Enterprise and Regulatory Reform Bill
Public Bill Committee, 21 June 2012.
Graham Brady (Conservative, Altrincham and Sale West)
We will now hear oral evidence from Citizens Advice and Professor Sir John Vickers. For the record, may I ask witnesses to introduce themselves? If there are particular aspects of the Bill on which you feel unqualified or less qualified to comment, please feel free to say so and that will help members of the Committee to direct their questions.
Examination of Witnesses
Graham Brady (Conservative, Altrincham and Sale West)
Before calling the first Member to ask a question, I should remind all members of the Committee that questions should be limited to matters within the scope of the Bill. We must stick strictly to the timings in the programme motion that the Committee agreed. I hope that I do not have to interrupt anybody mid-sentence, but I will do so if needs be, as colleagues now know. I call Iain Wright.
Iain Wright (Labour, Hartlepool)
I am a bit concerned that you were looking at me as you made that statement, Mr Brady. I hope that you will not rule me out of order.
One of the purposes of the Bill is to improve the competition regime of this country, in some respects providing a better deal for consumers. Do you think that the Bill does that? What additional measures could be put in the Bill to improve it?
Iain Wright (Labour, Hartlepool)
Could you elaborate a little further? Your note was important and will help the Committee’s deliberations when we get to that part of the Bill, but could you elaborate for the Committee now?
Iain Wright (Labour, Hartlepool)
Do you think that the Bill benefits consumers?
Iain Wright (Labour, Hartlepool)
My final question is to you, Sir John. It is on directors’ remuneration, which is a slightly different topic that is apart from the Bill. You may be aware that the Secretary of State for Business, Innovation and Skills, made a statement to the House yesterday. He has talked about annual binding votes on shareholders regarding executive remuneration, but votes will now be every three years, unless there is a change to the policy. The word “change” was not defined; it is ambiguous. What is your general view about the measure in the Bill regarding directors’ remuneration? What do you think about an annual binding vote for shareholders?
Julian Smith (Conservative, Skipton and Ripon)
Congratulations on your report, Sir John. First, will you go into further detail on the concern you have about the merging of the institutions and why you think there is a problem between the case investigations and the remedies? My second question is about UK competitiveness in financial services. Do you have any concerns, arising from the announcements that the Secretary of Sate made yesterday on directors’ pay, about attracting talent to this country?
Julian Smith (Conservative, Skipton and Ripon)
Is there anything that you would recommend to this Committee to be introduced into these proposals to give the safeguards that you want, or do you just want the Committee to be aware of these concerns? Do you think that there should be something more in the law that we are making?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
I, too, congratulate you on your report and on your note, which was very helpful. I want to concentrate on banking for my question. The Bill and supporting documentation is silent on banking. You can argue that that is because there has been a lot of discussion and debate on banking already, part of which was initiated by your report, but the banking sector has significant competition failings—85% of all small business loans come from only four banks. Why does the Bill not refer to banking? Do you have concerns about competition in banking and how that will be addressed following the changes your report suggests?
Anne Marie Morris (Conservative, Newton Abbot)
Sir John, I have two questions on mergers. First, were you surprised that small mergers were not excluded? There was some debate about that, but ultimately the very small was not taken out of the regime. Secondly, with regard to the changes, clearly we retain the voluntary reporting of mergers, but there is a new power to unpick mergers which move forward, in a way which is not helpful. Will that work in practice, or will it make mergers more complicated and frustrate them?
Ian Murray (Labour, Edinburgh South)
I have three quick questions, mainly directed to Katie. You very much welcome the provisions in the Bill, with some provisos, but what impact do you think the insertion of fees into any of these processes may have on the provisions?
Ian Murray (Labour, Edinburgh South)
Can I just pick you up on the issue you raised about compensation awards not being paid? I think you said that one in four never get paid or are never enforced. Clause 13 puts financial penalties on employers—obviously, financial penalties from the Government. Do you think that that could make that one in four worse on the basis that employers are more likely to pay the Government, because of the potential enforcement, rather than paying the compensatory awards?
Ian Murray (Labour, Edinburgh South)
The Bill proposes that compensatory awards could be varied for different sizes of business. The Employment Lawyers Association has said that that may make people think twice about joining small businesses. What is the Citizens Advice view?
Lorely Burt (Liberal Democrat, Solihull)
I was interested in your opening comments when you said that the increase in the number of tribunal applications is a blip. Perhaps I am wrong, but it is my perception that in fact the tribunal system has not worked very effectively for a long time and that there have been long delays—inordinate delays—to get justice for employers and employees for some time. We heard on Tuesday from employer organisations that said that a lot of employers will settle out of court, even though they have been advised that they have a really good case, because of the fear of the whole tribunal system and of losing reputation and things like that. Do you think that the introduction of the conciliation stage will be helpful, and will clause 12’s proposed changes to cap unfair dismissal awards be helpful?
Fiona O'Donnell (Labour, East Lothian)
I wonder, Katie, whether I may take you to clause 14, which deals with whistleblowing? Whistleblowing has a really important role, as we saw recently when it exposed abuse in the care sector. Given the proposed changes to employment law, which I realise are not within the scope of the Bill, do you think that the Government’s claim that we do not need prior consultation on the clause because it will be scrutinised by Parliament is adequate? Would we have benefited from prior consultation on the clause?
Neil Carmichael (Conservative, Stroud)
We heard on Tuesday, from the CBI in particular, that a main concern about business growth is employment law. An objective of the Bill is to encourage employers to employ more people. Do you think that the measures will encourage them to do exactly that?
David Anderson (Labour, Blaydon)
Can you expand on what you said about the numbers going to tribunals? Is the reality that most of the volume of tribunals over the past few years has been collective cases, particularly on equal pay for women? Can you mention, if possible, your view on the removal of lay members from tribunals?
Graham Brady (Conservative, Altrincham and Sale West)
I am sorry, but that brings us to the end of the time allotted to the Committee to ask questions of these witnesses. I thank you both on behalf of the Committee. We will now hear oral evidence from the Law Society, the Law Society of Scotland, Allen and Overy LLP, and Simpson Millar LLP.
