Small Business, Enterprise and Employment Bill

Public Bill Committee, 21 October 2014.

Graham Brady (Conservative, Altrincham and Sale West)

We now begin line-by-line scrutiny of the Bill. Before we start, I repeat that Members may, if they wish, remove their jackets during Committee meetings but would everyone ensure that all electronic devices are turned off or switched to silent mode?

As a general rule, I and my fellow Chairs do not intend to call amendments that have not been tabled with adequate notice. The required notice period is three working days—in other words, by the rise of the House on a Monday for consideration on Thursday, and the same on a Thursday for consideration on the following Tuesday. The selection list for amendments and new clauses so far tabled will be available in the room, updated for each day’s sittings and showing how selected amendments on similar issues have been grouped together for debate.

A Member with their name on the leading amendment in a group is called first. Other Members may then catch my eye to speak on any of the amendments in that group. At the end of a debate on a group I will called the Member who moved the lead amendment again, and before they sit down they will need to indicate whether they wish to seek to withdraw the amendment or to press for a decision. Any Member wishing to press any other amendment in the group must let me know. I will assume that the Minister wishes the Committee to reach a decision on all Government amendments.

Decisions on amendments and new clauses take place not in the order in which they are debated, but in the order in which they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list and decisions are taken when we come to the clause which the amendment affects. New clauses are decided after we have finished with the existing text, so after dealing with clause 149 in this case. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules if there has already been extensive debate on relevant amendments. I hope this explanation is helpful.

Clause 1 - Power to invalidate certain restrictive terms of business contracts

Toby Perkins (Labour, Chesterfield)

I am glad to see the Minister in his place with his just-in-time approach to Committee proceedings on this Bill. I am happy to speak in support of the clause as far as it goes. The Government’s record on access to finance has been the subject of considerable debate and no little disappointment over the past four years. Businesses consistently rank access to finance as one of the biggest barriers standing between them and their goals. That is true throughout the life cycle of a business: those that want to start out and those that want to grow and expand all face problems accessing the finance they need.

Unfortunately under this Government, those problems are getting worse: net lending to business has fallen by £56 billion since May 2010. The Government have tried several piecemeal fixes, which tinker around the edges of the problem but which, as has become an emerging theme of the Bill, have failed to deliver the transformational change that is required. The Public Accounts Committee’s recent report notes that the Government’s most recent scheme, funding for lending, once again falls into this pattern. We would have liked to have seen far more ambition on access to finance in the Bill.

To get to grips properly with the problem, we need to address the fundamentally uncompetitive lending market. More than 85% of the UK’s 5 million small businesses are locked into just 5 big banks, which lend on roughly the same criteria, so businesses rejected by one of the banks are still likely to be rejected by each of the others in turn. In drafting the Bill the Government should have looked more closely at what works in some of our biggest competitors. Community banks in the US were relatively unaffected by the crisis and, astonishingly, in our prime European competitor, Germany, lending actually increased during the global downturn.

Has the Minister considered how we can replicate in the UK the principles of the German Sparkassen system—permanency through state backing, a core duty to support growth and innovation in a defined geographical area, and the professionalism that comes with real banking experts who are rooted in their local market and understand their local customers and communities? The Bill was a perfect opportunity to match the ambition demonstrated by my right hon. Friend the Member for Doncaster North (Edward Miliband) in committing to grow a generation of local banks dedicated to growing the economy in their regions by delivering finance to Britain’s small businesses.

Similarly, we could have seen much greater steps to aid the creation of new challenger banks or to support the fledgling peer-to-peer lending market. It is good to see new entrants, such as Metro bank, developing a major high street presence, but deeper and wider competition is needed throughout the UK. The Government could have used the Bill to bring together the Bank of England, the Treasury and regulators to develop new procedures and support measures to make it easier and quicker for new, specialised banks to become established.

Overall, we would have preferred the clause to be one of a range of measures designed to fundamentally transform Britain’s lending market and create a panoply of measures for small businesses. The Minister clearly feels the Bill is so perfect that it needs no introduction, but it would be helpful to hear more about the thought process behind the clause and what he anticipates it will deliver. Despite our reservations, we will support it.

Many small businesses are able to obtain up-front finance against the value of unpaid invoices by assigning the right to the payment due under those invoices to a third-party finance provider. Any contractual terms that restrict the ability to assign rights to be paid have an impact on a business’s ability to obtain finance. In the difficult lending market that I have described, that is a clear example of what my hon. Friend the Member for Streatham (Mr Umunna) labelled “blue tape”, where small businesses are held back by the restrictive practices of other companies. We will be happy to support the clause, but I hope to hear the Minister’s thoughts on it.

Anne Marie Morris (Conservative, Newton Abbot)

I am grateful to the hon. Member for Chesterfield for his presentation on the clause, and I am delighted that he is supportive of it, but I take issue with some of his comments about the Government’s lack of engagement in terms of regulation and support for alternative finance. He gave no credit to the Government for the one in, two out system. Also, alternative and challenger lenders have been given a degree of support by the Government, and that has not been recognised by the Opposition.

Matthew Hancock (Conservative, West Suffolk)

I thought for a moment that this was going to become a part stand part debate on the whole of part 1, but to deal specifically with clause 1, let me say that, coming from a small business background, I understand how important access to appropriate finance is. That is sometimes a bank loan and at other times a bank overdraft, and when waiting to receive payment of an invoice, invoice financing can be the most appropriate form of finance. The clause is about ensuring that small businesses have the option to access that type of finance.

Currently, some business contracts contain a barrier that inhibits small businesses from accessing invoice financing. A clause in those contracts prevents the assignment of a payment that is due under the contract. Businesses often use that ban on assignment clause as a general catch-all to prevent suppliers from subcontracting services due under that contract, meaning that the small business’s ability to use invoices issued under that contract for invoice financing is unintentionally inhibited. The clause will tackle that specific barrier.

That is especially important for new and successful peer-to-peer invoice finance providers and platforms, which are growing rapidly in the UK. Those newcomers are allowing businesses to submit individual invoices for finance—a sort of on-demand service for small business finance—but along with more traditional invoice financers, they currently have to work around the ban on assignment clause. Otherwise, individual lenders would, in effect, be making an unsecured loan to the business. Those work-arounds cost money, increase the difficulty of accessing invoice financing, and in some cases can be the deciding factor in whether a business is declined for invoice finance. Last year in our discussion paper, “Building a Responsible Payment Culture”, we asked whether these barriers should be removed, and the answer was very clearly yes, which is why we are taking action.

The measure is being introduced as a delegated power, which is appropriate because a lot of technical details lie behind it. It will be important to consult on some of the more detailed aspects, and we intend to launch the consultation before the end of the year. For example, the Committee will note that clause 2 sets out the financial services that may be exempted so as to focus the measure on the core purpose of facilitating invoice financing against business-to-business contracts rather than financial services contracts. I also assure Committee members that the Government intend to publish draft regulations during the passage of the Bill.

Anne Marie Morris (Conservative, Newton Abbot)

Will my right hon. Friend confirm my view that this is particularly beneficial to the very smallest of businesses, for which invoice discounting is one of the main means of raising cash?

Matthew Hancock (Conservative, West Suffolk)

It is. Invoice discounting is an increasingly important way of raising cash. We hope that clauses 1 and 2 together will help to expand that market.

Clause 2 - Section 1(4)(a): meaning of “financial services”

Matthew Hancock (Conservative, West Suffolk)

Under clause 1, we are removing barriers inhibiting small businesses’ access to invoice finance. That is typically not provided for financial services contracts, such as loan agreements between a small business and a bank. In addition, for some financial services contracts it is important to maintain the ability to prevent assignment of rights under that contract—for example, a business may want to ensure that it deals directly with its own bank in respect of payments due under a loan agreement or other financial service contract. Clause 1 therefore sets out the power to invalidate certain restrictive terms of business contracts, and clause 2 limits the scope of clause 1 to focus that clause on facilitating invoice finance. To this effect, it provides a list of financial services that can be excluded from the scope of clause 1. The list is based on the list of financial services given under section 40 of the Terrorist Asset-Freezing etc. Act 2010. The list of financial services in clause 2 should be considered only as an indicative list of financial services excluded from the scope of clause 1. In particular, subsection (4) retains the flexibility to define financial service contracts more fully in secondary legislation, on which, as I said, we intend to consult later this year.

Clause 3 - Companies: duty to publish report on payment practices

Toby Perkins (Labour, Chesterfield)

I beg to move amendment 53, in clause 3, page 3, line 40, leave out “may” and insert “shall”.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss the following:

Amendment 34, in clause 3, page 3, line 43, after “policies”, insert “and performance”.

Toby Perkins (Labour, Chesterfield)

We have discussed how small businesses frequently identify accessing finance as their biggest barrier to growth. One of the key challenges faced by businesses, and one on which they look to the Government for support, is the significant problem of getting hold of money they are rightly owed, particularly by their business-to-business customers but also by their public sector customers. In speaking to amendments 34 to 37, I will expand on why this is such a significant problem. I will outline why some of the steps taken so far and those that are proposed in clause 3 fail to address the problem, and how amendments 34 to 37 are designed to deliver the step change in legislative power and payment culture that, as we heard so powerfully in oral evidence, is so desperately needed.

I speak both as the shadow small business Minister and as one who has been on both sides of the equation. I was a small business owner for five years before arriving in this place, and in the years before that I was a sales executive, attempting to convince the ladies in our credit control department to release one of my customers from stock because they would pay next time if only we would deliver these goods. They were difficult people to persuade. I know at first-hand what a significant issue it is.

It is small businesses that are the most vulnerable to customers who choose to pay their invoices late. Insolvency specialists have estimated that one in five business failures are simply down to bills being paid late, rather than to failed business models. We should consider that statistic. Some 2,500 businesses in this country every year cease trading, with all the inherent bad debts thus caused. Members of staff, who have often worked loyally for the business for many years or decades, are laid off, plunging those people into unemployment. Massive problems are caused for that business, not because it had a failed business model, because its prices were too low, because it was paying too much for its goods, or because it failed to keep up with the times, but simply because it was not paid money owed to it by its suppliers. This problem is bringing healthy businesses down, creating job losses, creating debtors and putting other businesses under pressure. We in this place have a duty to act and to stand up for those businesses. We cannot underestimate how significant an issue this is.

Mark Garnier (Conservative, Wyre Forest)

The statistic that the hon. Gentleman talks about is very interesting. Has he seen any analysis of why businesses are late payers? Presumably, they could be badly run businesses and going bust themselves, or they might not be paying because just it suits their cash flow. Has he done any work on that?

Toby Perkins (Labour, Chesterfield)

A tremendous amount of work has been done on this. There is a variety of answers to the sensible question that the hon. Gentleman poses. Often, people pay late because they have been paid late—it becomes a vicious cycle in which businesses that expected to have money coming in are not paid on time, and towards the end of the month their bills come due and they think, “The only way we can get through this is to spin it out until our moneys come in.” Often, businesses do it simply because they would rather have the money in their account, either from a cash-flow perspective or to reduce the interest payments on their own overdraft, so they pay businesses later as a matter of policy. One way they seize their 1% here and 1% there is by doing everything they can to bring money in early and to pay late.

It is not always bad businesses, but Katja Hall, who spoke to us from the CBI, was right to say that this is a cultural problem as well as a business practice problem, but it turns into a failed business insolvency problem. There is a huge variety of reasons why businesses end up paying late and it is an important point.

Anne Marie Morris (Conservative, Newton Abbot)

Across the Committee, we agree that late payment is a really serious issue that must be addressed, but there is a question about how we resolve it—whether we do it by naming and shaming or by very precise legislation which then involves litigation. There are already steps in place that a company can take, but it entails the expense of litigation. If the hon. Gentleman’s proposals are introduced, the company will still have to litigate, which is expensive. I cannot help feeling that the naming and shaming—the reporting—will be very much more effective. Does the hon. Gentleman have a view?

Toby Perkins (Labour, Chesterfield)

I hope that the Minister heard that. When we had this debate in 2012, the hon. Lady spoke powerfully. The then Minister, now the Secretary of State for Defence, made it clear in advance of the debate that he was going to start naming and shaming. It was the current Minister on coming to office who decided that the Government would renege on the commitment to name and shame.

Anne Marie Morris (Conservative, Newton Abbot)

Does the shadow Minister agree that what the Minister proposes in the Bill would effectively enable just that, just the naming and shaming? Once information is published, frankly the media are going to be hungry to do something with it.

Toby Perkins (Labour, Chesterfield)

I wish I shared the hon. Lady’s confidence. Who is not signed up to the prompt payment code is already a matter of public record. Any journalist worth their salt who wanted to run a story on all the companies in the FTSE 350 that were not signatories to the prompt payment code could easily do that.

A point that came across powerfully in the evidence we heard last Tuesday is that there is not a significant reputational risk to businesses that pay late. That is why many of the household names where people shop every weekend are accused of being late payers. Late payment takes two different forms. It could be not paying bills at the agreed time or having very restrictive payment terms with long lead times, because they know that the supplier base has no alternative.

The naming and shaming approach has some potential but is a pretty blunt instrument. As I will go into later, there is a reason why many of the different measures taken with the best intentions by this and previous Governments have failed to get us where we need to be.

Ian Murray (Labour, Edinburgh South)

There is a knock-on effect of late payment. As a small business owner myself before being elected to this place, I found the key to late payment was the knock-on effect on the company’s credit. I often had to pay bills and salaries on credit cards in order to keep the cash flow moving while I waited for payments to come in. It is a huge issue for small businesses.

Toby Perkins (Labour, Chesterfield)

As always, my hon. Friend speaks with the knowledge and passion of one who has been at the sharp end. He is right to say that the knock-on effects, as the hon. Member for Wyre Forest mentioned, are manifold. They can lead to other businesses not being paid and that business having to rely on credit cards taking on interest. That is one reason why removing the incentive to pay late, as we attempt to do with amendment 35, is so important.

To return to the point made by the hon. Member for Newton Abbot, it is important to put on record that, as was reflected by some of the witnesses at last Tuesday’s evidence session, we are talking about an opportunity not to name and shame but to name and praise all the big businesses that, in the reporting procedures we are discussing, can make a clear declaration that every one of their suppliers was paid on time.

We could name and praise all the businesses that had not just signed up to the prompt payment code but were delivering on it. We could all salute those businesses, not just castigate those that were doing it wrong, by having a name and praise regime of all the businesses that pay on time.

Anne Marie Morris (Conservative, Newton Abbot)

The shadow Minister makes the good point—clearly, praise is as valuable as blame. However, what the Government propose in the Bill will enable just that. Information can be used to praise and blame.

Toby Perkins (Labour, Chesterfield)

That is an interesting point. I suspect that when I get to the end of my contribution, the hon. Lady will have cause to reflect on whether the things proposed in this Government Bill will deliver on what she aims for. I will attempt to demonstrate that an approach which talks about average payment terms can be very misleading. We heard in the evidence sessions that businesses will have a whole range of payments from the window cleaner and the rent that they pay the day on that it is due to other things that they may pay on 90 days. We might end up with an average that does not sound too bad, but to some of the businesses that are being paid on 90 days, that customer does not feel anything like a prompt payer. The prompt payment code has its place and I am pleased that we introduced it and that the Government have been keen to speak up for it, but as a measure to tackle late payment, it has been found to be sadly inadequate.

To return to what I was saying, small businesses are the most vulnerable to customers who choose to pay their invoices late. One in five business failures are simply down to bills being paid late. No one who listened to the evidence could have been in any doubt about that. I want to reflect on some of the contributions made by the business groups that attended our evidence session.

Mike Cherry from the Federation of Small Businesses reminded us that the view of the FSB was that,

“it is imperative the Bill seeks to address the current imbalance of power that exists in the relationship between creditors and debtors.”

To what extent does the Bill seek to address that imbalance rather than simply provide a little bit more transparency? For the record, we will support the measures that the Government are bringing forward, we just do not think that they go far enough. That is why there is the opportunity for Members of all parties to support our measures, which will build on the Government’s work. To what extent do the measures in the Bill address the imbalance of power in the relationship between creditors and debtors? Mike went on to say,

“as I am sure you are all aware from what we have said, late payment is a huge problem for many small businesses and especially for micro-businesses. In a modern economy we believe that 30 days should be more than sufficient to settle payments”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 14 October 2014; c. 4, Q2.]

It would be very hard to see how anyone who listened to that evidence and who had the best interests of small businesses at heart could disagree with Mike.

Mike Spicer from the British Chambers of Commerce said that the large private sector companies tend to be the worst offenders on late payments, which is why we think that, while there should be a focus on the role of the public sector and Government—the Government have attempted to get that practice handed down from first tier to second and third tier suppliers, and we support that—it is strange to confront this issue of late payment as if it is one that is about the public sector.

The survey that the British Chambers of Commerce did on supply chains found, shockingly, that 94% of respondents had experienced late payments. Almost a quarter reported that more than 40% of their payments were received beyond the originally agreed terms. Respondents also reported that private sector organisations performed much worse than public bodies on late payment.

If we have a policy that sets out to take action on this key strategic business challenge, and it does not take any action on addressing that imbalance between creditors and debtors in the private sector, we have to question whether we are going to be able to walk away from the Bill and say that we have done right by our small businesses.

Andy McDonald (Labour, Middlesbrough)

Does my hon. Friend agree that we seem to have been discussing the issue of late payments for decades and that naming and shaming of itself does not ever seem to have embarrassed some of the major players into correcting their behaviour?

Toby Perkins (Labour, Chesterfield)

My hon. Friend is right. We have been discussing this for a long time. Going back to the Late Payment of Commercial Debts (Interest) Act 1998, this is something that Government have wrestled with increasingly over the last 15 to 20 years.

An important point was made in the evidence session about changing that culture. While businesses feel that there is some disincentive to payment, we will consistently see businesses doing this, for all the reasons that I gave the hon. Member for Wyre Forest. The downside for paying late is nothing like as great as the upside: they keep money in their bank account, stave off any cash flow problems and ensure that any debt interest they are paying is reduced, because the money is in their account when it should be in somebody else’s.

David Simpson (DUP, Upper Bann)

I declare an interest in the business world. How do we handle the situation where companies that have been going for 30 years—no matter if they are large or small—all of a sudden get into a cash flow difficulty, whether they sign up to this or not? There is surely a commercial judgment call on this.

