Moved by

[Baroness Neville-Rolfe]

22: Clause 19, page 20, line 2, at end insert “, and
(b) lay any such guidance or revised guidance before Parliament.”

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Moved by

[Baroness Neville-Rolfe]

23: Clause 27, page 26, line 16, leave out sub-paragraph (i)