Graham Brady (Conservative, Altrincham and Sale West)
Good morning. Welcome to all the witnesses. May I ask you each to introduce yourself for the record? If there are particular areas of the Bill on which you feel unqualified or less qualified to comment, or areas on which you would particularly welcome questions, please say so.
Iain Wright (Labour, Hartlepool)
I would like to focus on part 2 of the Bill—so, Mr Pritchard, you can relax for a couple of minutes—and three aspects in particular. May I start with clauses 7 to 9? I was really interested in the Law Society’s submission, because sitting on the Committee one could be forgiven for thinking that the reason why we are in a double-dip recession is the number of employment tribunal cases going through at the moment, but Mr Morris’s submission says that they are actually falling. What is your view in terms of the number of tribunals and the impact that that is having on economic growth in this country?
Iain Wright (Labour, Hartlepool)
Is that your experience as well, Mr Miller?
Iain Wright (Labour, Hartlepool)
Is that your experience, Ms Drummond?
Iain Wright (Labour, Hartlepool)
Everybody seems to recognise the general point that early conciliation is a good thing, although some reservations have been expressed that the proposals in the Bill are somehow too complex or technical. Will you expand on that? What do you think could be done to amend what is in the Bill to allow early conciliation to be much more fluid and efficient? May I start with you, Ms Drummond?
Iain Wright (Labour, Hartlepool)
Is that your view as well, Mr Morris?
Iain Wright (Labour, Hartlepool)
Mr Miller, do you think that the arrangement will be too technical, too complicated?
Iain Wright (Labour, Hartlepool)
On clause 13, which is about the imposition of financial penalties on employers, it seems that nobody wins, except perhaps the Government through a tax-raising power. Employers do not win, because there is the sense that financial penalties will provide employees with “additional leverage”, which is the actual phrase used in the Law Society’s submission. Claimants do not benefit from the penalty either. What should clause 13 look like? Should it just be scrapped from the Bill?
Iain Wright (Labour, Hartlepool)
Mr Morris, do you agree with Mr Miller?
Iain Wright (Labour, Hartlepool)
My final question is on clause 14, which is about whistleblowing. Do the Bill and the clause as it stands achieve their objectives? We heard some very interesting evidence on Tuesday that suggested that they do not. What are your views?
Graham Brady (Conservative, Altrincham and Sale West)
In opening questioning out to other Members, may I suggest that we first focus on the competition aspects and then move back to employment?
Anne Marie Morris (Conservative, Newton Abbot)
This is a question for Simon. The intention was to strengthen the anti-trust regime and make it more efficient. Do you think that the changes in the Bill achieve that?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
On the merger between the OFT and the CC, your submission indicates that you are largely in favour, but you emphasise the importance of having a fresh-pair-of-eyes review. We have heard that strong organisational separation will be required. What are the implications for resourcing in that case, particularly in reference to the predicted savings associated with the merger?
My second question is about removing the dishonesty requirement with regard to entering into cartels. You have said that that is one of the more contentious provisions. Is that the right way to address the lack of successful action by the OFT?
Neil Carmichael (Conservative, Stroud)
Do you think that the powers to investigate practice across markets are sufficient? Will they have the desired effect of ensuring that competitiveness and consumer protection are the order of the day?
Neil Carmichael (Conservative, Stroud)
Another tool in the kit—I would suggest that it is a smaller one—is the power of the Secretary of State to think about public interest issues and to ask the new organisation to explore those issues in parallel with competition issues and so on. Do you think that that will be useful?
Fiona O'Donnell (Labour, East Lothian)
My question is to Simon. In his evidence, Sir John spoke about the importance of CMA decision making being consumer-focused. I was just thinking about what you were saying earlier, about where there is a conflict between public interest and competition, and how the CMA might deal with that. One example to bring that to life would be the recent Competition Commission inquiry into the bus industry, where the public interest would have called for re-regulation of bus services, but competition did not. Do you think there will be a greater focus on the consumer as a result?
Andrew Bridgen (Conservative, North West Leicestershire)
Would the panel agree that the original thought behind tribunals was that they would be a sort of informal forum in which the applicant and responder could represent themselves and resolve employment disputes, but that that has now moved somewhat to there being far more legal involvement? Would the panel agree that as the award limit has increased, the whole area of employment law has become of more interest to the legal profession?
Secondly, does the panel agree that tribunals are very difficult for small and micro-businesses, who are disadvantaged by and very fearful of the system? If you are only employing three, four or five people, it is highly possible—and it may be in the applicant’s interest—that every member of staff will be called as a witness and spend a day there. Effectively, the business will then cease to function for the time of the tribunal. A great fear for the owners of small and micro-businesses is that they actually will not have a business because there could be several days when they will not be able to trade.
David Anderson (Labour, Blaydon)
May I come back to a question that I tried to raise earlier about the absence of lay officials from tribunals? Will the panel comment on whether they think that that will help or hinder the work of tribunals?
David Anderson (Labour, Blaydon)
So it will be faster law, but possibly worse law.
David Anderson (Labour, Blaydon)
Coming on to clause 10, it is suggested that legal officers should be given responsibility to make decisions. Both Mr Morris and Ms Drummond made the point that that should only be allowed when there is access to a judge afterwards. Is not that potentially going to make the process even more cumbersome than it is now?
David Anderson (Labour, Blaydon)
Would that happen regularly?
David Anderson (Labour, Blaydon)
On clause 16, you commented, Ms Drummond, on the renaming of compromise agreements. Can you expand on that somewhat?
Anne Marie Morris (Conservative, Newton Abbot)
Perhaps I can ask John about template settlement agreements. In a sense, they almost overcome the problems that Joy has identified, given that we would like people to be able, in a less emotional way, to settle issues when it is simply a matter of “It’s not working”—the job has changed or the employer’s market has changed. How can we create a system? What do we need to put in legislation and what do we need to put in guidance—nothing to do with legislation—to make these issues simple and not subject to lawyers, dare I say it, running like a rat all over them, so that they work? We would probably all like to see these things dealt with in a way that is less contentious and emotionally draining, and allows both parties to go heads high on to the next role.