Toby Perkins (Labour, Chesterfield)

That is an interesting point. We all recognise that sometimes businesses hit hard times, perhaps through force of circumstances. From my own experience, if a business with a long-standing relationship with a supplier contacts it to say, “We have had bad debt, we have had a situation which means that at this moment at the end of the month, we are really tight on money and we would like to make an arrangement to pay you 15 days late this month, or pay you half of the debt on the due date and the other half in 30 days”, the supplier will often accommodate that. Suppliers will appreciate honesty and understand that the business has chosen to confront them and to be honest with them. The right solution is not to not pay the suppliers, which potentially gives that business the same problems that the original business had, because it does not have money coming in that it was expecting. The solution is not to say, “Because we have hit hard times, we are not going to pay you and now it is your problem, now maybe you hit hard times”. That is the vicious cycle. It is not legitimate for a business to sit on the money because it has hit hard times, and let someone else worry about what that does downstream, although I recognise the problem that the hon. Member for Upper Bann raises.

Anne Marie Morris (Conservative, Newton Abbot)

The shadow Minister is being generous with his time. He has made the point that this is about changing culture and he is absolutely right. There is a role that legislation can play and a role that it cannot. Does he Gentleman agree that one of the challenges, if his amendments were accepted, is that there would have to be some form of incentive for small businesses to litigate? Litigation is expensive. It gives them a bad reputation in the marketplace, therefore the more legislation you include with a lot of prescription, the worse you make matters.

Toby Perkins (Labour, Chesterfield)

I do not think I can come to that conclusion. The hon. Lady is right to say that there is a difference between legislative change and cultural change, but often legislative change leads to cultural change. Let us consider the huge strides that we have made on sexual discrimination and race discrimination. If we went back to the 1970s and had this discussion, people would say, “Well, you can make it illegal to discriminate on the basis of race, but people will just carry on doing it anyway”, but the Race Relations Act 1976 and outlawing discrimination led in time to cultural change. It may not have immediately dealt with 100% of racial discrimination—it never will—but it did lead to a change in the culture.

At the moment we have a situation whereby businesses want to get paid on time but feel that they are not sufficiently empowered to contact their big business customer and say, “We need to be paid on time, and if we are not, we will be charging you interest.” Something that removes the onus from the small business to have to pursue that and places it on the large business instead to have to report it will be incredibly empowering. Many of the business support groups to which we have spoken understood how empowering that would be.

I referred to some of the comments made in the evidence session, which underlined the importance of the issue. Katja Hall from the CBI was not defensive at all, as some people may have thought that the CBI, as the voice of big business, would be. She was absolutely clear that:

“Our view and the view of our members is that late payment is a huge problem for the UK economy…We have got ourselves into a situation in which it has too often become the norm to pay late or to extend contract terms.”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 14 October 2014; c. 6, Q5.]

When the voice of big business says that big businesses are often the victims of late payment themselves and want to see people paid on time, we realise that it is not about pitting small business against big business. It is about pitting the businesses that are playing by the rules and doing things in a straightforward manner against those that might choose to use their supply chain as an unofficial credit line. That was an important piece of evidence.

I would like to put on the record my thanks to the FSB, the Forum of Private Business, the British Chambers of Commerce, the Institute of Chartered Accountants in England and Wales, the CBI, R3, and all the others that we have met to discuss the policy area over the course of the past few months, and that have worked with us on the policy formulation process, providing incredibly helpful insights that have helped us to arrive at this point.

I am proud that my party has set out to be the party of small business. I said that the issue unites small businesses. We find it unacceptable that some businesses can use their suppliers as an unofficial credit line. We heard the British Chambers of Commerce say that the major big businesses are the biggest culprits, paying their suppliers weeks or even months after the due date; we need to take robust action against that. The latest statistics available from BACS—bankers’ automated clearing services—demonstrate how significant the problem has become. Britain’s small businesses now carry a burden of £39.4 billion in overdue payments that they are owed.

Think about the things that we discuss in this place, and the incentives and support that we try to give to businesses. If the Government were able to come up with something that could put £39 billion into the bank accounts of our businesses, just think about what we could do and the growth that we would have—the jobs that would be created, the investment, and the ability those businesses would have to buy new plant and machinery, and become among the best businesses in the world in their industry. We have in our power today an opportunity to vote for something that will—[Interruption.] I see that my hon. Friend the Member for Hartlepool shares my enthusiasm. We have the opportunity to take action on something that will put that money where it belongs. Some 60% of Britain’s small businesses report that late payment is a problem, with the average small business waiting for £38,186 in overdue payments. One in four companies spends over 10 hours a week chasing late payments.

Returning to the wider subject, MPs of all parties have done much to raise the profile of the issue, not least the hon. Member for Newton Abbot. I pay particular tribute to my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), who has been a doughty campaigner on late payments and I am sure will continue to strengthen the Bill as is passes through the House. The hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) introduced a Back-Bench debate on the subject in February 2012, to which I will refer later. He has courageously made a strong case on the issue.

The Bill is hugely important in giving Members a chance to take action to end the pernicious anti-business practice. The Government’s proposals as drafted will be seen by many small businesses as fine as far as they go, but hardly likely to deliver the step change needed to end the practice that unnecessarily causes 20% of all business failures. During the evidence session, we heard differing views on the extent to which the £39 billion of unpaid invoices was a new record or a new statistic, but there seems to be little debate that this serious problem is getting worse. That is why the time is right for our proposed amendments 34 to 37.

In 2012, when he was a Minister in the Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon) said he would write to the FTSE 350 companies to warn them that they would be named and shamed if they did not sign up to the prompt payment code. By May of this year, that still had not happened. I have tabled a series of written parliamentary questions to find out whether any companies are due to be named and shamed, given that we have had almost 15 months in which to do that. On the very same day that those questions were due to be answered, the Minister—through The Times—reported that they had officially U-turned on the commitment and ruled out the naming and shaming of companies not paying on time. Far from taking progressive action to do something, they renege on the commitments made in February 2012.

I wrote to the Secretary of State for Business, Innovation and Skills to ask him to make a statement in the House about the change in policy. Although businesses tell us the issue is one of the most significant they face, he has not taken that opportunity. After such a spectacular U-turn on what was a fairly minor measure, I suspect small businesses will have little faith in the ability of the Minister in charge of piloting this Bill to deliver the real change that is needed.

Previously, the right hon. Member for Kingston and Surbiton (Mr Davey) had promised early implementation of the EU late payment directive but, again, that promise was subsequently reneged on, and the UK Government transposed the directive on to UK law on the very last date they possibly could under the legislation we had agreed. The directive contained measures the Government said they supported, which provided new rights for small businesses suffering under the burden of late payment. It entitled businesses to charge interest of 8% above Bank of England base rate for any late payment, and the opportunity to charge administration costs for chasing late payment. It said they could be claimed by a business on a sliding scale, depending on the size of the debt, and that payment contracts must not infringe a business’s right to claim interest and administration costs for late payment. In many ways, it brought to European law something we had introduced in 1998.

When the Government were asked why the legislation that was basically coming into line with what we already had in the UK—of which the Government were supportive—could not be introduced earlier, the right hon. Member for Havant (Mr Willetts) said that it was down to the Government’s blanket policy of not gold-plating European directives. So we have a policy that the Government support, which brings European policy in line with our policy, and they will not take it forward because they have the illogical policy of not gold-plating European directives, even on provisions they agree with and that will make things better. That demonstrates—putting the 2012 debate in the current context—the extent to which the threat of the UK Independence party to the Conservative party’s electoral prospects is driving the Government, rather than the best interests of Britain’s small businesses, which are, sadly, paying the price.

Mark Garnier (Conservative, Wyre Forest)

It is rather like the SNP running you guys.

Toby Perkins (Labour, Chesterfield)

The hon. Gentleman might prefer not to have that on the record.

It is important to understand why measures from the Late Payment of Commercial Debts (Interest) Act 1998, from the prompt payment code, and from the EU late payment directive—all steps in the right direction—have failed to change the culture. The Bill attempts to give businesses a little more empowerment to make the decision themselves. That is really what it is about. It says, “If we give you an average and you see that the company you are dealing with usually pays in 45 days, you cannot be surprised if payment takes more than 45 days.” If a small business is utterly dependent on one supplier for a major amount of its business, it is not clear how having that information empowers it. Anybody who listened to the evidence presented by the Federation of Small Businesses and the Forum of Private Business last week will have heard that it is utterly inadequate.

Clause 3 as drafted gives the Secretary of State the power to direct companies to publish information about their payment practices. We welcome it to the extent that it increases transparency. However, the evidence from Philip King of the Institute of Credit Management was powerful.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Will the hon. Gentleman give way?

Toby Perkins (Labour, Chesterfield)

I am about to refer to some powerful evidence, but I think we are about to hear some more.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I must declare an interest in the small business that I set up, although I do not work for it. If a business falls out with a client and takes them to court, it cannot expect to get work from them in the future. Frankly, that damages only the business, because it must maintain a relationship with the people with whom it wants to do business.

Toby Perkins (Labour, Chesterfield)

What an incredibly powerful point. That is precisely the point behind our proposals, under which it would not be up to the small business to take their big business partners to court. That is what happens at the moment, which is why it does not work. Under our proposals, it would be for the big businesses to declare any late payments in a quarterly report. Nobody would have to report that business; it would produce a quarterly report and automatically send the interest to any business, such as the hon. Gentleman’s, that had been damaged. The hon. Gentleman’s evidence demonstrates why our proposals are needed and why the clause is inadequate. I thank him for that point, because I could not have put it better myself.

Philip King’s evidence does not look quite as strong after that thunderbolt—I am going to quote the hon. Gentleman for the rest of the debate. None the less, it is still worthy of being listened to. Philip King said on the subject of average payment terms,

“if you quote the average payment terms on which a business makes its payments and there is a range of suppliers for things from rent through to window cleaners and wholesale suppliers, you are always going to have a number that, frankly, is not very meaningful.”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 14 October 2014; c. 34, Q67.]

What he meant by that is that some payments have to be paid immediately. People pay immediately when they get their windows cleaned, they pay their rent on the day it is due and they pay by credit card at the cash and carry. Likewise, businesses pay for some things immediately. If an average is taken, with the one-day payments stacked at one end and a load of 90-day payments stacked at the other, it might come to about 40 days. Therefore, businesses may think, “If I deal with that business, I will get paid in 40-odd days”, but the point that Mr King powerfully made is that an average is not necessarily meaningful. I have been contacted by many businesses that deal with major suppliers that say they are paid in 90 days, which is not in line with the terms and conditions that had been agreed. However, the suppliers’ figures to the stock market make it appear that they are prompt payers. Therefore, the statistical averages do not bear much of a relationship with what is being said to the stock market.

Ian Murray (Labour, Edinburgh South)

My hon. Friend mentioned the issue of declaring company profits to the stock exchange, but are not major multinational businesses sitting on tens of billions of pounds of cash reserves that they have not invested? If they paid their suppliers in a more timely fashion, the £34 billion he is so enthusiastic about would be unlocked to circulate around the economy, which would benefit the economy, jobs and growth.

Toby Perkins (Labour, Chesterfield)

Apart from the fact that £34 billion should be £39 billion, I could not agree more with my hon. Friend. It is about getting money that should be in the banks of the suppliers who won the contract fair and square, provided the goods fair and square and satisfied their side of the bargain. That money should be back in their account, enabling them to recruit new staff, invest in new plant and equipment, market new products, create new markets, export goods and all the other things we want them to do.

Anne Marie Morris (Conservative, Newton Abbot)

The shadow Minister is extremely generous in giving way, but I want to take issue with his response to my hon. Friend the Member for Plymouth, Sutton and Devonport. I am not aware of any legislation that makes a bad business good. If a bad business is bad and wants to break the law, it will break the law. At the end of the day it is still down to the small business to have to worry about enforcement. The point was made that many of the concerns of small businesses are about their ongoing relationship with the other contractor; that formed a main part of the evidence we received from a number of groups. They have a real concern about how the relationship can survive any litigation, or even the naming and shaming. I understand that the amendments are well-intended, but the bad boys are not going to become good boys overnight. Whatever legislation the hon. Gentleman puts in place, it is still going to be broken and we still have the fundamental culture change issue of looking at that relationship and trying to make people behave better. I do not think the proposed legislation will achieve that.

Toby Perkins (Labour, Chesterfield)

That is an interesting point. We could follow it to its natural conclusion and say, “Why have a murder law? There will always be people who murder; we can’t stop them with a murder law, so let’s not outlaw murder.” The truth is that of course there will always be businesses that break the law. However, at the moment they are not breaking the law, though they are causing significant problems. We can at least have legislative back-up that says, “You need to pay on time and you will only fall foul of our reporting procedure if you are over 30 days late.” That still gives quite a bit of leeway. Let us put in place something that empowers small businesses but does not require them to prosecute their big business customers, given that it puts the onus on big businesses to report themselves. We do all sorts of things in this country that work on a self-reporting basis, from VAT to paying PAYE and national insurance. Our personal tax system and a whole raft of other things rely on people and businesses making a declaration and quoting accurate records. We are proposing exactly that here, to take the onus from small businesses having to go to court to try to sue their big business customers. [ Interruption. ] The hon. Lady shakes her head, but I can only assume that she has not read the proposed new clause. It would mean that small businesses had nothing to do with reporting; it would be up to any big business with over 250 employees to provide a declaration of late payments and confirm that it had paid interest in line with the EU late payment directive.

Anne Marie Morris (Conservative, Newton Abbot)

If the business does not comply, whose responsibility is it to ensure that there is compliance? Surely it is only the small business that can raise its hand, which involves time and money and damages relationships.

Toby Perkins (Labour, Chesterfield)

The point is that a quarterly report goes to Her Majesty’s Revenue and Customs. The hon. Lady is slightly ahead of me, but I will take up the challenge. There is a quarterly report to HMRC, in which a big business says, in the same way that it signs off VAT records, “The following payments are the only ones made more than 30 days late and we confirm that we have paid interest in line with the terms and conditions of the legislation, which is 8% APR above the Bank base rate”. It is up to the financial director of the big business to make a proper claim. In the same way that a business might lie on its VAT return or on anything else, it could be discovered in the future that a business had made a false report because of a report to that business. That report might come from a number of different sources; it might come from a business that had fallen out with the supplier or from a disgruntled former employee, who said, “This is actually the payment record of the company”. There might be a number of different sources. However, the central principle that businesses have to sign something to say, “This is a true and accurate record”, underpins much of the way our economic system works. I do not see why it is so confusing in this case.

Andy McDonald (Labour, Middlesbrough)

Does my hon. Friend conclude that his proposal achieves the cultural shift that lots of Members have been talking about? This changes the scene entirely but protects the business that has to interface with those who owe it money directly. Is that not the cultural change we all want to see?

Toby Perkins (Labour, Chesterfield)

Precisely. I am well aware that culture does not change overnight. We do not simply change the law and instantly, the culture changes. Having a measure that takes the onus off small businesses always having to report, and which places it on the supplier, is the most significant contribution anyone has made to the late payment debate. In itself, that is an incredibly powerful principle. Despite the extent of the problem, as we have already heard powerfully from the hon. Members for Plymouth, Sutton and Devonport and for Newton Abbot, small businesses are often reluctant to report late payments as they rely on the custom of large businesses for their very existence.

Even though legislation such as the EU late payment directive and the Late Payment of Commercial Debts (Interest) Act 1988 has already been introduced, just 10% of businesses have even considered using such legislation, for precisely the reason that was powerfully described earlier. Some 22% of businesses say that they have ended a business relationship because of late payment. These were customers that they had already won and were able to supply goods to but they turned the business relationship away because of continued late payment.

Previous policy initiatives have focused on increasing prompt payment from public sector bodies to contractors. That is welcome, and I am more than happy to support any efforts the Government make to draw attention to that issue. The major focus needs to be on large private sector firms, which are at the heart of the problem: 77% of members of the Federation of Small Businesses report that the private sector is the main culprit in late payment. The challenge now for all of us is to shift the burden away from small businesses going out on a limb to ask for interest payments to be paid to them as a matter of routine.

Unfortunately, the clause as it stands does not even begin to tackle this fundamental question. Taken together, amendments 34, 35, 36 and 37 address it by shifting the burden away from the victims and on to the perpetrators. At present, clause 3 only creates a duty for companies to publish their payment policies. Amendment 34 would strengthen the clause so that companies can be judged on not just their policy but their performance in practice. That is a significant change in itself. We stop saying, “What is your policy?” and start saying, “What is your performance?”

Amendment 35 defines the performance against which companies will be judged, in much the same way as VAT reporting by large companies. The exact composition is to be defined by the category set by the Secretary of State, but I suggest we begin with the FTSE 350. Companies must produce a quarterly statement that lists all payments to suppliers which have been paid more than 30 days after the supplier’s agreed payment terms without a formal query having been made. We must recognise that there will always be situations where a business makes a purchase from one of its suppliers and then has a query about the goods. It may be that a short number were delivered. The goods might have been faulty or not entirely as it had ordered. So businesses will still retain the right to say, “No, I am not paying this because I don’t believe it was correct.”

Our amendments specify the length of time that businesses have to raise that query. If a formal query has not been made, they would list all payments than have been paid more than 30 days late. The amendment also confirms that in all those instances, interest equalling the Bank of England base rate plus 8% APR has been paid to compensate the supplier. Where that interest has not yet been paid, it sets out a payment plan to ensure that compensation is promptly paid.

To ensure those provisions are followed, we need to give the legislation some teeth. Unlike the Government, we are not in the business of having a small business miss out and the Government get the money, as we saw with the breaches of zero-hours legislation. There would not be any fine for late payment. However, amendment 36 would establish that the financial reporting officer would be liable for false reporting, in the same way as when signing off VAT returns. If there were false reporting, the business could be liable to a fine equivalent to no more than the amount they owed—the overall value of the invoice—and up to a maximum of £10,000 for false reporting.

Amendment 37 would make sure that the payment plans set out under amendment 35 are strictly adhered to by ensuring that all companies that should comply do so. Again, failure to complete a quarterly return would be subject to a fine upon conviction. Taken as a package, the amendments would provide a once-in-a-lifetime opportunity to change not just the payment culture—important though that is, as we heard from many sources—but the reality for small businesses facing this difficult issue.

