Enterprise and Regulatory Reform Bill

Lord Stevenson of Balmacara Excerpts

Wednesday 14th November 2012 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, I thank the Minister for his introduction to the Bill, and for the meetings and briefings which he and the Bill team have provided for us: indeed, I had one at 11 am today on midata proposal, which the Minister has just mentioned. This has made our task that much easier, and has helped us to prepare for today and Committee stage when our Front Bench will be joined by my noble friends Lord Young, Lord Adonis, Lord Mitchell, Lady Thornton, Lady Hayter, Lord McKenzie and Lord Whitty. Noble Lords may wonder why we have so many: it is because this is such an extraordinarily wide-ranging Bill that we need all the talents we are able to bring to bear in order to give it the proper scrutiny that it requires.

When the Enterprise and Regulatory Reform Bill was introduced in the other place, the Secretary of State suggested that the measures in the Bill will help to make Britain one of the most enterprise-friendly countries in the world. This is, however, the same Secretary of State who wrote to the Prime Minister in February 2012 complaining about the Government’s failure to develop a plan for growth. He said:

“I sense … that there is still something important missing: a compelling vision of where the country is heading … and a clear and confident message about how we will earn our living in future”,

and that there is,

“no connected approach across Government”,

to driving growth. Perhaps the Secretary of State’s most damning criticism of the Government’s actions to date is that they are “frankly, rather piecemeal”.

Therefore, is this so-called flagship BIS Bill the answer to the Secretary of State's concerns? I do not think so. This is a hotchpotch of measures, ranging from banking to employment law; competition policy to copyright; and equalities to health and safety. In six parts, and with no overarching narrative, the Bill provides no discernible overall vision or confident message. If there is one, it certainly was not evident from what the Minister has just said.

The Bill is a missed opportunity. It does nothing to help Britain out of a double-dip recession made in Downing Street. Nor will it assist businesses to enhance their competitiveness or give them what they want in terms of a long-term industrial strategy. Business leaders are already unimpressed with the Government’s business policy and this Bill will not change their views. It contains inadequate measures to boost business confidence, nothing to enhance the UK’s international competitiveness and no measures to increase competition in consumer markets or to protect consumers from powerful vested interests. The Bill also fails to live up to the rhetoric of shareholder activism, which featured large in government statements only a few months ago, as it fails to empower shareholders to bring to an end the culture of excessive rewards for corporate failure. At the same time the Bill sets out to undermine equalities policies and to dilute long-established rights of people at work. The four copyright clauses have aroused concern and worry among one of our most important areas of potential growth—the creative industries.

Much of the employment changes are inspired by the recent Beecroft report commissioned by the Prime Minister, which the author admitted in evidence to the Public Bill Committee was not based on statistically valid research or evidence. Many of the most controversial issues were introduced after the Commons Committee stages and were therefore not subject to proper scrutiny in the other place.

Many of the later sections of the Bill seem to be minor issues that were perhaps omitted from earlier legislation. Some seem to have been put together in haste and without impact assessments or proper consultation. I do not believe that this Bill as it stands meets the standards required of Parliament.

It is not hard to be struck by the difference in approach taken by this Bill and that taken by the Prime Minister’s other adviser, the noble Lord, Lord Heseltine. In his report, published a few weeks ago and circulated widely round your Lordships’ House, the noble Lord, Lord Heseltine, called on the Government to produce a radical growth strategy if Britain is to win what he calls the relentless economic war. This is not it.

I turn to the Bill itself. Part 1 will set up the Green Investment Bank. There is, and will continue to be, a growing demand for green technology, so we need to have an active industrial strategy to support the low-carbon economy. A critical component of that is the Green Investment Bank, which is why the previous Government set up the Green Investment Bank commission in 2009, and why we committed to establishing such a bank in our 2010 manifesto. We will therefore not oppose the provisions of the Bill although we have some issues which we will wish to explore in Committee, including whether this institution is, indeed, a bank capable of borrowing in support of its investments or is merely a fund. The Minister did not cover the vexed question of when the Green Investment Bank would be allowed to borrow although we understand that this will not happen unless and until public sector net debt falls as a percentage of GDP in 2015. That means that the earliest it is likely to be able to borrow is therefore 2016—some four years from now. We will certainly want to probe in Committee how we can ensure that the Green Investment Bank is able to borrow from the capital markets as soon as possible while, of course, being mindful of the need for rigour and discipline in the public finances.