Anne Marie Morris (Conservative, Newton Abbot)
Is there anything that we can do in legislation to achieve what we are trying to achieve? You are saying that what we have does not work, so what would?
Anne Marie Morris (Conservative, Newton Abbot)
Which then takes us to without prejudice, and Joy’s point about what you do on evidential issues. How would you deal with that, because currently, there is a hole where without prejudice does not work?
Ian Murray (Labour, Edinburgh South)
May I ask a specific question to Stephen? I was very interested in your opening remarks, when you conflated settlement agreements and protected conversations. Will you unpack that for the Committee?
Ian Murray (Labour, Edinburgh South)
At the beginning, you mentioned the parts of the Bill on settlement agreements and you immediately said that it was a protected conversation. Obviously, we have had the consultation about protected conversations on one side, but I was interested in your view on how you conflated the two, and whether you see settlement agreements as being protected conversations.
Ian Murray (Labour, Edinburgh South)
I will not ask you to give us practical examples of office party indiscretions.
Ian Murray (Labour, Edinburgh South)
I want to ask the whole panel a question, which is similar to the one I asked Citizens Advice. Does the insertion of a fee, which is obviously not part of the Bill, but is being taken forward by the Ministry of Justice, into the system before employment tribunals undermine the role of ACAS in pre-claim conciliation?
Ian Murray (Labour, Edinburgh South)
May I ask a quick question on the back of that?
Graham Brady (Conservative, Altrincham and Sale West)
No. Sorry, but we have only five minutes left.
Julian Smith (Conservative, Skipton and Ripon)
I feel as if I am part of a Grimm’s fairy tale with the employers cast as the big, bad wolf. The evidence from many of you is highly biased. A couple of your witness statements refer to compensation. John, you state:
“By definition, compensation is intended to compensate an employee for having been unfairly dismissed by his or her employer. That being so it is difficult to understand an argument that the employee should not be fully compensated.”
What do you mean by “fully compensated”?
Joy, you say about clause 12:
“The power to decrease the unfair dismissal compensation cap…will mean inadequate compensation especially for the middle earners”.
What do you both mean by those statements?
Julian Smith (Conservative, Skipton and Ripon)
It is surely a great idea to define different levels, and different sized employers. Surely a very small company that has just been set up should not face the same compensation levels as a very big company. That is sensible and logical.
Julian Smith (Conservative, Skipton and Ripon)
No, on the statement that you made in the submission.
Julian Smith (Conservative, Skipton and Ripon)
So you think a cap at the moment of three times average earnings is fair.
Julian Smith (Conservative, Skipton and Ripon)
The current situation—three times average earnings in this country, which is about £70,000.
Julian Smith (Conservative, Skipton and Ripon)
Going up from £12,000 in 1999 to £72,000 or whatever today, is that reasonable?
Geraint Davies (Labour, Swansea West)
I would like you to expand on the last point you were making before the Chair invited me to ask a question.
Geraint Davies (Labour, Swansea West)
There was a suggestion earlier that you thought the legislation would generate more employment, that somehow that would generate more problems, and that the processes here would be counter-productive in terms of complexity. Is that right?
Graham Brady (Conservative, Altrincham and Sale West)
We are seconds away from the deadline, so I am afraid that that brings us to the end of the time allotted for the Committee to ask questions of the witnesses. I thank you all, on behalf of the Committee. We will now hear oral evidence from Malcolm Nicholson, the City of London Law Society and Professor Catherine Waddams.
Graham Brady (Conservative, Altrincham and Sale West)
Good morning. Will the witnesses identify themselves for the record and indicate whether there are particular aspects of the Bill that they feel either more qualified or unqualified to comment on?
Iain Wright (Labour, Hartlepool)
Could each of the panel tell us how the proposed merger of the Competition Commission and the Office of Fair Training will help improve the competition regime in this country?
Iain Wright (Labour, Hartlepool)
So why do it?
Iain Wright (Labour, Hartlepool)
I am very conscious of time, so I will ask three questions that warrant only a yes or no answer. On the basis of those very interesting opening statements, does the panel agree with Sir John Vickers, who said this morning—I think I am right—that this institutional reform might result in weaknesses to the competition regime?
Iain Wright (Labour, Hartlepool)
Do you think that the CMA’s ability to consider the public interest is a retrograde step?
Iain Wright (Labour, Hartlepool)
That is making it very clear. My final question: should the Bill allow for the deregulation of small mergers?
Graham Brady (Conservative, Altrincham and Sale West)
Let’s see if we can all follow this.
David Mowat (Conservative, Warrington South)
A change is being made to the definition of a cartel. In particular, the dishonesty provision is being amended. Do you agree with that?
David Mowat (Conservative, Warrington South)
No.
David Mowat (Conservative, Warrington South)
May I ask a follow-up question? My understanding is that toughening the law in this way will make it more like it currently is in the United States, where this is taken incredibly seriously. I do not know if that is correct or not. The impression I have, having worked there quite a lot, is that the business community is immensely aware of not doing anything that could be perceived as acting as a cartel, even to the extent of not having a drink with a fellow supplier, because it could be seen as going down that route. Therefore, the measure would change the business environment, which people may agree or disagree with. Is that the way that you would see it happening as well, if the legislation came in?
David Mowat (Conservative, Warrington South)
It could be a good thing for competition, though, couldn’t it?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
I want to get a better idea of what is at risk. It is clear that there are some significant concerns about the merger of the Competition Commission and the OFT, but it is not so clear what the stake is. The OFT and the CC estimate that the benefit to the economy of their competitive regime is about £600 million. Would you say that that is an accurate reflection of the benefits to the economy of a competitive environment? Does the Bill do enough to maximise those benefits? It is particularly important at a time of double-dip recession.