I hope and expect that no business would be fined under the provisions of amendments 36 and 37. When suitably amended, the clause would remove the incentive for businesses to pay late. The hon. and learned Member for Harborough (Sir Edward Garnier) asked why late payment happens. It happens because businesses are attempting to save interest and think they are better off not paying than paying. However, once interest is attached and people do not have to pursue businesses for it, but rather, businesses have to declare that they have paid, the incentive to pay late is removed. That is what is so powerful about the amendment, which would put the principles of the late payment directive on to a statutory footing.

Mark Garnier (Conservative, Wyre Forest)

The hon. Gentleman has confused me with my cousin, my hon. and learned Friend the Member for Harborough. I am the Member for Wyre Forest.

Toby Perkins (Labour, Chesterfield)

I am grateful to the hon. Gentleman for correcting the record; I like to get these things right. When I looked at the composition of the Committee, I noted a distinct west country focus among Conservative Members. I was conscious that they all seemed to be from Devon, Cornwall and other western areas, and that was possibly where my confusion arose. With that rather feeble excuse, I apologise, and I am glad the hon. Gentleman has had the opportunity to put the record straight.

Taken as a package the amendments present an opportunity to change not just the payment culture but the entire landscape for businesses that sit and wait for money they are owed. As I said, I hope that no businesses are fined under the provisions proposed in amendments 36 and 37. The clause is not about trying to create a bureaucracy for HMRC. It is not about trying to create a situation where the Government can bring in a lot of money in fines. It is about removing the incentive to businesses to pay late. That would be a really important step. A mandatory requirement to complete the form would bring the issue of late payment to light in a way that all previous Government measures have failed to do.

This exciting plan has won support from across the business community. I particularly want to express my admiration for the work done by the Forum of Private Business, which has been at the forefront of making the case on late payment. Phil Orford, the chief executive, said that these amendments would be a welcome addition to the Bill and would go a long way to reducing the time and money small firms spend on chasing late payments, allowing them to concentrate on growing their businesses and creating jobs. Could there be a more powerful endorsement? The Forum of Private Business makes the case that they would allow businesses to get back to what they want to do, rather than spending all day on the phone chasing up money that is their rightfully theirs.

I hope that we will unite Members on both sides of the House to recognise that late payment is an issue of basic fairness, and that action is essential to create a level playing field for businesses. However, if Ministers choose to ignore this problem once again, small businesses can be assured that a future Labour Government will take the action that they so desperately need. Amendments 34 to 37 would strengthen the Bill’s language and ensure that the Secretary of State had no way to wriggle out of his or her commitments to regulate in this area. Likewise, amendment 52 would

“require companies to include details of the circumstances and process…by which payment terms can be amended”,

as well as including details on whose permission is required. That would prevent individual directors from making rash, unilateral or ad hoc changes to a company’s payment practices. It would take us away from a situation where a business, having entered into a long-term relationship and having often made significant investment on the basis of that relationship, suddenly finds itself forced into a position where the payment terms are unilaterally changed in a way that they did not expect was possible.

Amendments 53 to 56, proposed by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), are minor technical changes which would simply strengthen the Bill’s language and empower the Minister to take action in this important area.

I urge the Government to support new clause 5, which is in the spirit of amendments 34 and 37. It would strengthen the Secretary of State’s hand by providing them with further powers to make new regulations when it comes to dealing with persistent late payers. As described in subsection (1)(a), the new clause would impose

“a limit on the number of days after receipt of a supplier’s invoice a company can seek to challenge that invoice”.

The provision would ensure that businesses using last-minute queries as an excuse for not paying would have a limit on the number of days after the receipt of a supplier’s invoice in which they could challenge that invoice. We have a ludicrous situation where businesses can make complaints about comestibles that are already out of date by the time the query comes in about that invoice. For example, a company might receive their delivery of pears or apples from their fruit supplier; when their customers have eaten them, the company might then raise a query about whether those products, now eaten, were delivered suitably. This measure would limit businesses’ ability to use queries as a backhanded way of questioning what they have received.

Subsection (3) of the new clause provides:

“The regulations may specify the size of company and supplier company to which they will apply.”

That would prevent companies from getting around regulations by dragging out the time to pay with spurious challenges and queries.

As described in subsection (1)(b), the regulations would allow the Secretary of State to prohibit

“the practice of a company seeking to change the payment terms of a supplier company unilaterally”.

Such practices of retrospective discounting, where large customers find ways to pay their suppliers less than they are entitled to after contracts have been signed, have proved difficult to stamp out. We have seen situations where businesses suddenly approach suppliers that they have been dealing with over a long period of time to say, “We want a retrospective discount for all the business we gave you in the past, to pay for some new computer system or point-of-sale system.” That uses the unfair imbalance in that relationship which the Federation of Small Businesses spoke about last Tuesday in our evidence session. For example, there is a significant issue in the supermarket sector, with allegations being made of businesses introducing retrospective discount provisions on their suppliers in a way that flies in the face of all reasonable fairness.

Thirdly, subsection (1)(b) says that regulations may prohibit a company from requiring a supply company to make a payment in order to join that company’s list of suppliers, combating another example of blue tape. We have had examples of companies coming to see us when they have been charged to get on a supplier list. They are paying out money before they have even got any business in, simply to get on the supplier list. These are not basic business practices that people with any sense of fairness would recognise. They are not only very unfair to small business suppliers, but unfair to all the businesses that are competing with that business that do not have those restrictive clauses in place, and are able to coin in money in an unfair way. The result is a situation where businesses practices work against the interests of those who work hard and play by the rules and in favour of the interests of businesses that are introducing such restrictive clauses.

To back up the new regulations, subsection (2) sets out a power to create an enforcement regime for breaching any requirement or prohibition set out in the regulations. It creates a power for the imposition of a criminal sanction. Subsection (4) requires the Secretary of State to undertake further consultation before the regulations are made to ensure that the regulations are developed carefully and to take account of the needs of small businesses. Finally, subsection (5) ensures that a draft of the regulations must be approved by both Houses of Parliament before the regulations can be made.

We can either continue with a variant of business as usual or take an opportunity that, I think, has never been presented to the House before, to take action on one of the key issues facing businesses—one of the key blue tape challenges—that small businesses say is preventing their growth, their investment in new plant and machinery, and their opportunity to open new markets and to recruit new staff. We have the opportunity, in supporting amendments 34 to 37, to take action and, once and for all, to take a giant step towards ending the practice of unfair late payments. I commend the amendment to the House.

Bill Esterson (Labour, Sefton Central)

I commend my hon. Friend for his excellent and detailed speech and for the range of issues that he covered. He mentioned several reasons why the amendments are such an important addition to the Government’s proposals. He pointed out that, when it comes to VAT and corporation tax, we would not dream of not making sure that it was collected or that the Government received the money due to them. I thought for a moment he was going to say that if the Government deserve their money, so does every business that enters into a contract with other businesses. Perhaps I have said it for him and I am glad that I have had the opportunity to do so. That is the logical conclusion, and one would have thought that the Conservative Party, which has always said it is the party of business, would support such an initiative and not leave it to the Labour Party, which, as my hon. Friend said, seems to have become the party of small businesses, because the Conservatives have abandoned that mantle. I am waiting for Government Members to respond, but they have not yet taken the bait.

This is an incredibly important issue. I had a very interesting and informative meeting with ACE, small business owners, in my constituency on Friday ahead of this Bill. They confirmed much of what we heard from the Federation of Small Businesses and the other witnesses who gave evidence last week. I am sorry that I was unable to stay for those sittings but I have read the transcripts, which provide valuable background to the discussion and to how important the issue of late payments is for many businesses, especially small businesses. The provision is partly about creating a level playing field between different shapes and sizes of business to ensure that there is fairness within markets, not just dominance and abuse of power, which, sadly, can take place. The issue of late payments is an example of that.

My hon. Friend mentioned that part of the rationale for the amendments was to remove the incentive to pay late; but they would also introduce an incentive to pay early. That is why more is needed than voluntary action and the limited, although welcome, steps that the Government are proposing. I heard from businesses in my constituency that because the payment code is voluntary, it is just not working for them. That was reflected in the evidence given last week.

Toby Perkins (Labour, Chesterfield)

My hon. Friend has done a tremendous amount of work in communicating with businesses in his constituency. He makes an incredibly powerful point about the need for something that empowers them but does not require them to sully their relationships with their big businesses. Does he agree that those small businesses would very much welcome the Government’s taking action, rather than always expecting them to do it?

Bill Esterson (Labour, Sefton Central)

That is why the amendments tabled by my hon. Friend are so crucial and add so much value. I will describe some things that were said to me by the businesses in my constituency shortly. As if anybody here needs reminding, and I am not sure that they will, the importance of small businesses—the potential for growth, jobs, prosperity and raised living standards—is immense. Figures that I got from the Library earlier this year suggested that 4.7 million businesses employ fewer than 10 people. Small business owners are no exception when it comes to the impact of falling living standards. We should take every opportunity to maximise the chance to help those small business owners and their staff.

Small businesses’ reluctance to challenge larger businesses, which my hon. Friend mentioned, is a problem that was raised with me. Small businesses feel that, in an uneven relationship, they have little choice, particularly when they depend on one larger customer for the bulk of their trade. The reluctance to challenge late payment is a crucial point and a big problem. Small businesses cannot necessarily go elsewhere for their business and are stuck with that relationship; a number of my constituents made that point to me on Friday. The loss of that contract would have devastating results and that is why they put up with 60, 90, or 120 days—a point made in the written evidence that we received from the Federation of Small Businesses.

My question to the Government is: why not require publication of payment records on a quarterly basis, as put forward by my hon. Friend and his colleagues? Why not have a system in which there have to be details of—without going into customer details—exactly what is happening and whether there are invoices that are 60, 90 or 120 days old, even if the average is very much lower?

Andy McDonald (Labour, Middlesbrough)

Does my hon. Friend know the extent to which this issue affects people who have become self-employed and have set up small businesses? The number of people becoming self-employed has grown, but sadly their income has been considerably eroded. Has my hon. Friend given any thought to whether that is in part due to their being affected by the culture of late payment?

Bill Esterson (Labour, Sefton Central)

I am sure that is true. Many self-employed people who have registered as a business have exactly the same problem. This issue affects businesses of all sizes, but it can potentially do more damage to smaller businesses and it has a huge effect on sole traders. My hon. Friend makes a good point.

Small businesses want a level playing field. This issue was described to me as a culture. Some larger businesses have a culture of delaying payments and using the money they owe as part of their cash flow. They may instruct their accounts department to find reasons to delay payment until the last day possible. I ran a small business for 15 years, and we used to come across that sort of practice. On the last day on which the invoice was due, I might phone up the company or we might get a phone call—whichever way round it was—and somebody would say, “Oh, what’s this item on the invoice?” We would have to re-do the whole invoice because of a small amount out of a much larger invoice, and it would be delayed. That common problem can cause huge delays. I am not surprised that my hon. Friend the Member for Chesterfield said that 10% of a business owner’s time is spent chasing late payments.

Toby Perkins (Labour, Chesterfield)

My hon. Friend is making an important point. A small construction business in my constituency that was taken into insolvency claimed that after it became involved in a major contract, the company for which it was a contractor continually came up with spurious criticism of its work. I do not want to judge which company was right, but the second company’s refusal to pay over things it said were not delivered ultimately led to the first company going bust and other companies in a similar position being taken right to the wire. This important issue will not be entirely covered by our proposals or the Bill, but it is a significant part of the late-payment debate.

Bill Esterson (Labour, Sefton Central)

My hon. Friend makes his point extremely well.

The other experience I had, and which other businesses have told me about, is of companies losing invoices. When a reminder is sent to them, they say, “We need a copy of the invoice,” but it could be 30 or 60 days after the original was sent—it could have been sent by e-mail. A number of Members accept that that problem is rife and needs to be addressed.

This is a crucial issue, but how far should we go in legislation? It is clear that voluntary codes can be and are ignored, and that there must be greater support for businesses that take action. What is needed, if not a voluntary code? I accept the point, which has been well made, that expecting small businesses to challenge larger businesses is hugely problematic. The amendment is so powerful because the requirement for publication would support small businesses without their having to take action themselves.

Andy McDonald (Labour, Middlesbrough)

Would my hon. Friend also accept that one of the benefits of this imaginative proposal is that businesses would be able to plan much more effectively if they knew they could rely on a regime that secured greater confidence in prompt payment? If businesses can project their incomes forward with the support of this sort of regulation, that surely gives them a better environment in which to work and to plan for the future.

Bill Esterson (Labour, Sefton Central)

Absolutely. That element of security and certainty is crucial for businesses to plan. This is certainly the case in my experience. Businesses need to know that they have a reliable relationship. Businesses ideally want to choose who to contract with, but if they cannot rely on being paid it makes that very difficult. The hon. Gentleman is absolutely right that this is one of the reasons why the amendment will help. There are opportunities here.

I understand why the phrase “naming and shaming” has been used, but this is also about encouraging good business practice. My view is that we should have a number of different ways of encouraging and praising businesses, and making sure that good practice is the preferred way of operating. I would like to see registers for a number of things; living wage employers is another example that springs readily to mind. We certainly have an opportunity to inform the public which businesses are observing good practice and paying promptly, by using information that could be collected and published through a combination of what the Government are proposing and the amendment tabled by my hon. Friend the Member for Chesterfield. That would give customers an opportunity to choose which businesses to support. We should take every advantage of this opportunity to help customers support good business practices and support those companies that act in an ethical way. That is certainly the case in the retail sector and, in my view, also in business-to-business sectors.

Toby Perkins (Labour, Chesterfield)

I absolutely endorse what my hon. Friend says. The Committee heard some very powerful evidence about businesses wanting to see positive business practices being praised, and the focus not always being only on those which have done wrong. That is one of the really powerful things which this measure does. I encourage the Department for Business, Innovation and Skills to publish online a list of every business with zero late-payment return. Let’s publicise those businesses that are paying their suppliers on time. Let’s get everyone to get behind good businesses, so that we all know that we support businesses that play fair by their suppliers.

Bill Esterson (Labour, Sefton Central)

I thank my hon. Friend for his intervention. To finish, we have from the Government the duty to publish a report on payment practices, but the amendment is important because it is not only about businesses’ practices; it is about whether they are applying those principles. It is not enough for businesses to say that they have a policy on something; what matters is what they do with that policy. That is why these amendments are so important. We need to make sure that businesses not only say that they will do something, but actually do it. We, the public and other businesses must be able to see that they do it, and there must be action which can be taken without putting at risk the nature of the relationship between the customer and the supplier. We can make sure that action is taken when needed. We can improve that relationship and improve the balance between large and small companies, and make sure that there is a level playing field to support all businesses.

Matthew Hancock (Conservative, West Suffolk)

I am grateful for the opportunity to debate the amendments and this very important part of the Bill. This Government are taking action to tackle late payment. As the Opposition have said, not enough has previously been done on this issue. The introduction of the prompt payment code was a step forward, but clearly it has not been enough. That is why we are taking action through the Bill. Like me, the hon. Gentleman has personally been subject to late payment. For me this issue is incredibly important and, as we heard in the evidence session last week, it is a pressing matter for businesses across the UK. The £39 billion of late payment is a big issue that we are planning to tackle. I will address some of the points that were raised in the rather long debate and then go through the amendments in turn.

On the issue of naming and shaming, we are introducing the ability to have naming and shaming by introducing transparency—full stop—in both the positive and the negative procedures. The long discussion on that seemed to be slightly without regard to the provisions in the Bill. The provisions in the Bill allow for that to happen. That is the first point.

Toby Perkins (Labour, Chesterfield)

The Minister will be aware that there was an article in The Times shortly after he became Minister, which said that he would not be going down the route of naming and shaming signatories to the prompt payment code. Is the Minister now saying that he has U-turned on his U-turn, and that he is going back to naming and shaming?

Matthew Hancock (Conservative, West Suffolk)

No. What I am saying is that, as happens if what the hon. Gentleman proposes is true, is that you carry on going in the same direction, and that is exactly what I am doing. It is bringing transparency to this area.

The hon. Gentleman explained at length why average payment reporting was not sufficient. I agree strongly with him, and I agree with almost all the comments made by the hon. Member for Sefton Central. It is very important that we get payment reporting right. That is why clause 3(4) sets out the ways in which reporting can be done in a broad way, but we shall be consulting before the end of the year on the details of how that will be implemented. That will no doubt take into account all the comments that have been made from both sides of the Committee.

I agree strongly with the comments by my hon. Friend the Member for Plymouth, Sutton and Devonport. Those comments were seized on in an odd way, given that they reinforced the importance of the Bill. We have, after all, never had this type of small business Bill before. I am glad to say that the consultation document will be published before the end of the year, and clause 3 provides for different ways of describing the payment terms as requested.

Andy McDonald (Labour, Middlesbrough)

I am grateful to the Minister for giving way. What is his perception of the history of naming and shaming, given that we have a £39 billion problem? How effective has it been in years past? There have been endless publications about major companies that have a poor record in this regard, but that has not resolved the problem. Why then is there such resistance to the proposal that we are making today?

Matthew Hancock (Conservative, West Suffolk)

There is not resistance to increasing transparency. That is what this Bill does, and that is the point. I strongly agree with the hon. Gentleman that hitherto the transparency has not been adequate. That is why we brought in the Bill. That is why, as Minister for small business, and now as Minister for business and enterprise, I have driven this part of the Bill through to make sure that it happens, because I feel so strongly about it. That is why we are increasing the transparency.

On the EU directive, we think it is based on UK best practice and we are implementing it, so I do not quite know what that point was about. On public procurement, it is true that such procurement is not now a major part of late payment, partly because of the action that has been taken, but improvement of payment practices in public procurement does still have a role to play.

Amendment 34 requires companies to report on their actual payment performance and not just to publish boiler plate disclosures. Amendment 36 establishes specific accountability in terms of criminal liability for false reporting. As I said, the consultation will be published in order to make sure that we get the details right. There is no doubt that the terms of the clause have sufficient latitude to deal with the points that have been raised.

Amendments 35 and 37 would require a company to prepare a payment plan to compensate suppliers that have had payment delayed by more than 30 days. The company would be subject to an appropriate fine for non-compliance and would have to report publicly on compliance.

The discussion paper that we published last year contained a proposal for sliding scales of penalty payments that increase as the payment becomes more overdue, but many respondents said that introducing further penalties was unlikely to tackle the underlying causes of late payment. This comes back to the point that my hon. Friends the Members for Plymouth, Sutton and Devonport and for Newton Abbot mentioned: it is difficult to get small companies to complain about the people who are often their major customer. We consulted on this idea and the consultation responses were not supportive.