However, we also believe that the Green Investment Bank must not be a bank of last resort that simply takes the projects that no one else is prepared to take. Surely the main point about the Green Investment Bank is that it can provide policy certainty for investors in the green economy—the certainty that so far the Government have not been able to provide. There is a huge and pressing need to promote the growth of small and medium-sized UK based enterprises in the supply chain and to ensure that we can realise the great potential of the green economy from within the UK and thereby support manufacturing in the UK and the ability of our home-grown businesses to provide apprenticeships, jobs, growth and exports.

Part 2 of the Bill relates to employment law and seems to be based on Adrian Beecroft’s report to the Prime Minister. Contrary to the thrust of his report, we do not take the view that watering down employee rights will boost demand. We think that it is highly likely to do the opposite—increase job insecurity and damage growth and consumer confidence rather than increase them. I would like to highlight three or four areas. Surely the essential components of an employment relationship are trust and confidence between the parties. The employment tribunal system exists to resolve the minority of disputes between workers and their employers that cannot be resolved within the workplace. However, the system has a second equally important role. For the great majority of low-paid workers who are not unionised and who have no opportunity to join a union, it provides almost the only defence against the small but significant minority of rogue employers who believe that they can obtain a competitive advantage through deliberate mistreatment or exploitation of their workforce. There is no evidence to support the contention that the current very small number of employment tribunal claims is a significant barrier to economic growth. That is not to say that more cannot be done to help workers and employers resolve workplace disputes. Of course, a commitment to strengthen the management of all our businesses would be a good place to start, but the Bill is silent on that matter. However, we welcome and support, subject to adequate resourcing of ACAS, the Bill’s provision for ACAS to offer early conciliation before any ET claim fully enters the ET system.

The Bill amends the Employment Rights Act 1996 with a view to encouraging greater use of compromise agreements, which are to be renamed settlement agreements. To our mind, this looks like a further erosion of the legal protection against unfair dismissal which, it must always be remembered, does not prevent employers dismissing workers for poor performance but simply requires them to follow a fair procedure when doing so. This proposal needs to be considered against other changes in this area: the qualifying period for such legal protection against unfair dismissal has been increased from 12 months to two years and we are told that from some date, yet to be defined, in summer 2013 workers will have to pay issue and hearing fees totalling some £1,200 to pursue an unfair dismissal claim.

We have significant concerns about the changes being proposed for the introduction of a public interest test to whistleblowing which we think is disproportionate as it will, for example, limit the protection for workers who want to raise concerns about health and safety issues in the workplace.

Healthy competitive markets reward the innovator, the new entrant and the risk-taker. They keep incumbents on their toes, benefiting consumers, and they create the disciplines at home that drive success abroad. That does not happen by itself, however, because markets are not always efficient. Even when policy frameworks can correct market failures, markets require active stewardship, constant vigilance against unhealthy concentrations of power and cartels and, above all, the deliberate promotion of competition through a strong, robust competition regime. In principle, we support the Bill’s proposal to improve the competition regime established under the previous Government. Following the transfer of certain OFT powers to the FCA there is definitely some sense in combining the rest of the OFT and the Competition Commission into one body, removing duplication and concentrating expertise in one place. However, we will be seeking to ensure that both the governance and objectives of the new CMA have due regard to the long-term interests of consumers, the very people for whom we seek to make markets work.

In this part of the Bill we would also like to probe the issue raised by the noble Lord, Lord Heseltine, about how the existing national interest provisions could be strengthened in cases of mergers. We will also be probing the new clauses on cartels. We welcome the proposed change to drop the need to prove dishonesty, but we worry about the reliance on transparency.

Part 5 ostensibly deals with the reduction of regulatory burdens. In fact, very few of the clauses in this part of the Bill do that and some may actually increase the regulatory burden. We should seek to reduce the regulatory burdens when we can but not by compromising the rights of employees or the health and safety of employees and customers. This is an issue not just of the quantity of regulation but of its quality too. We welcome the proposals to extend the primary authority scheme so that any business operating in multiple local authorities could ease its regulatory burden locally and form a partnership with a single local authority.

Far less welcome in Part 5 are the measures undermining the Equality and Human Rights Commission. Why are the Government seeking to repeal the general duty on the EHRC which seeks to promote fundamental values of humanity and decency in our society? After all, the commission’s statutory remit was the product of cross-party agreement when the Equality Act 2010 was passed. The EHRC is currently taking forward plans to change the way it works, responding to the changing economic, financial, demographic and social context but also, and particularly, the significantly reduced resources allocated to it by the Government. It recently published a new, three-year strategy and is implementing a new organisational design and operating model to deliver its work more effectively. We therefore agree with the commission when it argues that, if the Government wish to legislate further in this area, they should use the opportunity to strengthen the commission’s accountability to Parliament thereby making it better able to fulfil its mandate as Britain’s equality regulator and better ensure its continuation—which I gather is in doubt—as a national human rights institution in accordance with the Paris principles.