Chi Onwurah (Labour, Newcastle upon Tyne Central)
So there is a huge amount at risk here.
Chi Onwurah (Labour, Newcastle upon Tyne Central)
This is a specific question for Professor Waddams. As is the case now, we have concurrent competition powers between regulators in certain sectors, such as energy and telecoms—I should declare an interest that I worked for Ofcom for six years—but we have seen a reluctance for regulators to use those competition powers, as they tend to rely instead on their sectoral and regulatory powers. We specifically see that in the energy industry. Obviously, that has a cost to the consumer. We have just seen the importance of competition. Does the Bill do enough to ensure that the regulators use their powers, where they have them, in the interests of consumers, or is there more that should be done to ensure that the current regime works better? Have the smaller regulators got the resources to take on competition issues?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
It certainly does that, but do you have any suggestions as to how the Bill could help resolve it, especially in your area of expertise, energy, where we see real consumer disbenefits from the lack of effective competition?
Anne Marie Morris (Conservative, Newton Abbot)
May I turn to antitrust? The aim of the Bill is certainly to create a stronger regime. It looks at separating investigation from decision making; it looks at absolute privilege from defamation; it looks at lowering the threshold before interim measures can be imposed; and it looks at guidance on penalties. Do you think those are the right things to be doing, and will they have the right effect? Are there other things you would like to see in the Bill that would help?
Anne Marie Morris (Conservative, Newton Abbot)
That is very helpful.
Not one of you commented on the guidance on penalties with regard to defamation. Is that because you have no thoughts on it, or because you do not think that it really adds anything?
Anne Marie Morris (Conservative, Newton Abbot)
The absolute privilege for defamation that is being introduced and the guidance on penalties, the idea behind which is to avoid appeals.
Neil Carmichael (Conservative, Stroud)
Professor Waddams, why do you say that the extensive possibility for intervening in the public interest raises concerns?
Neil Carmichael (Conservative, Stroud)
Do you think that that would be an excessive political interference in the new authority?
Neil Carmichael (Conservative, Stroud)
What safeguards would you like to see in the Bill to prevent that?
Neil Carmichael (Conservative, Stroud)
Mr Nicholson, you also mentioned this issue in your evidence.
Graham Brady (Conservative, Altrincham and Sale West)
It seems that Members have no further questions for these witnesses. I thank you all very much for your time and very full answers. We are slightly ahead of schedule, so the sitting will be suspended until 11.25 am.
Graham Brady (Conservative, Altrincham and Sale West)
May I welcome the witnesses and ask you please to introduce yourselves for the record? I am anticipating that most of the questions in this session will be about the Green investment bank, but if there are other aspects of the Bill that you would particularly like to comment on please say so now, so that the Committee can be aware of that.
Iain Wright (Labour, Hartlepool)
Good morning, gentlemen. The UK has a fantastic opportunity to be a leading player in the world markets for green and clean technology. Does the UK Green investment bank, as currently envisaged in the Bill, help to achieve that?
Iain Wright (Labour, Hartlepool)
May I ask about the scale of funds needed? Some £3 billion is available in the lifetime of this Parliament as a result of the UK Green investment bank. Can you give us an idea about what is needed,? The second part of that question is, can you tell us what our economic rivals are doing—for example, KFW in Germany? What are they investing in this particular part of the economy?
Iain Wright (Labour, Hartlepool)
A year?
Iain Wright (Labour, Hartlepool)
Given our opportunities and given the scale of the challenge needed, and given that the time to do things is now, should the bank be allowed to borrow on day one?
Iain Wright (Labour, Hartlepool)
Could you give us a time scale for that, Dr Edge?
Iain Wright (Labour, Hartlepool)
My final question is about clause 1, “The green purposes”. Does the clause as drafted provide a degree of targeted investment or is it so vague as to be almost meaningless? What should clause 1 look like?
David Mowat (Conservative, Warrington South)
I was interested in your answer in terms of the green purpose and linking it to the Climate Change Act, which implies—I believe this too—that we are looking to decarbonisation, not necessarily just to renewables. It is therefore pretty clear that if an organisation such as Sheffield Forgemasters, for example, was to avail itself of the bank, you would support that.
David Mowat (Conservative, Warrington South)
My specific point was that the nuclear supply chain may also need to have access to the funds, as part of the decarbonisation programme. Although you have not necessarily been associated with that technology, I am asking whether you are happy with that.
David Mowat (Conservative, Warrington South)
To the Climate Change Act.
David Mowat (Conservative, Warrington South)
To be clear, you mentioned shorter-term technologies that perhaps you would not—I think you used this term—“lock in”. For example, the way the mandate is written, it could be perceived that investment in shale gas would reduce carbon, because in the short term it would obviously reduce the use of coal, which is a decarbonisation technology. Therefore, in my reading of the mandate, that is included. Do you have a concern about that?
David Mowat (Conservative, Warrington South)
The Government have two ways of financing low-carbon technology. One is a regime of subsidies, the renewables obligation certificates and all the rest of it, and the other is to fund it with a bank such as this. We are actually doing both, because we will have it through the bank and we will continue with the subsidy regime. Do you have a preference about which of the two is used or do you think both are necessary?
David Mowat (Conservative, Warrington South)
Is there not a risk that this method smacks a bit of the Government’s choosing winners, whereas having a carbon price just prices in properly the cost of carbon and lets the various technologies sort it out?
Ian Murray (Labour, Edinburgh South)
It is obvious that in the process of the Green investment bank’s formulation, the Treasury has put a stranglehold on borrowing, which will suppress the amount of money available. Is there a danger that the UK will end up behind the curve in relation to the advancement in technologies and will think that it is a real missed opportunity?
Ian Murray (Labour, Edinburgh South)
I am going to shock the Ministers here by prefacing my very short question by saying that I give the Government tremendous credit for locating the Green investment bank in Edinburgh. It is the best decision they have ever made, but here comes the “but”. You may or may not be able to answer this question but it is about an issue that is a significant concern not only to the operation of the Green investment bank but to the investments that it is making. In your opinion, do you think that, if there was a separate Scotland, where the Green investment bank is based will undermine its operation, and do you think the bank may move across the border, should a separate Scotland come to fruition?