Sheila Gilmore (Labour, Edinburgh East)

If it is difficult to get small businesses to complain, surely that is an argument for having a system in place where late payment generates a financial cost to the late payer.

Matthew Hancock (Conservative, West Suffolk)

The problem is the unintended consequence of larger companies perhaps extending their payment terms so that they were not late on their payment. We therefore do not think that a tier of penalties would help. It could have the unintended consequence of lengthening payment terms across the board so that companies did not fall foul of the penalty.

Toby Perkins (Labour, Chesterfield)

If what the Minister was saying was true, the EU late payment directive may have already had that effect. If the fact that people can charge interest means that people will extend their payment terms, that would already have happened. The central point that he does not seem to get is that the issue is not anything like what he consulted on, because he is talking about small businesses having to make a complaint. The point of our process is that small businesses will not have to make a complaint. The big business will have to make a declaration as to whether it has paid late. It would not be up to the small business to make a complaint. That is what is so powerful about it.

Matthew Hancock (Conservative, West Suffolk)

The big businesses will have to make that public, anyway, under the transparency measures in the Bill, so that is already happening.

Amendments 53 to 56 would place an obligation on the Secretary of State to make regulations to introduce a prompt payment reporting requirement. We fully intend to do that, so I can confirm that we will consult on a robust and proportionate reporting requirement. Although I understand the spirit of the amendments, that requirement is already going to be in place.

Finally, amendment 52 and new clause 5 raise the important issue of retrospective and unilateral changes to payment terms. As has been discussed, this is not about late agreed terms—long agreed terms—but about late payment against whatever terms were agreed. I strongly agree that it is poor payment practice to subject suppliers to blanket, universal and retrospective changes to payment terms. The code already contains prohibitions against such practices, and we hope that greater transparency will increase accountability for such practices. So, as part of the consultation, we are looking at whether to include a disclosure of blanket retrospective changes to standard payment terms in the reporting requirement. On amendment 52, I hope that hon. Members are assured that the clause as it stands has the latitude to do that, and we will consult on it and make sure that we publish that consultation before the end of the year.

However, the full regulation proposed under new clause 5 poses some difficulties. First, businesses that change their payment terms retrospectively will already word any changes carefully so that they are not legally construed as unilateral. A business would not volunteer that a change to payment terms was unilateral. There was a discussion about the querying of invoices, for instance. Under the proposed new clause, a business could legally go about this in such a way that it is not deemed unilateral, but it then finds an excuse to pay later than under the contract.

Ian Murray (Labour, Edinburgh South)

This is a genuine query to look at Government policy across the board. Is it not the case that if it was a supermarket firm supplier, payment terms being changed as in the example you gave would fall under the Groceries Code Adjudicator and be up for potential complaint? I am trying to get a handle on this. On the one hand the Minister is saying that, in this sense, proposed new clause 5 should not be enacted, but, on the other, there can be a complaint to the Groceries Code Adjudicator.

Matthew Hancock (Conservative, West Suffolk)

The hon. Gentleman is absolutely right. The Groceries Supply Code applies and has been brought in in some sectors. However, it is even better than that. It is already possible to take a company to court for breach of contract if there is a unilateral change to the contract and if that brings damages. The proposed new clause is already the case in contract law. The difficulty—as has been part of the discussion all along—is getting small companies to take their large customers to court. That would not be changed by this new clause, so I do not think that it would add anything. However, it is very important that companies are open with their suppliers about payment practices and policy.

Bill Esterson (Labour, Sefton Central)

I am listening carefully to the Minister, but I cannot understand how he is proposing that this ensures that small businesses do not have to challenge a larger customer or complain about it and risk that relationship. I am not hearing from him how that is going to work and what will be different about it after the proposed amendments.

Matthew Hancock (Conservative, West Suffolk)

It is because we are bringing about transparency over payment practices and therefore that information on the length of payment time will be published. Precisely how that transparency happens and what information is published is very important and we look to get the details of that right. I take entirely the point that a simple, single-figure average payment term would not be enough. None the less, it does the job that he asked for in that case.

Andy McDonald (Labour, Middlesbrough)

Is the Minister ruling out the possibility of that declaration and that reporting including a provision to say whether interest has been paid to those customers who suffered late payment?

Matthew Hancock (Conservative, West Suffolk)

No, far from it. Indeed, proposed clause 3(4) allows for that. I am happy to consult on whether the prompt payment reporting requirement should include disclosure of whether a business requires a supplier to pay to be on its supplier list as well. The point about interest can be included and we are going to go out for consultation shortly on exactly how that happens.

Toby Perkins (Labour, Chesterfield)

The Minister is referring to clause 3(4)(f), which is,

“about payments incurred by the company due to late payment of invoices”.

If the company does not pay any interest to its suppliers, and if it has suppliers—as the hon. Member for Plymouth, Sutton and Devonport suggested—who do not feel able to bring it up, it would be able to declare that it never paid any interest. It would look as though the company had done fantastically. Surely that is not in any way supporting small businesses. It may provide transparency about whether a company has ever paid interest, but it does not actually support small businesses in getting that interest.

Matthew Hancock (Conservative, West Suffolk)

No, because the interaction of (4)(b):

“payment terms…which are not standard”

—which means payment terms that are not standard, including payments that are late—together with other parts of paragraph (4) allows us to bring forward powers to deal with that point. We think that the scope of paragraph (4) within clause 3 is broad enough to deal with that point of transparency.

I hope that hon. Members are reassured by that response. It is very clear that on the Government’s side we share a strong ambition to tackle the late payment culture. I am glad to hear that the Opposition has a similar ambition. The substance of those amendments that are practical can be dealt with within the clause.

Ian Murray (Labour, Edinburgh South)

I am slightly confused. The Minister seems to be suggesting that he accepts some of the amendments. Therefore, I find it strange that he will not support them, in the spirit of comradeship across the Committee.

Matthew Hancock (Conservative, West Suffolk)

No; my point is that I accept the spirit of some and they can be dealt with within draft clauses as set out in the Bill. Where there is agreement on the goal—for instance, on having a robust and clear reporting requirement—that is already provided for in the Bill. There is no need to amend the Bill to provide for something that is already in the Bill. That is why much of the debate today has been about why the Bill is so important and why it is important to get the details right, rather than whether we should put into the Bill that which the Bill already does. Because we are tackling late payment, and because the Bill takes forward the changes necessary to increase transparency, I have confidence that we are dealing with the issues that were raised about naming and shaming and around transparency and the reporting of late payment. We can take this debate away and make sure that it is implemented as part of the statutory instruments that will give effect to clause 3 of the Bill. Therefore, on this basis, I hope that the Opposition will withdraw these amendments.

Toby Perkins (Labour, Chesterfield)

Given the debate and discussion over what is a really exciting potential provision that would enable this Committee to remove the onus that has dogged small businesses for many years in that they have to go to their very powerful, big business customer and say, “please, Mr Customer, you promised you would pay me in 30 days, it is now 90 and I have not got any payment, will you pay me some interest?”, and given all the reasons that were powerfully listed by Conservative Members, I am surprised that when we have an opportunity to put the onus on to the big business customers, the Minister would, first, try to claim that the provision already exists in the original clause, when it clearly does not, and secondly provide so little detail as to why he thinks it is actually not a good idea.

Organisations such as the Forum of Private Business, which said that the amendments were a welcome addition to the proposals outlined in the Bill and would go a long way to reducing the time and cost small firms spend on chasing late payments and allow them to concentrate on growing their businesses and creating jobs, will listen to that reply and think it is a pretty inadequate response to our amendments. It was a quick flick through, “there might be a few unintended consequences”, and that is your lot. People expect better than that, frankly, as a response by a Minister to a debate about an incredibly serious issue.

There will be little change. I listened to the Minister’s comments; he spoke as though the situation in the past was terrible and now, with his very minor clause, it is all going to be sorted out. It brought to mind someone who booked to go on the cruise of a lifetime and arrived to discover that their cabin did not have any wall and their bed was left out on the side, with water was pouring in over the side of the boat. They were expecting to have a nice time, water was crashing down on them, they complained about it and someone from the boat company said, “Have a hat, maybe that will make it better”.

It is so inadequate to think that the situation we had before was terrible and now, with this minor clause, it is all going to be resolved.

Matthew Hancock (Conservative, West Suffolk)

Since the hon. Gentleman is making quite a meal of this, perhaps he can tell me, given that we consulted broadly on the options available and followed the consultation responses, why did the Labour Party not even bother to put in a response, if they care so much?

Toby Perkins (Labour, Chesterfield)

There is an aah. The truth of the matter is that we have put forward a very detailed series of amendments that would make a significant step forward. We have done a tremendous amount of work since Second Reading. We have met with at least 10 different organisations to work through the amendments, which are changing daily, as people have made other suggestions. It was right that we made sure that the amendments were correct, that we saw what the Government were proposing, and tried to improve it.

Ian Murray (Labour, Edinburgh South)

I thank my hon. Friend for steering this ship in such a tremendous fashion this morning. The Minister intervened to ask about the consultation, but sometimes, when you examine the principles of legislation in a bit more detail, you do change your mind. The FSB changed its mind. The Minister referred in Committee last Tuesday to the FSB’s response to the code and Mike Cherry responded that we did not have accurate facts then. We now do and we have therefore changed our mind on the process. It is not necessarily just about what people have said in the consultation process, because, when you have the legislation in front of you, you can formulate a different approach.

Toby Perkins (Labour, Chesterfield)

Absolutely. I think someone once said, “When the evidence changed, I changed my mind.” That is an important contribution. The Federation of Small Businesses said that, over the course of time from the initial consultation, it had a sense that things had got worse, and it decided to change its view on what was required.

It is also true to say that the ideas that we are proposing here were not part of his initial consultation. It is a new approach and for that reason has won support from across the business community. It is genuinely innovative and tackles some of the challenges that have prevented small businesses taking action in the past and enabled them to take action in the future. On the subject of changing your mind when the evidence changes, you would have thought that someone who U-turned on a U-turn would have understood that.

Andy McDonald (Labour, Middlesbrough)

Would my hon. Friend agree that the FSB would more than likely be scratching its head as to why this eminently sensible proposal, a provision with teeth, is not being wholeheartedly embraced by the party opposite?

Toby Perkins (Labour, Chesterfield)

I absolutely do. I think there will be a tremendous amount of disappointment, not just because it appears that there is not going to be support for this proposal, but that it has been dismissed with such feeble evidence as to why it was a bad idea. We are discussing 10 or 11 amendments, four of which are substantive, significant changes. They are attempting to take action in a new way on a long-standing problem that previous measures have failed to address. At the very least, this Committee would have expected that the Minister would have come with a substantial body of evidence as to why it was not a good idea. We are lucky he got here at all.

Ian Murray (Labour, Edinburgh South)

I am grateful to my hon. Friend because the Minister did not respond to amendment 35, which is the critical one. In my experience previously, when I have been waiting for an invoice to be paid, and I have levied 8%, it started the process of the invoice again. It has therefore sometimes been a disincentive to pursue some kind of compensatory element, because the company involved said, “It may be 90 days, but if you add another element to the invoice, we will have to start the process of payment again and you could be looking at almost 180 days.” It is therefore very important that companies can report on what they have done, so that we can analyse whether they have achieved what the legislation says.

Toby Perkins (Labour, Chesterfield)

That is a really significant point. The truth is that there is a variety of reasons why measures that have been put in place with the best of intentions by the previous and the current Government have not given small businesses a solution to the problem that the hon. Member for Plymouth, Sutton and Devonport so powerfully spoke about. I sense that he slightly regrets raising the point but it was important, not only in the evidence session, but today. As long as the onus lies on the small business to pursue their big business customer, it is not going to work. That is an important point.

The Minister agreed with his hon. Friend in that small businesses often feel that it will spoil their relationship with big business customers if they have to approach them to say that they want interest on late payments. The relationship is not even. The Minister says, lightly, that small businesses can take companies to court; that does not bear any relationship to the reality—the difference in the resource and the power in the relationship between small and big businesses on the subject of late payments, changing terms and conditions, changing payment terms, introducing retrospective discounts, or any other. The idea that small businesses can just lightly toss a law suit in the direction of one of the major supermarket players and expect it to be taken seriously is, frankly, ludicrous.

Andy McDonald (Labour, Middlesbrough)

Yesterday we had a lot of debate about the heroism Bill, as I call it. It was about sending messages out to people. In this place, we should not be in the business of sending messages out, but if we do, they should go out with teeth. Is this not the provision that says that there are consequences for people who do not pay for goods and services on time, and says to small businesses, “We are on your side.”?

Toby Perkins (Labour, Chesterfield)

That is precisely the message that I want them to hear from the amendments that we have proposed, and from the Labour party when, in the event of the amendments being voted against, we pursue them in the future. That is incredibly important. It would be a shame if the Committee does not send that message because small businesses that have experienced the problem, former small business owners who have seen their businesses go bust, and staff who have lost their jobs as a result of late payment will look at the response to the amendments with a pretty mirthless smile; they will consider that is pretty inadequate.

The Minister said that he agreed with the point made by the hon. Member for Plymouth, Sutton and Devonport that it is difficult for small businesses to act and that is what is wrong with our amendment. That is absolute nonsense; our amendment precisely prevents small businesses from having to pursue, and puts the onus squarely at the foot of the business that has paid. Once a quarter, the business—initially any businesses with more than 250 employees, although we might choose to start at FTSE 350 level as a pilot, which is perfectly sensible—would go on to its accounting software and press a button that would tell it all the late payments that it had and produce a report. If any payments are more than 30 days later than the supplier’s terms and conditions, the business would list them, confirm how much interest is owed, quickly fill out a form detailing those late payments and, more importantly than anything else, ensure that it did not happen again. The business would say, “Next time we are not going to fill out a report that confirms that we have to send interest to our suppliers because we didn’t pay on time. Next time we’re going to pay them on time.”. That is all we want to happen. We do not want to create a giant bureaucracy or businesses to have long reports sent back showing that they have not paid people on time. We want people to receive their money when it is due; anyone should be able to get their head around that fairly simple principle and support it. Businesses and business groups that have supported this will look askance at the Committee if we choose to vote against the amendments and if we say, “Things used to be difficult in the past, but we now have clause 4—clause 3.” There was a clause IV in the past which was far more significant.

Mel Stride (Conservative, Central Devon)

It is all politics.

Toby Perkins (Labour, Chesterfield)

The hon. Gentleman might very well say that.

Bill Esterson (Labour, Sefton Central)

I assume that my hon. Friend made that reference for the many, not the few. That is the point of his amendments, which are for many businesses, not just the few at the top.

Toby Perkins (Labour, Chesterfield)

That was nicely put by my hon. Friend with his customary elegance. If businesses watch this debate and see the Minister saying, “It was not working in the past but, now that we have clause 3, it will all be okay and businesses will be empowered,” I think they will take a pretty dim view of that. The idea that small businesses will just get in touch with their legal team and ask them to take big companies to court fails to understand the reality for many of our small businesses.

Andy McDonald (Labour, Middlesbrough)

On the whole issue of litigation, is it not a defeat and an absolute condemnation of the whole process if someone is driven to take that step? It will be even further into the future when small businesses find out whether they will get their hands on their money. Saying that people can always take companies to court—we have outlined the difficulties that facing up to a bigger player brings—just kicks it into the long grass. Litigation will make the problem worse if it is the only route available to someone with an unpaid debt.

Toby Perkins (Labour, Chesterfield)

My hon. Friend is entirely right. The truth of the matter is that the Government have done this in a variety of ways. For example, the barbaric reduction of legal aid available has seen huge reductions in the number of people able to seek justice after being wronged in the workplace or elsewhere. While cutting back on the legal aid available to the poorest, the Government are saying to small businesses, “Go on. Get yourself off to court and take on major supermarket chains which have more lawyers than you have employees.” That approach says, “You need to seek litigation because we, as a governing party, are too weak to do so in our legislation,” and that is a pretty damning indictment.

We heard this in debates on the Deregulation Bill, when the Government kept saying, “If they don’t like it, they can go to court.” It was as though they were trying to push lots of these relationships to be settled in court. That would add to the length of time taken and also the cost, with businesses spending money on lawyers when they should be spending it on developing new products, employing staff and investing in their business. I have nothing against corporate lawyers, as my hon. Friend the Member for Streatham is aware—I am a big supporter of them.

Andy McDonald (Labour, Middlesbrough)

Absolutely. Let us not damn all lawyers—just some. The problem with pushing people towards a litigious solution is not only the delay factor but also the damage it does to relationships. We have talked about attempts to preserve relationships. The solution that my hon. Friend proposes would keep that conflict out of the heat of a litigious environment. Does he agree with that?

Toby Perkins (Labour, Chesterfield)

I entirely agree. The principle behind our amendment is precisely that the conflict does not go to a courtroom. The amendment would also prevent small businesses from having to say to their customers, “Here is an invoice for the interest.” As my hon. Friend the Member for Edinburgh South made clear, that conflict can lead to a delay in invoice payment, and to a legal process that delays payment even more. All the time, the small business is sat there saying, “All I want is to be paid for the goods and services I provided.” It should not be asking too much to expect the Government to support them in achieving that.

My hon. Friend the Member for Edinburgh South made some important points. Businesses that have witnessed this debate—if any have made it through to this stage—may consider that what is emerging from it does not reflect the realities they experience on the ground. I will press amendments 53, 34 and 35 to a vote and I hope, following their acceptance, amendments 36 and 37. There is an opportunity to do things in a different way. I appreciate that amendments 53 to 56 propose minor technical changes. I cannot imagine anyone objects to those.

It is important that small businesses suffering under the yoke of late payments know who is there to speak up for them when the opportunity comes to take the onus off them and place it on their customers. Under the amendments, they would know who was willing to stand up for them and who was walking by on the other side of the road; I will press them with tremendous pride.

Ian Murray (Labour, Edinburgh South)

On a point of order, Mr Brady. May I seek your guidance on whether we will have a stand part debate on this clause? My hon. Friend the Member for Chesterfield has spoken to the amendments eloquently and at length and the Minister has responded favourably, but we have not actually heard the Minister promote the clause.

Graham Brady (Conservative, Altrincham and Sale West)

My inclination is that we have had a lengthy and full debate, and that it is unlikely that a clause stand part debate would be appropriate. Mr Perkins has indicated that he would like to press amendment 53.