The Government’s proposal to end civil liability in health and safety is a major change in the existing law and was added to the Bill on Report in another place. It needs to be scrutinised very carefully. Is it really the Government’s intention that a worker injured due to an employer’s breach of a statutory duty within the health and safety at work regulations—such as failing to guard a machine—will be required to prove that the employer knew, or ought to have known, of such a failure in order to gain redress for the injury sustained?

The requirement to prove foreseeability is a very high bar of proof for an individual injured or killed through no fault of their own. Do the Government really think that by proposing this change they are sending the right message to employers about the importance of health and safety? There has been no public consultation on this proposal and what is being proposed goes further than the recommendations made in this area by Professor Lofstedt, in his recent report.

We are all, I think, seized by the growing disconnect between executive pay and average earnings, and between executive remuneration and the performance of the companies they lead. Between 1980 and 2010, the ratio of the median pay of the highest paid directors in FTSE 100 companies and median wages had risen from 11:1 to 116:1. We support the thrust of the proposals in this area, which build on work done by the previous Government. However, we believe that the Bill should go further and be bolder. Shareholder activism should be supported and not left out in the cold. Representatives of the company’s employees should be active and full members of the company’s remuneration committee. Directors’ compensation should be agreed by requiring an annual binding vote on pay policy at the AGM.

The proposal to repeal the provisions in the Equality Act 2010 relating to employer’s liability for third- party harassment of employees was another key recommendation of Mr Adrian Beecroft. Relatively few third-party harassment tribunal claims are made, and it is therefore not easy to see how the current provisions constitute an unjustifiable burden on business.

The Government’s copyright proposals have raised a storm of representations, and some of the clauses were amended late in the day in another place. However, as we may have to spend some time on this area in Committee, let me briefly outline where we are coming from. Clause 65 has been widely welcomed by designers because it redresses a clear anomaly, but others have not been so welcoming. There was no impact assessment for this clause, and there has been no consultation.

Clause 66 continues to excite a great deal of interest. The amendments made on Report are welcome because they help to clarify that the Government cannot use the clause more widely than permitted under the European Communities Act, except as regards criminal penalties. However, what is the clause actually going to be used for? All major previous copyright changes were enacted by primary legislation, and there is a strong case for this to be the rule for all future legislation.

Clauses 67 and 68 deal with orphan works, and the major question here is why we are going further than the recent EU orphan works directive, which EU countries have to implement within two years. We may need to be convinced about the intention to extend this from purely cultural to commercial purposes.

The proposal to introduce extended collective licensing has raised concerns. It may well be that the UK’s existing rights clearance system is complex, but it is not entirely clear to us that an ECL is a “tool for simplification”. There may well be other solutions to the perceived problem here, through the exciting plans for a copyright hub or by extending existing licensing arrangements, particularly in the moving image area.

The Bill is a missed opportunity to provide a strategy for economic growth. It contains inadequate measures to improve business confidence, investment and competitiveness. We want enterprise to flourish, but we also want a society where people’s rights are respected. We want to see our economy grow, but growth cannot be at the expense of the basic protections that people enjoy in this country.

We would like the Bill to be amended in ways that better support business, including measures to ensure that the Green Investment Bank can be a strong and transparent catalyst for green growth, to improve the competition framework, to preserve employment rights and obligations, and better to empower shareholders in relation to directors’ remuneration. We support in principle a number of measures in the Bill, but there are certain red lines that it crosses which we do not wish to be implemented.

More than 2.5 million people in this country are out of work. Long-term unemployment has risen and the number of young people out of work and claiming benefits for more than a year has gone up yet again, and yet we are still searching for the green shoots of a sustainable recovery. That situation will not be resolved by taking away people’s fundamental rights. It will be resolved by getting demand back into the economy. That is what creates jobs, and that should have been the sole focus of an enterprise Bill. Instead, we find ourselves back where we started: in a big black hole when it comes to helping businesses to create enterprise, generate wealth and grow. The sad fact is that there is no compelling vision here, no confident message about how we are to pay our way in the world, and no connected approach across government to drive growth.