Iain Wright (Labour, Hartlepool)
To Hartlepool.
Eric Ollerenshaw (Conservative, Lancaster and Fleetwood)
I will not suggest, as others have done, where this bank should go, but we have some spare capacity in Lancashire. Let me go back to the amount of money. I know that we will never agree how much money the bank has got; it will never have enough money, in that sense. In one sense, all credit to the Government that they have actually got the bank started, given the lack of money that we were left, as it were. But I will not go into that.
I want to go into the balance of money. Dr Edge, even within what you are suggesting is the allocation of about 80%—I think you said it was about 80% in your written submission—probably half of that 80% will go into offshore wind, which leaves about 20% for tidal and so on. Are you suggesting the initial balance is wrong with the existing money? Is that the point you are trying to make?
Fiona O'Donnell (Labour, East Lothian)
Nick, I was pleased to hear you say that this would not just be about big infrastructure projects. I wanted to ask you all about the possible impact on SMEs. In my constituency, there is a company that is involved in very exciting research and development. With the last project that it was involved in, when it came to the stage of going to market it sold to a foreign company, because it could not raise the capital. Do you think the Green investment bank has the potential to drive innovation in SMEs while also allowing them to grow?
Fiona O'Donnell (Labour, East Lothian)
But that is a pro-growth, anti-austerity point of view that we have there. That is encouraging.
Anne Marie Morris (Conservative, Newton Abbot)
Carrying on the theme with regard to SMEs and the smallest of businesses, many green ideas come from very small businesses. It could be a one, two or three-man band, so I was interested in your response to Fiona’s reply, which was that this is intended for the start-ups and that it is next stage. The challenge is, if a lot of these good ideas are coming from these very small businesses—they may be start-ups, but they are often very intelligent start-ups—where is the link into the Green investment bank? Should there be within the Green investment bank an infrastructure to enable bodies that will suck up these start-ups to bid for money, so that we get the funding for those very small businesses? Do you think that it would be helpful for there to be a requirement to report annually on the size of businesses that the Green investment bank is making funds available to, so that we at least get a sense of where in the SME markets the money is going? Because SMEs range from the micros at 10 employees to 150 employees, and that is quite a big spread.
Geraint Davies (Labour, Swansea West)
As I understand it, the growth rate in China is something like 6%, but the cost to the environment is something like 9% of their GDP value, which is obviously not sustainable. Clearly, as you have mentioned, with Stern we are about to see a revolutionary change in the opportunities for the green economy—indeed, there are opportunities for low-cost tradable start-up initiatives, which can be scaled up.
I have a couple of questions. First, with that in mind, what is your feeling about the potential spending map, within that very small context of £3 billion? Secondly, given that the scale of funding is not very great in comparison with elsewhere, should we be using procurement, which is massive—hundreds of billions of pounds over these three years—in a smarter way, targeting it at SMEs and green technologies to provide the demand side to support the £3 billion, which is basically supply-side production technology, and to draw that through? How do you think that that should be done?
In Wales, just by way of comparison, 70% of procurement is in SMEs, half of which are in Wales, and in England the figure is about 7%. The obvious advantage of SMEs is that they pay tax and employ local people. Having more focused, small-scale, procurement strategies alongside development opportunities on the bank side might set these business in train. Do you agree that that should be the two-sided strategy?
Andrew Bridgen (Conservative, North West Leicestershire)
Given that the Green investment bank will always have limited resources, should it look at the commercial and effective time scale of any investment? Should it favour long-term benefits, in the way that energy efficiency is longer term than building a wind farm, because whereas wind farms can have a 20-year lifespan and deteriorate in efficiency over that time, nuclear would have a longer lifespan? Should that be a consideration in what the Green investment bank invests in, given that we know there will never be enough money to go around?
Graham Brady (Conservative, Altrincham and Sale West)
Order. I am afraid that that brings us to the end of the time allotted for the Committee to question these witnesses. Thank you all very much for your time and assistance.
Graham Brady (Conservative, Altrincham and Sale West)
We will now hear oral evidence from the Local Government Association, the Trading Standards Institute, West Yorkshire Joint Services and the British Retail Consortium. I welcome the witnesses and ask you please to identify yourself for the record. Also, in order to inform the Committee, if you have particular aspects of the Bill on which you feel particularly qualified or particularly unqualified to comment, please say so.
Graham Brady (Conservative, Altrincham and Sale West)
Thank you very much. I propose that we broadly group the questions into the primary authorities and competition aspects and then the employment aspects. I call Iain Wright.
Iain Wright (Labour, Hartlepool)
I have a very broad question. Will the drafting of clause 52, on the extension of the primary authority scheme, help you in your objectives to reduce regulatory burdens and facilitate a degree of greater enterprise within the country? Can I ask all four of you that, please? Ms Bevis, do you want to start and I will go to the right—not politically, of course.
Iain Wright (Labour, Hartlepool)
Following up from your comments, let me play devil’s advocate. Does that not conflict with the idea of localism—ensuring that people enact things according to what local circumstances want? Secondly, you mention things being done in a more resource-efficient way, but is there a danger of a more of a tick-box attitude to things, because it is not as relevant to the local situation? Have you got a view on that?
Iain Wright (Labour, Hartlepool)
Mr Gainsford, may I start with you? In terms of trading standards and what clause 52 and, to some extent, clause 53 propose, are you concerned that in the light of quite substantial budget cuts to local authorities, where trading standards may not be a particularly prominent area—especially when there are libraries, care homes and that sort of thing—you have the budget across local government to carry out the responsibilities in the Bill and more generally?
Iain Wright (Labour, Hartlepool)
He is in a very generous mood. If you ask for money—[ Laughter. ]
Iain Wright (Labour, Hartlepool)
Councillor, does that spread the jam too thinly?