Toby Perkins (Labour, Chesterfield)

May I request that the vote on new clause 5 be taken at the appropriate time?

Graham Brady (Conservative, Altrincham and Sale West)

Indeed. It will be taken when we reach that point in the Bill’s consideration.

As I have already indicated, the debate has been sufficiently full, so I am not minded to allow a clause stand part debate.

Clause 4 - Provision of credit information on small and medium sized businesses

Matthew Hancock (Conservative, West Suffolk)

I beg to move amendment 1, in clause 4, page 5, line 3, leave out “(“credit information regulations”)”.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss the following:

Government amendments 2 to 16.

Government amendment 31.

Government new clause 1—Small and medium sized businesses: information to finance platforms.

Government new clause 2—Sections 4 to 5: interpretation.

Matthew Hancock (Conservative, West Suffolk)

Ensuring that UK businesses can access the finance they need is crucial and remains a top priority for this Government. Nowhere is that more true than for smaller businesses, which is why we and the Bank of England introduced the funding for lending scheme two years ago to tackle the big problems with credit conditions, and why we are reforming the banks.

Iain Wright (Labour, Hartlepool)

Has net lending to small businesses gone up or down over the past 12 months?

Matthew Hancock (Conservative, West Suffolk)

In the past 12 months we have seen a recovery in the rate of change of net lending and an increase in gross lending, but there is clearly more to do. I welcome, for instance, RBS’s recent announcement that it will put £1 billion into a small business fund, because it is a major player and because through its failure, which was the biggest in the world and which we are still clearing up, it was one of the reasons for the overall contraction of lending to business over the past seven years. We are also bringing in the new British Business Bank to make finance markets work better for small businesses, bringing the management of all Government lending investment programmes into a single commercially minded organisation.

Iain Wright (Labour, Hartlepool)

How much money has the British Business Bank given directly to businesses?

Matthew Hancock (Conservative, West Suffolk)

The British Business Bank supports the growth of business-lending organisations. It gets far more money into small business by investing in institutions such as the challenger banks and new lending platforms such as peer-to-peer lending. It is busting open the market, which shrunk and shrunk in the years up to about 2010 and is now expanding again. With Metrobank, the first new banking licence in 100 years was issued. The latest data I have show that 20 new banking licences have been issued since 2010.

To answer the hon. Gentleman’s question, the British Business Bank supports the growth of institutions that provide credit to small businesses; it does not go to small businesses directly.

Iain Wright (Labour, Hartlepool)

I am unsatisfied with the Minister’s response, frankly. Can he give the Committee figures for the Government’s intervention in British investment? As a result of the British Business Bank, how much extra money is being lent to small businesses?

Matthew Hancock (Conservative, West Suffolk)

The figures I have show that over the next five years we will unlock £10 billion of financing for viable small businesses. In the year to the end of June 2014, British Business Bank programmes facilitated £2.3 billion of new lending and investment to smaller businesses, which is supported by other schemes. Getting the big banks on a stable footing is undoubtedly one of the biggest things we can do, but we must also bring on the new competitor institutions. The point I was trying to make is that the British Business Bank does not directly invest in small businesses; it invests in institutions that can themselves unlock more investment. The £2.3 billion figure is far bigger than it would be if we used the British Business Bank to invest directly in small businesses, rather than in those that can expand the market for credit.

Ian Murray (Labour, Edinburgh South)

My hon. Friend the Member for Hartlepool asked the Minister whether net lending to small businesses has gone up or down, and he replied that there has been a recovery in the rate of change. Does that mean up or down?

Matthew Hancock (Conservative, West Suffolk)

It was going down, and it is now almost flat, but gross lending has gone up. The key point is that we must understand what drives net lending, which is the combination of the amount of gross lending after the amount repaid is subtracted. As the economy has recovered, thanks to our long-term economic plan—

Iain Wright (Labour, Hartlepool)

Ding ding ding!

Matthew Hancock (Conservative, West Suffolk)

I thought I would get that in early.

Thanks to the long-term economic plan there has been a strong economic recovery—it is the strongest economic recovery in the G7, but I do not want to labour that point because risks still remain, not least if we were to abandon the plan. In part because of the recovery, repayments have increased. While gross lending—access to finance—has expanded, repayments have also expanded.

Ian Murray (Labour, Edinburgh South)

Will the Minister give way?

Matthew Hancock (Conservative, West Suffolk)

No. I will give way in a moment.

Given that context, we want to make that expansion go further—hence the provision of a stronger legal structure for the sharing of credit information to aid competitor banks and allow the market for finance to bust open. We are not satisfied with the situation that we inherited, in which there were basically only five major banks and a number of smaller institutions. Access to finance was difficult, and we put huge effort into turning it around. In 2008, we had the biggest banking failure in British history and the history of the world, so it will take time to turn it around, but we are determined to deal with it by increasing competition in the banking system and supporting other methods of finance, such as peer-to-peer lending, which have a lot to offer.

The Bill shows that we are not taking our foot off the accelerator. We are legislating to ensure that challenger banks and alternative finance providers can access the same amount of credit information about smaller businesses as big banks. Small businesses often do not want to move from their bank, whatever the quality of the relationship, in part because it is hard for other institutions to know the credit information supporting the small business. Larger businesses, which can often also access the capital markets, have credit ratings that many banks can understand. That is much harder for small businesses and we aim to tackle that with these measures.

These amendments seek to support the measure by further levelling the playing field, and opening up the credit markets for small and medium-sized businesses. At the moment, many small businesses that need finance go straight to their main bank first, and if their bank says no, they often give up on getting the borrowing they need. That is widely acknowledged. We want to make sure that those businesses know what other options are available to them. There is a missed opportunity on both sides when this does not happen, because while these business are unaware of alternative lenders that may be willing to finance them where their banks would not, the alternative lenders are similarly unaware of the businesses that need to borrow.

The amendments seek to address that problem by bringing the two sides together. They enable regulations that will require designated banks—especially the bigger banks—to offer small businesses that they reject for finance the option to have their key information shared with online platforms. Those platforms will be designated by the Treasury on the advice of the British Business Bank, and will help businesses to be linked up with alternative lenders. Designation of platforms will be made on the basis of their meeting clear criteria and operating standards. Chief among these will be the responsibility to ensure that the businesses remain in control and that their information is properly protected. I stress that such information will be shared only should the small business wish it to be shared. There may well be circumstances where they do not, and that must be respected.

The system will have a number of significant benefits. Smaller businesses will have improved access to alternative finance providers. The system will support greater competition in the provision of finance to small and medium-sized businesses, and should lead to better-quality products and services for those businesses; and we hope that alternative lenders will benefit from greater visibility to smaller businesses. It opens up opportunities to support business lending to small and medium-sized businesses.

Iain Wright (Labour, Hartlepool)

Could the Minister talk us through what would happen? A small business would go to its existing bank for finance. The bank says no. Would the bank then say, “We have looked at your application. We do not believe it is viable for our criteria but here is a range of other smaller banks with different risk profiles that might be interested”? Is that what will happen?

Matthew Hancock (Conservative, West Suffolk)

That is broadly what will happen, with a couple of amendments. First, the bank in question, the originator bank, which has turned down the small business, must pass on the details should the small business consent and want that to happen. Secondly, that data will then go to an intermediary that can offer different options across the board and ensure that the data is protected. This measure is good for business, undoubtedly good for competition and good for the UK.

Ian Murray (Labour, Edinburgh South)

I want to press the Minister a little further on the process. Is there a provision within the Bill regarding the process that my hon. Friend the Member for Hartlepool referred to in his previous intervention, to prevent the biggest banks—the high-street banks—from disinvesting themselves from certain sectors because they feel that they should pass on the responsibilities for those sectors? I am thinking about property and hospitality—the traditional sectors that have found it very difficult in the current climate to get finance.

Matthew Hancock (Conservative, West Suffolk)

There is no doubt that in response to the crash many banks took the decision to cut off whole sectors, irrespective of the individual business decisions. We do not foresee that as a response to this Bill because they will still be seeking the business that they find attractive within those sectors in the same way as they do now. They will merely have a simple requirement, if they say no, to pass on the credit details to another provider.

Bill Esterson (Labour, Sefton Central)

One of the points put to me is about businesses that have been trading for years which used to be able to get money from the banks. They would repay that without a problem. Now that is no longer possible. Presumably this measure is designed to help that group of businesses as well. Where is the alternative capital which is the other part of the jigsaw here and, given what we have just heard about the fall in net lending to businesses, how is this measure helping to produce that additional capital?

Matthew Hancock (Conservative, West Suffolk)

That capital is increasingly available and there is an increase in lending to small businesses, in part because that sort of capital is increasingly available. In the grand scheme of things we would put a small amount in. We would put a more significant amount in through the British business bank. As I mentioned, last week RBS announced that it was putting another £1 billion of capital into small business lending. The capital is increasingly available. This is about ensuring that the two sides can come together, and that platforms can ensure that if a business is turned down it gets offers from elsewhere, or at least its details are then passed on to others to make offers. Too often small businesses that are turned down by their own bank, which they may have had a relationship with for a long time, simply give up. We do not want that to happen.

Mark Garnier (Conservative, Wyre Forest)

It is also worth pointing out that as a result of pressure from the Government the banking system has introduced a scheme whereby refusals for lending can be reviewed internally and independently within the banks. As a result, 40% of appeals have been upheld for lending decisions. The banks welcome that because it gives them an extra opportunity to take a second look at a banking proposition at a higher level. So there is the 40% first and then on top of that there is the review brought about by the Government.

Matthew Hancock (Conservative, West Suffolk)

Quite so. I should have mentioned that in my speech.

Iain Wright (Labour, Hartlepool)

Is the Minister not concerned that the traditional banks will cherry-pick the safer bets when it comes to loan applications from businesses and then pass down higher-risk applications to challenger banks, which may put at risk the resilience of their balance sheet in capital requirements? Has the Minister looked at that?

Matthew Hancock (Conservative, West Suffolk)

Of course, if an opportunity to make a loan comes first to one of the major banks then that happens anyway. They already have the opportunity to turn somebody down and to pick what they think fits best for their business. One of the exciting things that is happening in the challenger bank and peer-to-peer market is that banks with different risk profiles are coming forward looking to take on, for instance, higher-risk, higher-return business customers than the big banks are interested in and managing them in a different way. I think that is great. It is a proliferation of the banking market.

No other industry that I know of had no new entrants for 100 years. Imagine what we would all be wearing if there had been no new entrants in the fashion industry. [Interruption.] So this competition is good. It did not happen in the past. The lack of competition contributed to the scale of the crisis because our big banks were just so big after so many mergers. This measure is an important step forward and will expand the competition.

Ian Murray (Labour, Edinburgh South)

I am delighted that the fashionable Minister for the 1920s allows me to intervene. May I pursue this issue? We are looking at perhaps a disinvestment from sectors. We are looking at risk profiles being passed to challenger banks. Has the Minister given any analysis to the cost of lending? One of the major barriers to small businesses coming forward to look for lending is the cost. What will happen? Is there a mechanism that a challenger bank will say, “You have been refused at X and therefore we will charge you y plus 5%?

Matthew Hancock (Conservative, West Suffolk)

We think that this will bring the cost of that lending down. It is difficult to know exactly what the impact will be because it depends on the behaviour of the banks. But we think it will bring it down because of increased competition in the sector. So I think it is good for business and good for competition.

Clause 4 - Credit information

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 43, in clause 4, page 5, line 9, at end insert—

“(c) a duty on designated banks and designated credit reference agencies to provide information about the criteria used to calculate the credit score of a small and medium-sized business customer to such customers.”.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss the following:

Amendment 44, in clause 4, page 5, line 19, at end insert—

“(3A) The regulations must provide that the duty in subsection (1)(c) only applies where a small or medium-sized business makes a request to a designated credit reference agency or bank.”.

Ian Murray (Labour, Edinburgh South)

The amendments pertain to clauses 4 and 5. At the start, let me help the Minister. Before we broke for lunch we had a lively session about lending to small businesses, which left me a little confused, so I went back to my office with my sandwich in my hand wondering what is happening to small business lending. I remind the Committee that we were told this morning that there has been a recovery in the rate of change—I am not sure whether that meant lending to small businesses is going up or down. Then we were told that it was at a low level but now it is almost flat. I am not sure what “almost flat” means—[ Interruption. ] My hon. Friend the Member for Hartlepool, the former Minister, says it is my jokes that are almost flat. That may be one definition. However, in terms of lending to small businesses, let me help the Committee and the Minister by giving some figures.

The second quarter figures for net lending were announced at the start of September. In that quarter alone, net lending to small businesses dropped by £435 million, which is relevant to the amendments because they and clauses 4 and 5 are about encouraging lending to small businesses and making it easier. It needs to be done pretty quickly, because lending to small businesses is down by about £4 billion since 2010.

Toby Perkins (Labour, Chesterfield)

I appreciate what my hon. Friend is saying. Is he as stunned as me that in 2010 there was an access-to-finance crisis for small businesses, but in every year since the position has worsened? After all the measures the Government put in place, we are in a worse position now than we were in 2010 when we thought we had an access-to-finance crisis.

Ian Murray (Labour, Edinburgh South)

My hon. Friend is right. Not only were we in a better position in 2010, but the economy was growing and unemployment was falling. The consequence of three years of Government inaction is that small businesses, which are the lifeblood of our economy, are still struggling along. I want to know whether the Government’s definition of “almost flat” is a drop of £435 million. If that is almost flat, we must ask what bumpy would be like.

Matthew Hancock (Conservative, West Suffolk)

This discussion will benefit from some facts. The banks lent nearly £30 billion to small and medium-sized enterprises in the seven-month period to the end of July—up 23% on the equivalent period last year—and over the past three months average net lending has been positive. That does not take away from the fact that there is much more to do to recover from the banking crash, which, of course, happened in 2008.

Ian Murray (Labour, Edinburgh South)

I did not detect a question there, but the figures the Minister has provided to the Committee suggest that there has been a massive recovery in the rate of change and that sounds almost flat, in terms of small business lending. I am grateful to the Minister for giving the Committee that information. We can now truly believe that there has been a recovery in the rate of change.

Figures from the Treasury and the Office for National Statistics are still showing that net lending for small businesses is going down. Although we also appreciate every pound that goes from the banks to small businesses is a pound more than they had before, it seems to me that there is still a significant problem. That is why I think—I give credit to the Minister—that clause 4 is so important.

Bill Esterson (Labour, Sefton Central)

The figures tell part of the story, but what is happening on the ground is what really matters. The 40% of people in employment in my constituency who work for or run a small business will say that they have not seen one penny more lent to them by the banks in recent years. That is the reality on the ground and we need concerted action now. Does my hon. Friend agree that that is the key point?

Ian Murray (Labour, Edinburgh South)

My hon. Friend is correct. He highlights the key issues in lending to small businesses. I was a small business owner, despite the Government’s perception that no one in the Opposition has experience of business. Everyone on the shadow Front Bench has experience. My hon. Friend the Member for Hartlepool was a distinguished accountant in a previous life. Using the words “distinguished” and “accountant” in the same sentence should be encouraged. On that point, I have been remiss in not referring the Committee to the Register of Members’ Financial Interests. I have three unremunerated directorships that are slightly impacted by provisions in the Bill.

I was talking about access to finance. Owners of small businesses tell me that the big problems are not just access to finance but the cost of finance and late payment, as we discussed this morning. The Bill offers a real opportunity to deal with two of probably the three or four biggest issues that small businesses bring to us. In the spirit of the amendments we are trying to be helpful to the Government, so as not to waste the opportunity of a small business Bill to do something serious about that. We wasted the opportunity on late payments this morning. As far as I could read it, the Government agreed with our amendments and then voted against them. It will be interesting to see whether the Government bring anything on Report to strengthen the Bill on those issues.

We agree with the Government in bringing forward these proposals to make it easier for companies to gain access to credit. We are trying to demonstrate that it is not just about access to credit but all the infrastructure behind it. There is a significant lack of information. In evidence the Forum of Private Business said that there is a massive lack of information at small business level about new lending opportunities. That fact and the cross-fertilisation of funding to small businesses have resulted in 80% of term lending to SMEs coming from the incumbent bank, which would tend to be one of the top high street banks to which we would all go to access funding.

When I set up my business, I would sit with my business plan and look at the required funding. The first thing would be to approach the bank with which there was a personal relationship, which in the main would a high street one, and then perhaps look at some of the others. It seems that the contraction in the economy following the problems around the worldwide financial crash in 2008 has meant that most of the risk analysis and matrix of major banks are much stricter than they were. On the one hand, that might be a good thing but it makes it difficult for small businesses to get access.

Iain Wright (Labour, Hartlepool)

My hon. Friend talked eloquently about his experience in trying to access finance and having the relevant information. Does he think one of the problems, as businesses tell me, is that they will not apply for finance from banks or other institutions because they are concerned that they will say no? Is there anything in clause 4 and the information relating to finance that would address that, to ensure that the process is working for productive small businesses in our country?

Ian Murray (Labour, Edinburgh South)

I am grateful for that question. A key issue in getting access to funding is giving small businesses the confidence to ask in the first place. The reasons why they do not try to get access to funding are, first, that they fear they will be turned down—that is probably the major cause—and, secondly, they do not know what rate will be charged on the funding. The rate on borrowing for small business and consumers has increased because the banks have been building up their capital reserves to satisfy the capital criteria. That may be a good or a bad thing, but while our interest rates are being kept historically low to help the economy recover from the deep economic crisis, borrowing is expensive and small businesses in particular are finding it difficult to access.

We want more information to be passed not only between banks and lenders but to credit reference agencies, so access to finance is a lot easier for businesses that are rejected. Before we broke for lunch, we examined some of these issues, and I was grateful for the Minister’s answers. As my hon. Friend pointed out in his intervention, we are concerned about the consequences for businesses that are turned down for finance. If a business has gone through the process of producing its cash-flow analysis and business plan, approaching the first lender and the business managers, and going through the layers of credit control, perhaps up to the credit committee, what is the consequence if the financing does not go through?

There is a matrix of financing at banks; they do not provide only term loans and overdrafts. The business manager in a high street bank can passport a business to a number of areas of finance, depending on what it is trying to do. Banks always champion their ability to find the best product for a business. If a small business gets to the end of that process but receives a letter or phone call to say no, what consequences does that have?