Julian Smith (Conservative, Skipton and Ripon)
Jane, I pay tribute to you and your members for creating a significant number of jobs in difficult times, for giving work placements to young people and for all the opportunities that your members have provided in the past year. The Government’s reforms are singly designed to help small companies and organisations such as those you represent to have confidence to take on even more staff and create more jobs for young and old people. How will these reforms help? What are your concerns, and what are you happy about?
Julian Smith (Conservative, Skipton and Ripon)
Could you confine your comments to employment law at the moment? Are things such as settlement agreements going to be helpful? What do you think about fines for employers? Those sorts of things.
Julian Smith (Conservative, Skipton and Ripon)
You have created tens of thousands of jobs in the past year. Will the reforms help you or your members to create more jobs or fewer? Is it a positive move by the Government?
Julian Smith (Conservative, Skipton and Ripon)
Will you remind the Committee how many jobs your members are actually responsible for?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
I was interested, Mr Gainsford, to hear in your introduction that you would be keen to speak about the CMA, as well as clauses 52 and 53. Do you expect the abolition of the OFT and the subsequent formation of the CMA to impact on your work and on fair trading in the country?
Chi Onwurah (Labour, Newcastle upon Tyne Central)
To follow up on one point, I am sure that we all hope that the extensive transfer of responsibilities, which you have just described so eloquently, is accompanied by the appropriate transfer of resources, both financial and human. However, it sounds as if all the consumer responsibilities of the CMA and the OFT are being transferred to different groups. What kind of ongoing relationship will you have with the CMA, and how do you envisage it being able to focus on consumers if it does not have the coal-face experience of consumer concerns that it had in the past through the OFT?
Graham Brady (Conservative, Altrincham and Sale West)
I call Graham Evans.
Graham Evans (Conservative, Weaver Vale)
Thank you, Mr Brady, but my line of questioning has been covered.
Fiona O'Donnell (Labour, East Lothian)
I am keen to hear the views of any member of the panel on the primary authority scheme. Jane, you said that it would mean the end of postcode lotteries, but do you think there is a danger that this could become a race to the bottom? The proposals allow any local authority to enter into a partnership with a business. Is there not a danger that businesses will seek out local authorities that will give them a weak plan, and that that will then force other local authorities to implement those standards as well?
Fiona O'Donnell (Labour, East Lothian)
What evidence is there for your assertion that the Bill would create more jobs in your sector? Businesses in my constituency tell me that consumer demand and business confidence is a better driver of job creation.
Andrew Bridgen (Conservative, North West Leicestershire)
Mr Gainsford’s answer to the previous question leads on to mine. Could the panel share any views and/or evidence on how the funding and resources available, and the performance of trading standards activities, in the UK compare with what happens in other EU and developed countries around the world?
Ian Murray (Labour, Edinburgh South)
I have a quick question for Ron Gainsford. You spoke about the funding problem in trading standards. I know that it is very difficult to aggregate individual local authorities, particularly when going across the devolved Administrations, but can you give us some indication of what the funding has been like, and what you estimate the aggregate funding will look like in the future?
Graham Brady (Conservative, Altrincham and Sale West)
Do any Members wish to pursue the employment aspects further? If there are no further questions for these witnesses, we will move on to the next panel.
Ian Murray (Labour, Edinburgh South)
On a point of order, Mr Brady. We have heard a lot of evidence in the past two days about the impact of the clauses in the employment section and the way in which they interact. The Ministry of Justice is undertaking a major piece of work on fees and where they may be inserted into the process. I think that that will have an impact on how the clauses operate, so is there any mechanism to get written information about that before the Committee to assist our deliberations?
Graham Brady (Conservative, Altrincham and Sale West)
Thank you for your point of order. There is nothing to prevent any organisation from submitting written evidence to the Committee. It may be that your point of order and my response will be taken by some organisations as an invitation to do so. Is that helpful?
Ian Murray (Labour, Edinburgh South)
I think the Minister might have heard.
Graham Brady (Conservative, Altrincham and Sale West)
On behalf of the Committee, I thank all the witnesses for giving up their time.
Graham Brady (Conservative, Altrincham and Sale West)
May I welcome the witnesses to the Committee? For the record, please introduce yourselves. I assume that the weight of questions in this session is likely to be on a combination of directors’ remuneration and employment rights, but if there are other aspects that you are particularly keen to comment on, you might wish to alert the Committee to that.
Graham Brady (Conservative, Altrincham and Sale West)
I propose that we take remuneration issues first and the wider issues of employment rights later.
Iain Wright (Labour, Hartlepool)
This question is to all three of you but, Sir David, I think you said in your evidence to the Treasury Committee a couple of weeks ago that there is a need for enhancement in the quality of corporate governance in all corporates, particularly with regard to the management of risk, and the need to be accountable to the providers of capital and the ultimate owners of the business. Is the Bill missing a trick by not incorporating wider points of corporate governance into legislation to ensure that we can tackle directors’ excessive remuneration?
Iain Wright (Labour, Hartlepool)
Do you agree?
Iain Wright (Labour, Hartlepool)
Mr Beecroft, do you agree that there is somehow a bit of a cosy club in the boardroom? Is there a direct link between remuneration committees, remuneration consultants and the ratcheting up of executive pay in recent years?
Iain Wright (Labour, Hartlepool)
Do you agree—I will ask you this as well, Sir David, if I may—with the recommendation in the High Pay Commission report that we should have employees on remuneration committees to improve accountability and even transparency of decision making? The chief executive would need to look the worker in the eye and say, “This is why I’m worth what I want to be paid.”
Iain Wright (Labour, Hartlepool)
Mr Beecroft, have you anything to add?
Iain Wright (Labour, Hartlepool)
Could I ask about the statement that the Secretary of State made to the House yesterday, particularly with regard to annual binding votes on future remuneration policy? I was sitting on my Front Bench when the Secretary of State made his statement, and it was very vague in respect of when an annual binding vote would be necessary. What would constitute change to the policy? He refused to answer that properly. Do you have any notion of what change would mean? Also, do you agree with the comment in the Financial Times editorial today that the Secretary of State has missed a trick when it comes to annual binding votes? Sir David, I will start with you, but I would like comments from all three of you.
Iain Wright (Labour, Hartlepool)
Deborah, what did you think of the Secretary of State’s statement yesterday? Did it go far enough?
Iain Wright (Labour, Hartlepool)
Mr Beecroft, do you have a view?
Iain Wright (Labour, Hartlepool)
But they do on the business.
David Mowat (Conservative, Warrington South)
The Bill’s proposals on high pay focus on FTSE directors, but are we missing something, Deborah, because other highly paid groups are excluded? For some reason, we seem to be a lot less concerned about partners in accounting firms, law firms and consultancy firms, directors of American banks who work here and are not covered by the proposals, and about other types of employee, such as footballers. Are we focusing on the wrong thing? At least the people on whom we are focusing run something.
David Mowat (Conservative, Warrington South)
So what about directors of subsidiaries of US banks, such as a director of Goldman Sachs working in London? Should that be included?
David Mowat (Conservative, Warrington South)
To paraphrase, what you are suggesting is that the thrust of this legislation on publicly quoted companies may affect remuneration at City firms of solicitors, many of whom earn far more than most directors of public companies?
David Mowat (Conservative, Warrington South)
Do you not think that we might disincentivise people from running our great companies? We would have them effectively operating in other sorts of organisations, such as the ones that I have mentioned, which might have less added value. Is there a risk of that?
David Mowat (Conservative, Warrington South)
No; I completely agree with that, although we are talking about money here, which is the reason why we have got the legislation and all that goes with it.
Chi Onwurah (Labour, Newcastle upon Tyne Central)
One of the reasons given most often for the very high pay of FTSE 100 and other executives is the necessity of attracting talent from a very small but global and very moveable talent pool. Is the supply of top talent so small? Given that it is generally drawn from a very narrow section of society—we have talked about diversity, and the lack of women and ethnic minorities on boards—do you think that that is a credible justification for such high salaries?
Julian Smith (Conservative, Skipton and Ripon)
Deborah, I think your organisation has raised some really important issues, particularly in the last year. But would you accept that ultimately in a capitalist system there is a real limit to what Government can do, and that those actions are largely nudges and maybe firm nudges sometimes? There has to be a clear message to populations that with globalisation and capitalism, which may not be a perfect system, there will be extremes of pay. Would you accept that?
Julian Smith (Conservative, Skipton and Ripon)
Thank you, and I refer members of the Committee to my declaration in the Register of Members’ Financial Interests.
Sir David Walker, the bank that you were involved with was competing at the epicentre of a global industry about which there has obviously been a lot of debate recently, but which was bringing huge amounts of tax revenue to this country. Could you describe a little more—I guess that it is in answer to Chi’s question—about what it is like competing for global talent?
Graham Brady (Conservative, Altrincham and Sale West)
I am sorry, but before the answers, I must say that I do not think that Mr Smith has referred to his entry in the Register of Members’ Financial Interests before this morning. I wonder if you could elucidate a little, Mr Smith.
Julian Smith (Conservative, Skipton and Ripon)
I used to run a headhunting company and I have an interest in a recruitment company; it does not do board-level work.
Graham Brady (Conservative, Altrincham and Sale West)
Thank you. I am sorry to have interrupted.
Andrew Bridgen (Conservative, North West Leicestershire)
I would just like to get something on the record and see the response from the panel. I am slightly uncomfortable with the phrase “high pay”, because that is a very relative term. There is nothing wrong at all with high pay if it is accompanied by high performance. The problem is if you have high pay and average or poor performance; at any level, whatever high pay is, that will is always be a problem for an organisation. I would just like to see whether the panel agrees with that.
I hear what Deborah Hargreaves said about diverse boards and I am willing to think that it could be correct. However, it really does not matter what I think. Boards wish to run successful companies. If diverse boards are going to make companies more successful, they will outcompete their competitors. Market forces will take place, and market forces are completely gender-blind and colour-blind. They are not discriminatory. There is no need, therefore, for Governments to do anything because the market will sort itself out and these diverse boards will take over the marketplace. How can anyone disagree with that?
Andrew Bridgen (Conservative, North West Leicestershire)
You say that these diverse boards are outcompeting their competitors. In that case, they will, will they not, and they will take over. There is no need then for the dead hand of government to land on the chairman’s shoulder again.
Andrew Bridgen (Conservative, North West Leicestershire)
Mr Beecroft, do you argue with the logic that I presented?
Graham Brady (Conservative, Altrincham and Sale West)
In that case, we can move on to the broader employment rights area.
Iain Wright (Labour, Hartlepool)
My question is to you, Mr Beecroft. After my line of questioning, you may want to call me a socialist. If you can, that would be very helpful to me, certainly in my local area.
Following No. 10’s request to you to carry out your piece of work on employment law, in compiling your report did you meet with the following people or organisations? A yes or no will suffice. The Prime Minister?
Iain Wright (Labour, Hartlepool)
The Chancellor of the Exchequer?
Iain Wright (Labour, Hartlepool)
The Secretary of State for Business?
Iain Wright (Labour, Hartlepool)
The CBI?
Iain Wright (Labour, Hartlepool)
How many times?
Iain Wright (Labour, Hartlepool)
The Institute of Directors?
Iain Wright (Labour, Hartlepool)
The General Secretary of the TUC?
Iain Wright (Labour, Hartlepool)
Any general secretaries of any trade unions?
Iain Wright (Labour, Hartlepool)
The Association of Mortgage Lenders?
Iain Wright (Labour, Hartlepool)
The British Retail Consortium?
Iain Wright (Labour, Hartlepool)
EEF, the manufacturers organisation?
Iain Wright (Labour, Hartlepool)
The Federation of Small Businesses?
Iain Wright (Labour, Hartlepool)
How many times?