I appreciate that clause 4 is about trying to open up a new door to accessing finance, and none of us disputes that we should be looking at that, but what happens when somebody goes through that door? Will alternative lenders charge them more? Will it hit the confidence of the small business? I believe that my hon. Friend is right about businesses being confident that they will not be turned down for finance. Will the high street banks—the major players in the financial markets—start disassociating themselves from some sectors? They have done so already: it is difficult for property companies, particularly small and medium-sized companies, and the hospitality sector to access finance. Many of the sectors that have been hit the hardest by the reduction in consumer spending following the economic crisis are finding it more difficult than other sectors to access finance. Will banks automatically change their risk profiles to say no to some sectors if they know that the responsibility for them finding finance is through a different door? I know I am talking about extremes, but the proposal may have unintended consequences on where banks post finance to.

If I run a crowdfunding company, a challenger bank, an angel company, a venture capital company or any of the other potential sources of finance, and somebody comes through the door who has been rejected by a high street bank—they have obviously been rejected for a reason, because high street banks will, in the main, want the business if somebody has a viable proposition—do I automatically stick a few percentage points on my interest rates? That will make finance more expensive, which perpetuates the problem of small businesses not being able to access funding in the first place, because one of the biggest impediments is the cost of funding.

I do not disagree with the clause. In spirit, it is exactly what we should be doing, but I worry that it might perpetuate the two problems: businesses’ confidence that they will not be told no, and the cost of finance, which is more expensive than it was in the days before the economic downturn. I hope the Minister will address those questions in his response. Perhaps he can examine them in a bit more detail. That is the thrust behind amendment 43.

We are trying to introduce a duty for the banks and the credit reference agencies to provide information about the criteria they have used to calculate the credit score of a small business customer. That will increase transparency, so that where we may be seeing disinvestment in various sectors by high street banks or some of the more traditional lenders, we will be able to see that, actually, a small business’s credit scoring would have meant that it was granted that particular product. If there is information about how that credit score has been calculated, we would be able to see if that particular customer should have been funded in more traditional ways, giving that business the confidence to borrow on the terms it would get from a traditional lender.

It is important that small firms have guidance to understand the calculation of their credit score and to help them take steps to improve it. That kind of information is great for small businesses. One of the best ways to improve their rating would, of course, be payments. Their cash flow might be looking better in terms of late payments, or they might need additional support through their business manager. If it is a seasonal business, it could be doing other things in quieter parts of the year, or the management might just need a little bit of extra confidence. Being able to see that information would be much appreciated.

Toby Perkins (Labour, Chesterfield)

My hon. Friend is absolutely right. Transparency and support will help more small businesses to have confidence in what they are letting themselves in for and take the plunge to borrow and invest. I absolutely support what he proposes.

Ian Murray (Labour, Edinburgh South)

I am delighted that my hon. Friend supports my proposal, because his name is on the amendment. It would be strange if, after I have tried to persuade the Government, I started losing Members on my own side. That would certainly be unique to a Committee in the House. He is absolutely right to highlight that that is a critical point.

The comprehensive information that can come from a rejected business should be passed on—with the business’s consent—to other lenders. We think that the Government may have missed a critical piece of this jigsaw puzzle, and that is why we are looking to promote these businesses. I can only reflect on my own experience, but there is often no logical explanation for a small business being refused finance. If there is an explanation, it might be, “Sorry, I fully support your business plan and fully agree with your cash-flow analysis but the credit committee has refused it. We don’t have a reason for that.” Passing the buck may be too strong a term, but we often hear small businesses saying that they had no comprehension of why they were turned down. If they had been given a specification of why they were turned down, they may have been able to correct that by going back to the credit committee for a second bite at that funding cherry.

Businesses themselves are often not clear why they are refused credit from the lender. It is critical to have transparency between the lender and the credit reference agency, to identify why the business was turned down and even to identify steps to improve their credit score. The best way to get cheaper funding is to have a good credit score. We all know what happens when we do not pay our household bills, when we forget to pay our mobile phone bill or when our direct debit inadvertently bounces. All those household issues directly affect our credit score. With some credit reference agencies, we have to dig to find out why that is the case before we can challenge it. If consumers can do that, small businesses should be able to. That is what amendment 43 is trying to achieve. It is supported by the Federation of Small Businesses—I thought its representatives were superb when they spoke to us last Tuesday. They were supportive of the Bill, but also of pushing it that little bit further, to try to promote some of the federation’s issues. The federation has said:

“This would increase transparency and guidance to help small firms to understand their credit score and help them take steps to improve it.”

Looking at the lending figures, we have heard that there is a recovery in the rate of change. We have heard, too, that we are almost flat. Perhaps looking at some of these issues will enable it to be not just almost flat, but completely flat, and then to head on an upward trajectory towards more business lending. That is what we want.

I hope the Minister will look closely at the amendment and be able to support it. He himself has said the Government

“will strain every muscle to support”

small businesses.

Iain Wright (Labour, Hartlepool)

My hon. Friend has almost convinced me on amendment 43, which stands in my name as well. Should the information that banks and designated credit reference agencies provide also include the strategic direction of that bank or agency? He mentioned the hospitality industry. If a particular bank took the strategic decision to pull out of the hospitality industry, that would be no reflection on the plausibility and acceptability of a particular fund application. Should such information also be included under the amendment?

Ian Murray (Labour, Edinburgh South)

That is an incredibly valuable point. If a response came from the credit committee at a traditional lender that said, “Yes, your business plan and cash flows are acceptable; we believe the projections in your cash flows, you have a good, sound business and under normal terms you satisfy all the criteria for lending, but the overall strategy of this bank is to disinvest from your sector,” a business might think that a bitter pill to swallow, but it would at least be an honest assessment of where that business was.

The business could then stop worrying that it had been turned down on the basis that its cash flows were incorrect, or because it was overexposing itself to considerable debt or the cost profile of that debt was inappropriate. That business could say, “I give you permission to give my details, through a credit reference agency, to other lenders, on the basis that I have not really been turned down. This was not really a no; under normal circumstances it would have been a yes, but you are no longer funding this industry because we are overexposed in it.” That could be, for example, the property or the hospitality industry.

Banks have said openly that they are trying to disinvest from property portfolios and so on. What my hon. Friend proposes would give businesses the opportunity to say, “I have not been turned down. I have the confidence to go and borrow the money, which I hope will not cost me any more, because the underlying aspects of my business have not affected my being turned down. The business is sound.”

Before my hon. Friend intervened, I was talking about the Minister’s muscles. He almost pulled a muscle trying to get here on time this morning; indeed, had I not been the comrade that I am, when he was heading up the escalator and I was heading down, and he said, “It’s the Boothroyd Room, isn’t it?” I would have said, “Yes.” I was tempted, but instead I said, “No, it’s Committee Room 10,” and he hotfooted it here, getting here just in time to reject our amendments to clauses 1 to 3, although he agreed with them. He has said that the Government will “strain every muscle” to support small business. I hope he strains one this afternoon, looks at our amendments in the spirit in which they have been drafted and agrees to them. Perhaps he will do that and vote against them anyway, as he did previously.

Amendment 43 would achieve transparency on credit scores. I wonder whether any member of the Committee knows their personal credit score. If people do not know their personal credit score, how will small businesses know what their credit scores are or the support they can get to improve them?

Iain Wright (Labour, Hartlepool)

What’s yours?

Ian Murray (Labour, Edinburgh South)

I have to admit that I do not know what my credit score is. I do not know whether other Members have looked at the Equifax website or websites of other credit reference agencies. The Minister is shaking his head furiously—perhaps he will tell us what his is.

Iain Wright (Labour, Hartlepool)

He has spent too much money on jumpers.

Ian Murray (Labour, Edinburgh South)

He certainly has.

Stephen Doughty (Labour, Cardiff South and Penarth)

I have, indeed, looked at my credit score. The important thing about these websites where we can get that information is that they empower the individual. They allow us, for example, to make a correction if there is inaccurate data on there. Many of my friends, including my brother, have had to correct inaccurate references from credit rating agencies. Does my hon. Friend agree that businesses must have that transparency of information to be able to have as informed a relationship with their bank as possible?

Ian Murray (Labour, Edinburgh South)

Absolutely, and what is good enough for the consumer is good enough for the small business. There was a major debate in another place this week on the Consumer Rights Bill, looking at whether small and micro-businesses are, indeed, consumers as much as the rest of us are and allowing people to access that part of the system so that they can improve their credit score.

Amendment 44 is consequential to clause 4 (4)(a) and (b) in terms of permission to make a request. The power has to be in the hands of the business to allow these things to happen. There is also a duty, and amendment 45 is also consequential, for the banks and credit agencies to get involved in this process if the small business gives permission. I hope that the Minister will look favourably on this. Amendment 46 recognises that there are concerns about data, particularly small business data, and that those data have to be protected. The credit reference agencies and banks are covered by the Data Protection Act 1998, but we need to make sure that any data sharing by the banks and the credit reference agencies with regards to this process is done with the full support and permission of the small business itself, whether or not a form is signed. That is the Government’s intention because it is part of the other two issues.

Amendment 47 aims to ensure that the Government analyse the impact of the costs of this process and procedure on both the sharing of information—which is the process—and the final cost of borrowing. The reason why I have tabled that amendment is that, in the impact assessment, the Government have not been clear what the financial implications of these regulations will be on the designated banks and credit reference agencies and, most importantly, the small businesses themselves. This does not appear to me to be a cost-free exercise. Is it really in a designated bank’s interest to take a lot of time with the credit reference agencies to process some of the data?

Can the Minister say how many businesses may use this process? Will it be incredibly popular, running into the thousands or tens of thousands? Is there any analysis of how many businesses are turned down for finance, given that the recovery and the rate of change is so high? Perhaps more businesses are getting more funding and will therefore use this less, but it is important, if a huge number of businesses are accessing this process, to know where the burden of that cost lies. We therefore ask the Government to undertake an analysis on the impact of these regulations. It is fair that banks, credit reference agencies and businesses are aware of the cost burden required to provide this information and to ensure that the information provided is relevant and useful.

If we have a system whereby the small business has gone through an entire process of lending for that bank and the bank has come back with a refusal, there is already a business impact for that bank, because it has decided that it does not want the business. They have lost a customer. The onus is then put on that bank, through the credit reference agency, to get permission from the small business to share the data, and then there has to be a process for that data to be shared, so a cost is inevitably involved. Will the Minister say where that cost will lie?

The Minister is in a generous mood, so he might accept amendment 47, but if he does not, will he come back either in Committee or on Report with the analysis confirming the cost and where the cost burden lies? Is there an argument to suggest that the system may not work properly if the cost burden lies disproportionately on small businesses? A small business could say, “I’ve gone through this entire process, and the management time has been x and the process of trying to raise the additional capital has been y.” Such a business would therefore be paying an additional fee only perhaps to be turned down again by an alternative lender. There is no guarantee that a business that decides to go down the route of having its information shared with alternative lenders will actually get that funding, so it is another direct or indirect cost either to the business or to management time. Will the Minister come back with an analysis, if required?

Amendment 42 probes the Bill’s enabling provisions in relation to the Financial Conduct Authority. I understand that the Secretary of State can use the FCA if he wishes, but that is another layer of regulation. The Government are keen on cutting regulation, but the potential consequence of this regulation is further monitoring by the FCA, which has a cost. Again, we do not want the cost to be a disproportionate burden on small businesses, because, to go back round the circle, if the cost is disproportionately borne by small businesses, their borrowing and the risk of their entering the system become more expensive, which would self-perpetuate the issue about the cost of lending to small and medium-sized firms. The smallest firms will be hit the hardest, which tends to be the case with Government policy.

The smallest businesses will be disproportionately affected by the Bill, so what consideration has the Minister given to funding compliance and enforcement in relation to clause 4? Specifically, have the Government considered placing a levy on the designated credit reference agencies or designated banks to pay for the FCA? It makes sense to do that whether or not anyone uses it. If I was looking at the underlying costs of a designated bank and I had just turned down someone for funding—perhaps for no reason other than that I had disinvested from a particular sector—adding more costs means that I might lend less, which could be an unintended cost. It would therefore be good if the Minister guaranteed that no further costs of enforcing the Bill’s provisions should be borne by small and medium-sized businesses, assuming that the Secretary of State enables the FCA to get involved in that process.

On amendment 41, businesses need to know that they can seek redress should they fall foul of the credit record system. My hon. Friend the Member for Cardiff South and Penarth, the Opposition Whip, has already said that consumers can check their credit reference. They can dig deep to where any problem may lie, and they may be able to rectify those problems, whether through a credit reference agency or a company that has posted to a credit reference agency any problems that it may have had, so businesses should be able to seek redress if they fall foul of the credit record system.

The Minister has not made it clear whether businesses will be able to do that under the Bill. Clause 5(4) states only:

“Credit information regulations may make provision that enables complaints about the activities of designated credit reference agencies to be dealt with under…the Financial Services and Markets Act 2000.”

The Bill uses the word “may”, on which we have had major debates in Committees over many hours. The Under-Secretary has talked about whether a “may” should be a “should,” and whether a “should” should be a “will.” We should not go down that route again, but the overall thrust is the same: the text says “may”, but it also talks about the “activities” of the designated credit reference agencies.

The subsection does not provide a recourse that allows businesses to resolve any issue they may have with the underlying content at the credit reference agency. It would therefore be useful for the Government to provide a redress mechanism for businesses that want to rectify their credit history. There must be a right-of-complaint mechanism for small businesses that want to rectify a problem, block an entry or erase data held about a firm’s credit record by the credit reference agency if it is harming their ability to access finance.

Complaints will be determined by the Financial Ombudsman but only for a very small number of businesses, because their annual turnover must be less than £1.5 million and they must have fewer than 10 employees. Quite a small number of businesses will therefore be affected. We suggest that the Financial Ombudsman should be able to deal with a much larger proportion of complaints from small businesses and have the power to instruct a designated credit reference agency to amend a small business’s credit rating. The British Chambers of Commerce has been clear in its support for the Financial Ombudsman handling such disputes with designated credit reference agencies.

This all comes down to fairness in how we deal with small businesses and their livelihoods. When a small business is applying for funding, there tends to be some kind of personal skin in the game. It could be a family home, savings or a proportion of the business. The small business owner could have all those things on the line. Where that is the case, we are trying to ensure that they can resolve some of these issues with the credit reference agencies. That would stop designated banks hiding behind the credit reference agency and make it more transparent.

These important amendments complement what the Government are trying to do, while trying to make lending to small businesses slightly better than it has been under this Government. This is about fairness and transparency. We are genuinely—in the spirit of the legislation, and with the support of the British Chambers of Commerce and the Federation of Small Businesses—trying to improve the Bill and ensure that small businesses get the lending they deserve.

Matthew Hancock (Conservative, West Suffolk)

I am grateful for the opportunity to discuss the amendments and to probe clause 4, of which I am a strong supporter, in more detail. I acknowledge and support the tone in which the amendments were drafted. They are intended to probe to try to strengthen a clause that has support from across the Committee. It is not worth reiterating the history of the crash, why we are here and whose fault it was; we all know that. I will go through each amendment in turn and build on the arguments made. In many cases, the spirit in which the arguments were made is the one that we are also engaged in. In some cases, I can give clear assurances that the issues have already been taken care of.

Amendments 43 to 45 are designed to require designated banks and CRAs to provide information about the criteria used to calculate credit scores. I agree that it is vital for businesses to have the information they need to maximise their chances of securing finance in the future. However, we want to do this in an effective way that does not put undue burdens on business. The best way to do that is improving transparency in the system and banking sector, and educating businesses to help them understand the impact of their behaviour on their credit score. My hon. Friend the Member for Wyre Forest mentioned a credit score guide for SMEs produced by Russel Griggs, the independent reviewer of SME lending and the appeals process.

The extra transparency and the SME lending appeals process have had a positive impact. It has also brought to light the way in which credit scores are structured and made that more transparent so that businesses know how their credit score will be affected. That wider education is valuable in trying to ensure that we increase the options for accessing finance.

At this point, it might be worth dealing with the question of whether someone who had been rejected by their primary bank would find that the cost of lending through the process would be higher. There are two responses to that. First, without this process, many of them would not be able to get a second chance from an alternative lending provider, because, while that would have been hard, this process means that, should the business want it, going to an alternative provider will be automatic. Secondly, in the future, just as they do now, credit rating agencies will have many customers who will come to them without having been rejected by a primary bank and the alternative credit providers will not be able to see the difference between businesses that approached their primary bank but got rejected and put on the credit reference system and those that went directly to an agency.

That level playing field is important to remove the danger that other lending providers would perceive a rejection from the initial bank as an indication of the appropriateness of finance. That is one of the reasons why we decided to propose a system that works through credit reference agencies, rather than through direct referencing from a bank that had rejected to other banks. That intermediary helps to remove any potential stigma from the system. The hon. Member for Edinburgh South made an important point and I hope that the design of the structure, with that intermediary, helps to alleviate his concern.

Ian Murray (Labour, Edinburgh South)

I am grateful to the Minister for that indication. Will the wall that will essentially be put between the people who go straight to an alternative lender and those who come through the system mean that the new lender who receives the information will not know where the people have come from? That would seem to be a way to determine the cost of lending. Is it not the case, however, that someone who has been turned down for lending will have a mark on their credit record and that, therefore, it would be straightforward to find out where they have come from?

Matthew Hancock (Conservative, West Suffolk)

Not necessarily. Crucially, different actions can be undertaken to ensure that one’s credit reference is strong and appropriate. We had a discussion of some such actions that can be taken in the personal space, but small businesses have the capacity to do that as well. I accept the spirit of the amendment, but such concerns are best dealt with through transparency and strengthening the responses of the credit reference agencies to their customers, rather than by primary legislation.

Amendment 46 would restrict the information that can be shared under the regulations to that specifically identified by the business. I strongly agree with that and that, indeed, is the policy intention. The Data Protection Act 1998 is an important arbiter and defender of data privacy. It is long entrenched and widely supported for striking the appropriate balance for data protection between transparency and personal data. It is an important safeguard.

The clause requires that businesses must agree to have data provided to CRAs and our intention is that that agreement will be given on signing terms and conditions for the financial products. I hope that that takes care of the Opposition’s concern.