Graham Brady (Conservative, Altrincham and Sale West)
Mr Wright, I am sure that you will make the question directly pertinent to the Bill.
Iain Wright (Labour, Hartlepool)
I certainly will. Mr Beecroft, did you meet anybody who has gone through the employment tribunal procedure?
Iain Wright (Labour, Hartlepool)
How many?
Iain Wright (Labour, Hartlepool)
My final question is, did you meet the Gangmasters Licensing Authority?
Lorely Burt (Liberal Democrat, Solihull)
My question is for Mr Beecroft as well. The Secretary of State has indicated that he will not implement the Beecroft review. Obviously, a number of the aspects of the review have been very controversial—for example, no-fault dismissal, or “fire at will” as it has been termed. I just wondered on reflection, if you could choose one or two things, what do you think we as a Committee should still be reconsidering to put into the Bill?
Lorely Burt (Liberal Democrat, Solihull)
I take your point entirely on the burden of regulation being disproportionate to small businesses. Do you think, though, that any employee should be entitled to the same employment rights, whether they happen to be working for a small or big business?
Ian Murray (Labour, Edinburgh South)
I am directing my comments to Mr Beecroft. Relating to what you have just said, did not the number of claims of unfair dismissal in Australia triple when those regulations were brought in? A BIS analysis showed that. We should get some of those figures, if we can.
Ian Murray (Labour, Edinburgh South)
We received evidence on Tuesday from Ed Sweeney at ACAS, who will be responsible for taking forward some of the major pillars of the clauses in the Bill. He said that
“good law requires good empirical”
evidence and
“Anecdotes make bad law.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 71, Q153.]
Do you agree with him?
Ian Murray (Labour, Edinburgh South)
The figures that we have been talking about are 6% for regulation—all regulation—for small businesses, in terms of the small business index.
Ian Murray (Labour, Edinburgh South)
Thank you for that clarification.
There has been a contention that there might be some compensated no-fault dismissal by the back door when we take all these issues together. In your report, you said that
“even making it easier to remove underperforming employees will in the short run not increase unemployment as they will be replaced by more competent employees.”
What is your empirical evidence and research for that?
Ian Murray (Labour, Edinburgh South)
So the net effect would be zero?
Ian Murray (Labour, Edinburgh South)
On your recommendation on compensated no-fault dismissal, you state:
“Such a change would, in my view, produce an instant improvement in performance in a significant part of the national workforce while providing major encouragement to those contemplating increasing their workforce.”
What is your empirical evidence and research for that statement?
Ian Murray (Labour, Edinburgh South)
With regard to the clauses in the Bill, your report states that
“at present many claimants who have unfortunately not found a new job have time on their hands and view a free employment tribunal as a no cost option on winning an award.”
Again, which evidence base is that taken from?
Ian Murray (Labour, Edinburgh South)
An honest lawyer? Is that a contradiction in terms? Who commissioned the report?
Ian Murray (Labour, Edinburgh South)
The Minister is, indeed, an employment lawyer.
Will you tell the Committee who commissioned the report?
Ian Murray (Labour, Edinburgh South)
Are you aware that the UK has the third most liberal employment regime in the world, whereas Germany and Australia rank in the high twenties and early thirties out of 36?
Ian Murray (Labour, Edinburgh South)
So the evidence base for those statistics is wrong. Would that be a fair assessment of what you have said?
Ian Murray (Labour, Edinburgh South)
On that basis, if the UK is not third, where would you place it out of 36 countries in the world, given your experience?
Graham Evans (Conservative, Weaver Vale)
My question is aimed at Mr Beecroft—and I would really appreciate it if you did not refer to me as a socialist.
Graham Evans (Conservative, Weaver Vale)
That is very kind.
Your report created a big mailbag from particular segments of my constituency. The Bill will turn the pre-claim conciliation process from a voluntary one into a mandatory one. Are you in favour of that change, and how will it benefit businesses in the UK? Secondly, based on your considerable experience, if there was one thing that you could do to encourage growth in the UK, what would it be?
Chris Ruane (Labour, Vale of Clwyd)
This question is just to Mr Beecroft. You are a trained scientist who sponsors the Beecroft institute of particle astrophysics and cosmology. As a trained scientist, why have you failed to use empirical evidence, and research and analysis? Why have you relied on anecdotes, stories and personal perspectives from the lawyer down the road? Your report proposes policy by parable and legislation by anecdote. Two statistics that this Committee must have are: how many jobs would be created if your report was fully implemented; and how many jobs, if any, will the Bill create? It is your report, and while it is the Government’s Bill, I am sure you have a perspective on it.
Graham Brady (Conservative, Altrincham and Sale West)
I am delighted that we got to the Bill in that question. I hope that hon. Members will bear in mind the purpose of these hearings.
Chris Ruane (Labour, Vale of Clwyd)
So you don’t know.
Chris Ruane (Labour, Vale of Clwyd)
So you do know.
Chris Ruane (Labour, Vale of Clwyd)
So how many—approximately?
Chris Ruane (Labour, Vale of Clwyd)
Why are you convinced that there would be more jobs? What empirical evidence has led you to believe that?
Chris Ruane (Labour, Vale of Clwyd)
So you still do not know how many jobs.
Chris Ruane (Labour, Vale of Clwyd)
It is not whether you have studied it or even looked at it. After your report and all your analysis, you still do not know how many jobs.
Chris Ruane (Labour, Vale of Clwyd)
I am asking the questions. Do you know how many jobs—yes or no? You either know or you do not know.
Chris Ruane (Labour, Vale of Clwyd)
Approximately.
Chris Ruane (Labour, Vale of Clwyd)
I don’t know about astrophysics; that is more like astrology.
Graham Brady (Conservative, Altrincham and Sale West)
Next question.
Andrew Bingham (Conservative, High Peak)
Do you feel that the proposals on financial penalties of up to £5,000 on employers who breach workers’ rights has the potential to hit SMEs disproportionately, and particularly micro-businesses?