Ian Murray (Labour, Edinburgh South)

I appreciate what the Minister says. The Data Protection Act is there to protect that kind of data, but does the Bill allow for a small business to seek redress if it felt that there was a data breach, or does it essentially rely on the Data Protection Act to deal with those problems?

Matthew Hancock (Conservative, West Suffolk)

The Data Protection Act already provides the ability to seek redress when data are misused; the Bill aligns with the Act on that.

Amendment 47 would ensure that the Government analyse costs. Of course, the costs to business of any action is very important to us; indeed, this is set to be the first Parliament in modern history that has reduced the burden of domestic regulation. Conservative Members are incredibly proud of that, not least because regulation affects small business disproportionately, as was the point made by the Opposition.

The hon. Gentleman asked about the effect on costs. The impact assessment sets out the effect of the changes. He says that it is not a cost-free exercise; indeed, we conclude that the banks will incur up-front IT costs of around £10.5 million, and similarly credit reference agencies will incur costs of £3.5 million. However, any ongoing costs of sharing data will be negligible for established lenders.

We must come back to the broader point about costs, not least because of the impact of these measures on the cost of finance. The indirect effects on costs are important, and we think that they will be downwards, not upwards, on both the prices charged for credit scores and the cost of lending, because they strengthen the competition in the market. I hope that the combination of the impact assessment and the fact that things will move in the right direction will reassure the hon. Gentleman that the costs have been taken into account.

Others—for example, the Bank of England—have discussed using transparency to build further tools to strengthen the availability of credit information. That is exactly the sort of thing that one hopes will happen when information is made public in a big way. Some such things can be foreseen, but some cannot, so it is not easy to put a specific figure on the wider benefits, which is why the impact assessment concentrates on the costs that are direct and relatively easy to quantify.

Amendment 42 explores how the FCA’s monitoring and enforcement will be funded. The hon. Gentleman said that the Opposition do not want costs on small business, and nor do I. I am straining every sinew and exercising every muscle in order to support businesses. The intention is that the FCA’s costs will be met by fees paid by those monitored, in the same way as the FCA’s other monitoring and enforcement work; in short, the costs will be met largely by the big balance sheet banks. I agree with the thrust of the hon. Gentleman’s argument, but amendment 42 is not necessary to make it happen.

Amendment 41 seeks to give a business the right to complain to the Financial Ombudsman Service to seek to rectify, block, erase or destroy data on that business that is held by a CRA. Again, we do not think it is necessary to extend the remit of the FOS through primary legislation. Complaints by micro-businesses are currently covered. The FOS has wide discretion to make the decision that it considers appropriate in each case. As drafted, the amendment would restrict its options, and we do not want to fetter the FOS’s discretion. Nevertheless, I take the spirit of the amendment, but it is important that the FOS can already exercise that discretion.

The hon. Gentleman asked about the number of companies that might be involved. The latest SME finance monitoring report from August says that 66% of all applications for loans and overdrafts were successful. Within that proportion, 96% of businesses seeking a renewal of existing facilities were successful, although only 34% of first-time applicants were successful. That is the proportion that we are trying to boost.

Returning to our debate about the scale of lending—the upward trend in the rate of change of net lending—it has over the past three months, as I mentioned, marched into positive territory, but of course we want to keep it moving in the right direction. The fact that gross lending has increased by almost a quarter, while repayments have also increased, shows that access to finance is slowly improving, but there is an awful long way to go.

Ian Murray (Labour, Edinburgh South)

The Minister said previously that the indication from the small business would be on the lending form to allow data to be shared if the application were turned down. He said subsequently that approximately 34% of people who apply for lending, particularly for the first time, are turned down. That 34% means nothing unless we know what the quantum is. Will he give us a figure to show how many businesses that would entail and provide an analysis of how many of the 34%—how long is a piece of string?—would be likely to get funding if they moved into an alternative funding source?

Matthew Hancock (Conservative, West Suffolk)

That is an important question and I will answer it, but first I shall pick up on a point that the hon. Gentleman made in his speech. He said that only a small number of companies employ fewer than 10 people, but in fact most companies employ fewer than 10. Even though half of people are employed by SMEs, the quantum of firms is much bigger, for obvious, basic mathematical reasons.

The figure showing what the 96% and 34% turn into is not precisely available, because the measurement of lending is in pounds and these percentages are based on a survey, rather than on an analysis of the absolute figures. I cannot give him the figure, because it is measured is in terms of quantum of money rather than the number of companies that are accessed. None the less, the number of companies with fewer than 10 employees is, of course, measured and published.

There is genuine consensus in this area on the direction of travel. In respect of many of the probing amendments, I hope that I have given specific reassurances that the concerns will be taken into account.

Iain Wright (Labour, Hartlepool)

Does the Minister have any empirical evidence along the lines of companies going to banks to consider a funding application and banks almost informally saying, “I wouldn’t apply if I were you”? That would distort the figures as well. Has he anything within the Department about that?

Matthew Hancock (Conservative, West Suffolk)

We have anecdotal evidence about the number of companies that are put off lending in advance and do not bother to apply because they think they will get a no. Again, that number is published in the Department’s figures. I hope that the measure will start to tackle that. People should know that, when they approach their bank, they are not only asking for that bank to have a look at their business plan and application, but are essentially putting their business plan at the top of a process that could then cascade down through different options. I hope that the measure will remove the incidence of people not applying for credit in anticipation of failing and, therefore, address the problem that the hon. Gentleman mentioned.

I hope that the hon. Gentleman has found my explanations reassuring and will, on that basis, agree to withdraw the amendment.

Ian Murray (Labour, Edinburgh South)

I am grateful to the Minister. Again, he said that he agreed with the spirit of the amendments and just disagreed with the content and would if we pushed any to a vote, want to vote against them. So he is probably opposing rather than supporting them.

I shall return to where I began this afternoon, or even to where we ended before lunch, with questions from Opposition members. We were told that there was a recovery in net lending shown in the rate of change and then told that the trajectory was almost flat, and now we are told that we are in positive territory. We have three different answers to that question. It would be good just to have a figure for what net lending was in the previous quarter or the quarter before. We are being told that net lending to small business is down quite substantially. If positive territory is almost flat, I am not quite sure how we measure what positive territory is or what almost flat is. Maybe it is almost flat on the upside, rather than almost flat on the downside.

I fully appreciate that most of the amendments have been probing amendments to try to find out how the process would work and to get the Minister to think through the consequences of small businesses looking at it, but I am disappointed that he has not accepted amendment 43 because it was a genuine attempt to use the provisions of the Bill to allow credit reference agencies and small businesses to see their credit score and understand how it has been calculated. It seems that a key to unlocking the uncertainty around finance would be to allow small businesses the ability to see why they have been turned down for particular lending and what that credit scoring looks like. Indeed, that was asked for by the Federation of Small Businesses in its written evidence. It said:

“We would also like to see a duty included in the Bill which requires banks and credit reference agencies to provide information about the criteria used to calculate the credit score of the small and medium sized business customer. This would increase transparency and guidance to help small firms to understand their credit score and help them take steps to improve it. The customer would request this information in writing and no charge would be made for providing it.”

All the information is there so I am disappointed that the Minister will not support amendment 43; it is supported by the FSB. Reading the FSB’s submission and given the reason we have tabled the amendment, it seems eminently sensible that a small business should be able to access that information. If we are trying to make it easier for small businesses to access funding, we need to ensure that if they are turned down, they know why, what their credit score looks like and how to rectify it. They should be given advice on how to make their application in the future, whether it is for that particular designated bank or lender or, indeed, an alternative lender. That would make it easier. Indeed, the Institute of Directors said:

“Where more data is accessible and more widely shared by banks, a significant barrier will be removed for new lenders and alternative finance providers. However, it will be important that this is properly monitored to ensure lenders are indeed a) providing businesses with alternative financing options, should a small business be rejected for a loan and b) sharing data more widely.”

The monitoring process is about ensuring that small businesses are able to access information. If the small business has the data in its own hands, we do not need any monitoring process, which the Institute of Directors has quite rightly and sensibly asked for. The small business itself is able to monitor, because it is able to see why it has been turned down. My hon. Friend the Member for Hartlepool raised that issue in an intervention and it is important to have the customer fully in charge of their own data to be able to make decisions that they may need to about lending. I will press amendment 43 to a vote to test the will of the Committee. Amendments 44 and 45 are consequential; I will only press them to a vote in the event that we are successful in the vote on amendment 43.

Iain Wright (Labour, Hartlepool)

When.

Ian Murray (Labour, Edinburgh South)

Yes, when we are successful. We are back to the may, should, will or but terminology. We understand and accept the Minister’s explanation on some other amendments but I would like to reflect briefly on amendment 41, which is the last amendment in the group and promotes the terms of the Financial Ombudsman Service. There has to be a mechanism to allow small businesses to seek redress. It seems that the Financial Ombudsman Service is the best place for that to happen and to be set out. Although I will not press all the other amendments, I would like to test the Committee on amendments 43 and 41.

Matthew Hancock (Conservative, West Suffolk)

Clause 4 gives the Treasury the power to make regulations to require banks to share data on their small and medium-sized business customers with credit reference agencies, and to require them to ensure equal access to that data for the lenders. We have already had a broad and broadly supportive debate on the clause. Following that debate and the discussion on the amendments, and including the amendments that have gone through, I think that it has been a positive debate about how we can open up data on small and medium-sized businesses and, over time, help to reduce the market concentration levels that we see in banking today and provide new sources of finance to the UK’s small and medium-sized businesses.

Challenger banks and alternative finance providers do not have access to the same level of information as the bank with which the business already has a relationship. This is an information asymmetry and the clause gives the Government the power to designate the banks that will be required to share the data. The clause requires the regulations to set out conditions that will need to be met in order for the obligations on banks and CRAs to take effect. Such conditions include requiring the business to give its permission and also that the data should only be released by a CRA on the lender’s request.

The clause also enables the obligation on the CRAs to provide equal access to the data, to apply only when other conditions are met, such as the lender complying with the terms and conditions, and agreeing to provide information to its small and medium-sized business customers subject to the agreement of those customers.

Finally, the clause gives the definition of a small and medium-sized business that will be used for the purposes of the requirements. We are committed to fostering a competitive banking sector to support the economy, and I therefore beg to move that clause 4 stand part of the Bill.

Clause 5 - Section 4:supplementary provision

Iain Wright (Labour, Hartlepool)

I have a brief question on clause 5(3)(a). It would allow for

“provisions about investigations, including powers of entry and search and criminal offences”

in respect of the Financial Conduct Authority. Will the Minister explain why that is applicable to clause 4, agreed a moment ago? This seems very draconian, in relation to the passing of information and compliance with the Financial Conduct Authority. I hope the Minister can explain.

Matthew Hancock (Conservative, West Suffolk)

The whole of clause 5 supplements the power in clause 4 and would enable the Treasury to make regulations to allow the FCA to enforce the obligations on banks and credit reference agencies outlined in clause 4. It would also create regulations to protect small and medium-sized enterprises whose data would be shared under those obligations. Those are part of the standard powers of the FCA.

We want to ensure that the FCA’s power to enforce against this is as strong and robust as normal. We take that into account when dealing with the FCA’s ability to fulfil its obligations in other areas, so we think it is appropriate, because we would not want enforcement of this matter to be any looser than enforcement of other matters.

Toby Perkins (Labour, Chesterfield)

I will turn what was meant to be an intervention into a short contribution. I invite the Minister to explain a bit more about the kinds of obligations that are likely to be imposed on the Financial Conduct Authority, the scheme operator and, in particular, the ombudsman, which is listed under subsection (4)(b)(iii).

Matthew Hancock (Conservative, West Suffolk)

Extending the remit of the ombudsman so that any micro-business that has a dispute with a designated CRA can seek a decision represents a strengthening of the protections for those businesses. It is a welcome move that will ensure that the clause is enforced properly. The clause also gives the Treasury the power to impose an obligation on a designated CRA to provide data on request to the Bank of England for data collection purposes. The power will ensure that the authorities have the appropriate tools at their disposal to execute clause 4 properly. The ombudsman service will ensure that micro-businesses have a method of appeal in those circumstances. I hope that answers the hon. Gentleman’s question.

Clause 6 - Disclosure of VAT regisration information

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 49, in clause 6, page 8, line 16, after “information”, insert

“specifically financial information that would include entire tax records”.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss amendment 48, in clause 6, page 8, line 17, at end insert—

‘(2A) The Secretary of State may by order specify the information that Commissioners are permitted to disclose.”.

Ian Murray (Labour, Edinburgh South)

I thank my colleagues for their enthusiasm.

Again, we welcome any information that can be used to help small and medium-sized enterprises to access funding. We know what is in a positive upwards trajectory: not net lending to small businesses, but the rate of VAT, which has gone up from 17.5% to 20%, despite promises to the contrary and our being warned by the Liberal Democrats that we were heading for a Tory tax bombshell. I do not want to stray too far from the Bill, but it is important to reflect on the fact that VAT has increased in this Parliament, despite promises to the contrary.

Clause 6 was broadly welcomed by everybody who gave evidence last week. The Federation of Small Businesses broadly supports the sharing of data—particularly VAT data—where it helps to increase the availability of credit to SMEs. However, it said in one of the questions it circulated to the Committee on the disclosure of VAT registration information that it is concerned about how the data will be made secure and not vulnerable to mishandling.

We take the issue of data sharing very seriously, and the Data Protection Act will cover what we are trying to achieve in the Bill. Almost 70% of the FSB’s members are VAT registered, and it is to be hoped that the number of VAT-registered companies will increase as the economy grows and companies’ profits and turnover increase. The purpose of these two amendments is to address the FSB’s concerns about data, which it stated clearly to the Committee. Subsection (2) states:

“subsection (1) does not authorise the Commissioners to disclose any information which is, in the Commissioners’ view, financial information relating to any business carried on by V”.

V is the person undertaking VAT registration. The clause states that financial information that, in the commissioners’ view, relates to the business should not be used, but I believe that it should go further and restrict disclosure to financial information that does not include entire tax records. That is critical. Otherwise, the commissioners might decide to hand over entire tax records going back months, years or even decades to someone who wants to assess the creditworthiness of a small business. We do not think that would be helpful, and it would be good if the Bill stated explicitly that VAT registration information provided to determine creditworthiness must be specifically related to the information required, and must not consist of entire tax records.

We support clause 6, as do the Institute of Directors, the FSB and the CBI. VAT information is a key component in helping providers of finance to assess the risks and benefits to their business. Her Majesty’s Revenue and Customs is, quite rightly, draconian in the collection of such information. We are talking about taxpayers’ money; VAT is money that goes into the public purse, and businesses should be paying it fairly. For that reason, it can be difficult for small businesses to ask HMRC for flexibility over payment or the way in which they deal with their VAT affairs. That must all be taken into account, which is why looking at VAT information can be beneficial for finance providers.

The British Chambers of Commerce stated in its evidence:

“This will help companies reduce fraud and comply with anti-money laundering obligations by improving the identification of legitimate businesses.”

We welcome that aim behind clause 6, and we welcome the anticipated increase in trade that it may create. However, as HMRC has acknowledged, there is considerable uncertainty about the estimated uptake. Amendment 49 is designed to restrict the type of financial information that can be provided by excluding entire tax records. Amendment 48 is designed to allow the Secretary of State to restrict, by order, the type of information that can be disclosed. Clause 6 gives that power solely to the commissioners. Again, we completely agree with clause 6, and we think that it will provide another layer of opportunity for small businesses, but we are concerned about the problems that it may cause.

Matthew Hancock (Conservative, West Suffolk)

I am grateful for the Opposition’s broad support for clause 6, which will have a positive impact on the transparency of data and help businesses to access credit. I strongly sympathise with the concerns about safeguarding taxpayers’ privacy. In amendment 49, the Opposition seek an order-making power for the Secretary of State to specify the type of information that HMRC can disclose. I sympathise with the intention, but I fear that, as drafted, the amendment would widen rather than narrow the scope of the measure.

We consulted and ran a pilot on the specific data fields that will be released, and we are very clear about the types of information that will be released. I reassure the hon. Gentleman that any data released will have to be stored securely. During the pilot, strict controls were imposed on the transfer, handling, storage, use and destruction of the data to ensure the application of relevant legislation, including legislation on data protection. There was a requirement for the holders of the data to meet industry-recognised and externally verified security standards. We have run a pilot and consulted on the structure of the policy.

The drafting of the amendment would have the opposite impact of widening the scope, which I do not think is the intention behind it. The requirements for full implementation will be equally stringent as in the pilot, so I hope I can assure hon. Members that safeguards are in place. We are extremely careful about data protection. The safeguards are robust and I hope that the amendment will be withdrawn.

Ian Murray (Labour, Edinburgh South)

I thank the Minister for responding to the two amendments. We understand the FSB’s genuine concern about sensitive data because VAT records also contain a significant amount of personal data—for example, partnerships or limited liability partnerships are run and operated by the members and in a limited company there is no anonymity or partial anonymity. There is grave concern there. However, given what the Minister has said about the Bill’s provisions and the Government’s intentions, I beg to ask leave to withdraw the amendment.

Matthew Hancock (Conservative, West Suffolk)

Clause 6 provides a power for HMRC to release non-financial VAT registration data to qualifying parties. That will enable the assessment of creditworthiness, fraud risk and compliance with regulation related to financial matters. It has strict restrictions on further disclosure when HMRC has explicitly consented to that disclosure, and limits the use of the data to the purposes that I have set out. The purpose of the Bill is to ensure that the significant amount of data that HMRC has always had can be used to achieve important objectives of supporting new lending to businesses. The reason why that matters and the link between that data and business lending is that the ability to share non-financial VAT registration data will provide substantial benefits. For example, research from HMRC in liaison with credit reference agencies has demonstrated the potential to release up to £1.8 billion in additional trade credit for businesses. We hope that the take-up will be between just over £500 million and £1.4 billion, the main beneficiaries being smaller businesses. Such data gives lenders more confidence in their credit assessment of those businesses.

It is important that that is done in a careful and cautious way. There are no plans to sell the HMRC data and none of the proposals in the Bill or previous consultation have suggested that. No financial data will be shared and that is explicitly ruled out in the Bill. The data that can be used will be only that used to identify a business—for example, a VAT registration number or business name. Any organisation wishing to receive data from HMRC will have to meet rigorous conditions, including in relation to security.

Ian Murray (Labour, Edinburgh South)

I am delighted that the Minister has allowed me to intervene. He seems to be restricting the data that may be shared to the VAT registration number and the name of the company. Will he give an example of company A seeking finance and the sort of information that would be useful in relation to creditworthiness? What sort of information would HMRC hold relating to VAT that it could transfer across? It seems that the provision as drafted leaves that to the discretion of the commissioners’ view of the data to be transferred.

Matthew Hancock (Conservative, West Suffolk)

No financial data will shared, but other data, not including financial data, can help a potential credit provider to assess the creditworthiness of the business. The VAT registration number and the name are straightforward examples. I do not want to fetter the judgment or to prejudge, but a potential example might be how long a business has been around for and in the VAT system. Other non-financial data are available.

An argument was put that financial data would also be helpful, but we think that the balance is appropriate to exclude non-financial data. One small example is that it would allow a credit organisation to find out if a business had no footprint at all or, similarly, how long a business had been trading for. I hope that answers the hon. Gentleman’s question. The standards of security are well recognised and independently verified, so I hope that the clause provides the opportunity of a boost to small business, while maintaining an individual taxpayer’s privacy and confidentiality.

Clause 7 - Offences for the purposes of section 6

Matthew Hancock (Conservative, West Suffolk)

I shall be brief. The clause makes it an offence to disclose information under clause 6 to another party without the consent of HMRC. We think that an offence is appropriate in order to supplement the security measures on the data that we have discussed as part of clause 6. The penalties are up to two years’ imprisonment, a fine or both. They are identical to those that apply were an individual to disclose unlawfully HMRC information, as set out in the Commissioners for Revenue and Customs Act 2005.

Ian Murray (Labour, Edinburgh South)

I have a genuine question. In discussion of amendments to beef up the protection of data under clauses 4 and 5, it was covered by the Data Protection Act. Why is it different in this instance of financial data that might still belong to an individual or a company?

Matthew Hancock (Conservative, West Suffolk)

We brought the clauses into line with HMRC’s standards, which include two years of imprisonment or a fine as standard, because it is appropriate to align VAT data with HMRC standards. I hope that answers the question and that, with that assurance and given that clause 6 received the unanimous and wholehearted backing of the Committee, clause 7 may also stand part of the Bill.

Clause 8 - Disclosure of exporter information

Matthew Hancock (Conservative, West Suffolk)

The clause establishes a power to enable HMRC to disclose information about exports. The approach is similar to that in clauses 6 and 7 in helping to promote exporters by allowing more data transference. The clause gives HMRC the power to make regulations that permit the disclosure of limited information about exporters and the products that they export. It specifies the kind of information about exporters that HMRC may prescribe to be disclosed.

HMRC collects and holds a wealth of immensely valuable information about exports. Sharing some of that might be helpful. For example, sharing information on UK exporters’ names and addresses and details of their products would provide a comprehensive and reliable source of up-to-date information that would enable potential overseas customers to identify UK suppliers of products that they are looking to buy. HMRC, however, has a statutory duty of confidentiality that prevents its officials from disclosing any information except in prescribed circumstances, which continues to be highlighted as a constraining factor in the delivery of better services and support to exporters.

It is absolutely necessary to maintain confidence in the core principle of taxpayer confidentiality, as we have discussed, but existing legislation arguably goes further than is necessary in the case of UK exporters by extending strong protection to less sensitive information, such as business names and addresses and details of products—information that is often publicly available. That limits the ability of the Government and others to support exporters by pointing to those who could be open to business. The provision is a step forward in supporting exports; it will particularly help to improve the visibility of small exporters, who often find it difficult to gain the capacity to make themselves known on the global stage.

We are putting in place a legal basis for sharing prescribed export information in a structured way. That information is limited to names and addresses, the commodity codes, descriptions of the goods exported, and the years and months of export. That will hopefully provide a springboard for the development of new, innovative ways of supporting and promoting UK exporters and their products.

Clause 9 - Power of the Secretary of State under section 1 of the EIGA 1991

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 51, in clause 9, page 10, line 21, at end insert—

“(3A) Prior to the commencement of section (1) of the Export and Investment Guarantees Act 1991, as amended, the Secretary of State shall—

(a) commission an independent assessment of the functions and powers of UK Export Finance (UKEF);

(b) make a report to Parliament of steps to be taken in response to the findings of the assessment referred to in paragraph (a);

(c) commission an assessment to determine actions to improve the awareness of UKEF to small and medium-sized enterprises.”.

Toby Perkins (Labour, Chesterfield)

Has my hon. Friend heard from small businesses when he goes around the country, as I know he does, that they are very concerned that the message coming from this place, and from one of the Government parties, is very much that Britain is not an internationalist country any more, that it is looking to isolate itself, and that that is having an impact on how we are viewed overseas and, consequently, on our export sales?

Graham Brady (Conservative, Altrincham and Sale West)

I think that is possibly a little wide of the amendment.

Ian Murray (Labour, Edinburgh South)

That was probably a little wide of the mark, Mr Brady, and I apologise to the Committee, because I probably led my hon. Friend down that particular rabbit hole. However, it is on the record and I think that my hon. Friend is absolutely right. The rest of the world views us as being completely and utterly isolated in Europe and that is probably affecting our exporting potential. If we look at the fact that the UK had growth in its economy over the last 12 months, but our exports are falling, that may say something about the kind of growth this country has and why the Bill presents a real opportunity to correct some of those problems.

Iain Wright (Labour, Hartlepool)

Would my hon. Friend comment on the fact that in the past six to nine months sterling’s value has appreciated as well, making it even more difficult to export, and the challenge of an export-led recovery will be made ever more difficult as a result of the currency’s value?

Ian Murray (Labour, Edinburgh South)

Indeed, one of the major drivers of any exporting strategy is the strength of the home currency, and a strong currency makes exporting significantly more difficult. While the Minister may see a strong currency as a positive in terms of importing, the gap is continuing to widen, so there is a real problem with exporting in this country. That is why we have called in this part of the Bill—it is the only place in the Bill where we are able to do so—for the Government to take a strategic look at everything that they are doing in terms of exporting, because the measures in the Bill are not far-reaching enough.

Although we have not tabled specific amendments to that effect, because we hope that such a strategy will be included in any overall independent assessment of the functions of UKEF, various organisations have contacted us about whether we should examine not only the value and volume of exporting, but the ethical issues. The Campaign Against Arms Trade, Friends of the Earth and various other organisations have asked us to look at whether there should be a prohibited list of exporting, and to examine the ethical and environmental factors of exporting.

Consequently, I hope that the wide-ranging review that we are seeking would examine some of those big issues around exporting, encourage exporting, mean that small businesses knew what exporting could do for their businesses and how to access exporting and export finance, but at the same time consider some of those other issues. So there is a strong case for examining the overall role of UKEF.

The British Chambers of Commerce said something similar:

“The BCC welcomes the broadening of UKEF’s powers…However, there is a strong need to ensure that these new support mechanisms are better marketed and more accessible to SMES.”

That is why we have put new paragraph (3A)(c) in the amendment to try to make SMEs not only interested in exporting but more knowledgeable about the process of exporting. We have talked about the headline figures already, and the Minister should be straining any muscles he has left that have not been already strained by other parts of the Bill to try to find a way to increase UK exporting in relation to its peers in the globalised marketplace.

Of course, we also have to examine matters clearly not only because of marketing UKEF to small businesses, but because of the question of who can access UKEF. Everyone always says that the proof of the pudding is in the eating, and we have received figures for the Government’s two flagship export schemes through parliamentary questions. Perhaps the Minister has anticipated my raising this point, as he points to a sheet of paper that perhaps has better figures than there were before. However, I will just use the figures that I received from my hon. Friend the Member for Streatham (Mr Umunna), the shadow Business Secretary, in response to parliamentary questions that he put before the summer recess.

The two flagship export schemes that the Government are promoting—the £5 billion export refinancing facility scheme and the £1.5 billion direct lending scheme—were not lending. Very few companies were coming forward and of those companies, very few were lent to. I hope that the Minister can give us some updated figures that will perhaps paint a slightly better picture, because these two schemes—particularly the larger one—were announced in the autumn statement of 2012, which is more than two years ago, and there has not been much take-up of them. I suspect that is partly because of the marketing to businesses, to let them know the schemes are available, which is what we are trying to address in the amendment.

The number of small and medium-sized enterprises with customers in China has fallen. China is a key marketplace for the UK. Everyone talks about China; I think that the Prime Minister has been there four times since 2010, and perhaps even more often. I know that the Business Secretary has also been to China on several occasions. Selling to India has dropped by 6%, and by 14% in comparison with quarter 1 of 2013. The percentage of SMEs planning to expand into emerging markets has fallen from 36% in quarter 4 of 2013 to 28%. So there is a real problem, not just with the way that the schemes operate but the way that they are marketed.

I see exporting finance, and indeed the entirety of the Government machinery in terms of exporting, as being too complex, and I do not think anybody would be able to navigate that. Businesses, especially small businesses, need the freedom not to spend too much time trying to navigate a hugely complicated system, and perhaps they would benefit from a one-stop shop for exporting. That is exactly what we need to do. Those figures are pretty dire, so I believe the Government need to accept amendment 51.

The amendment requires the Secretary of State to commission an independent assessment of UKEF’s functions, and an assessment to determine actions to improve the awareness of the body, and then present the report to the House for a response.

We have tabled amendment 51 because we think this is too crucial to the UK economy not to get right. We are happy to work with the Government in the spirit of working together to ensure that we get it right because it would help our small businesses. It would help to create higher-paid jobs than are being created at the moment and it would assist in the future.

The Opposition have launched a commission on trade, to see how we can ensure that all the machinery of government works best for British exporters, and that commission will look at some of that work with the aim of trying to promote some of the things that we do incredibly well—the key sectors that we should be promoting. One of those key sectors, of course, is the European Union itself. We have launched that exporting commission to look at that, and essentially the purpose of the amendment is to say to the Government, “Launch your own review and assessment into UKEF and exporting in the wider sense, to look at some of these big issues.”

My hon. Friend the Member for Chesterfield was heavily involved in the small business taskforce, which has made a number of recommendations to the Opposition, which we are examining. They include creating export hubs in major world cities to give UK firms a foothold; appointing export rainmakers who can help small businesses identify and approach potential customers; and providing a suite of export finance products comparable to those offered by the United States Small Business Administration scheme. As an Opposition way of looking at this, we have done a tremendous amount of work, and great credit to my hon. Friend for leading that small business taskforce, because we brought a laserlike focus to bear on ensuring that exporting works for small business. It would have been easy just to set up a taskforce on exporting, but it was a wider taskforce on all the issues that relate to small business. I hope the Minister will reflect on that. We can send his office a copy of that report if he wishes to have a read through it—but it seems to me that he is not too keen on that idea.

Those were our reasons for tabling amendment 51. I hope that the Minister, in the spirit of the comradeliness that we have had in the Committee, will at last not just agree with our amendment, but actually allow it to go forward.

Matthew Hancock (Conservative, West Suffolk)

At some points during that introduction to the amendment I thought that the amendment was not only being introduced but being executed through the review of exporting that was described. Then we heard that there is indeed already a Labour party review of exporting, which is what the amendment calls for. I think that demonstrates that the amendment is not required. However, it is worth dwelling for a moment on the importance of the work of UKEF. The latest UKTI performance figures will be announced in the next seven days, and therefore, in a sense, performance is already reviewed annually. That is another reason why the amendment is not necessary.

We introduced, after about 20 years, UKEF support for goods sold on shorter terms of credit. UKEF had been almost in abeyance before 2010; we have now re-expanded it. Before 2010, each year the number of businesses receiving direct support was 18. It is now 130. In the first half of the current financial year, 101 have benefited from that support, and over 70% of those are smaller businesses. The smallest support was worth £4,000, which may seem small but could be a huge amount to a small business. There have been 38 schemes in the direct lending scheme, including one for £34 million, which was recently concluded and allowed Carillion to secure a significant contract with the Dubai World Trade Centre.

This area is moving forward. It is part of the Government’s work to support exports. Of course, when our major competitors are struggling, exports are difficult. Nevertheless, we give them as much support as we possibly can by turning round UKTI and making it more business focused, expanding UKEF, on which the clause goes further, and ensuring that that is accessible to not only larger, but smaller businesses.

Iain Wright (Labour, Hartlepool)

Could the Minister tell the Committee how many firms have benefited from the Government’s direct lending scheme for exports?

Matthew Hancock (Conservative, West Suffolk)

Yes. That was the 38 to which I referred. With those answers, I hope that Opposition Members feel able to withdraw the amendment.

Ian Murray (Labour, Edinburgh South)

I appreciate that the Minister has given us some figures, but he must—he did not say in his response that he was—be concerned about the current export figures for this country. If we look at the graphs it is quite clear that they are going down. To be down 30%—[ Interruption. ] The Minister might think 30% down is almost flat. We have not quite been able to get to the bottom of what he meant by “almost flat”. We have a situation where year on year, from August to August, we are down 30% on one measure and down 20% on the other. That is a damning indictment of the Government’s ability to provide more exports. He may blame other countries’ economic circumstances and, indeed, that might be the case, but some of our peers across the EU and other countries to which we want to export are doing rather well. The Chinese economy has continued to grow at a fast pace, as have the other BRIC economies and we should therefore examine all those opportunities.

Andrew Griffiths (Conservative, Burton)

I just wanted to remind the hon. Gentleman that, although he said that China continues to grow, the slowdown in China is at its worst for five years. We see a slowdown in Brazil, the BRIC countries, the US, Europe—the economies in all those countries are slowing down. Does he not accept that that is going to lead to a slowdown in exports?

Ian Murray (Labour, Edinburgh South)

Well, I said “continue to grow”; I did not say that they are continuing to grow at the same pace. The hon. Gentleman has not taken it into account that we are back to the levels of May 2010 on one measure and August 2010 on the EU measure. The economies I mentioned have perhaps slowed down recently, but we have seen a significant drop-off, back to the general election levels in 2010 on one measure, and August 2010 on the other. I accept what the hon. Gentleman said, but rather than be complacent we should do everything we possibly can to help exporting and that is what the amendment would do.

Toby Perkins (Labour, Chesterfield)

I also accept the comments made by the hon. Member for Burton, but listening to him, it was almost as though problems that exist in the world are relevant to our own economy. However, everything that we have heard from the Minister suggests that the global economic crisis in 2008 was entirely the fault of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It really shows the foolishness of the Minster, does it not?

Ian Murray (Labour, Edinburgh South)

The former Prime Minster, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, should, of course, take full responsibility for the downturn in Japan, America, China and so on. My hon. Friend is right that there is an inherent contradiction in defending a Government figure on exporting by blaming it on the worldwide economy and then laying the blame for that on the previous Labour Government. That shows the scrabbling around and scraping of the barrel for the justification for some of those figures.

Oliver Colvile (Plymouth, Sutton and Devonport) (Con) rose—

Ian Murray (Labour, Edinburgh South)

I seem to have woken them up this afternoon. If the hon. Gentleman is as helpful as he was to my hon. Friend earlier, I will allow him to intervene.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Does the hon. Gentleman also recognise that in 2001 the then Labour Government created a structural budget deficit? It is in the Red Book. He might like to read that because it is incredibly important that none of us forgets that it was actually created some years beforehand.

Ian Murray (Labour, Edinburgh South)

Mr Brady, we are going down a route that I am sure you did not anticipate.

Iain Wright (Labour, Hartlepool)

You started it.

Ian Murray (Labour, Edinburgh South)

Perhaps I did start it by having the audacity to try to amend a Bill to ask the Government to put in a report, but although we are reminding each other about history, we should not rewrite it.

I say to the hon. Member for Plymouth, Sutton and Devonport that his own Chancellor, the current incumbent of No. 11 Downing street, was not just a proponent of sticking to our spending plans during the last few years of the Labour Government, but called for less regulation of the financial sector that cost us in the first place. Let us not allow this Committee to rewrite history. Let us ensure that what is on the record is factually correct. If the hon. Gentleman does not believe me, he can Google “George Osborne and Labour spending plans” and it will come up right at the top of the search results. I am sure that he will do that on his iPad while I take an intervention from my hon. Friend the Member for Chesterfield.

Toby Perkins (Labour, Chesterfield)

While we are trying to get the facts straight about the decision to match the Labour spending plans of the time, can my hon. Friend tell me who was adviser to the current Chancellor then, and who provided that advice?

Graham Brady (Conservative, Altrincham and Sale West)

Mr Murray, I hope that you will do it in the context of a report on trade.

Ian Murray (Labour, Edinburgh South)

I will, Mr Brady. Perhaps when the Government are producing their report on trade, they will remind everyone in the country and on the Committee that the adviser to the Chancellor, the current incumbent of No. 11 Downing street, at the time when they were suggesting sticking to Labour’s spending plans was the Minister, the right hon. Member for West Suffolk. Let us leave history aside, but let us ensure that we get the right history in this place, while providing the context for promoting this amendment.

Andrew Griffiths (Conservative, Burton)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

I will on the basis that the intervention is related to my amendment.

Andrew Griffiths (Conservative, Burton)

It is indeed. Specifically on exports, as we have heard, there is a global slowdown and some countries are going back into recession. Given that context, does the hon. Gentleman not find it remarkable that we have the fastest-growing economy in the western world and that, within that context, the Government have created 1.6 million new jobs?

Ian Murray (Labour, Edinburgh South)

Well, the C in the hon. Gentleman’s party is now no longer for “Conservative”; I think that it should stand for “complacency”. The situation, as we saw in the HMRC report last Monday, is that a lot of employment in this country is low paid or on zero-hours contracts, which we will discuss in part 11. The proof is that, although unemployment in this country has been falling quite markedly, which is great for getting people back into work, the tax take is flat, when it was projected to be £12 billion more. That tells us what kind of employment we are creating in this country. If the hon. Gentleman does not believe me, he has his phone and his iPad, and he can look up the HMRC figures released last Monday.

To return to the amendment, now that we have sorted out history and not allowed the Government to rewrite it, I am disappointed that the Minister does not think that a review is acceptable. We have conducted our own review, done a small business taskforce and launched a commission led by Graham Cole of AgustaWestland to examine how we deal with exports, particularly in relation to small businesses. The Opposition are doing that to ensure that we can diversify the economy and increase exports. I find it strange that the Government would not want at least to consider it, given that small businesses and FSB members who have come to talk to us at our surgeries and lobby us about the Bill are telling us that export finance and the exporting system are too complex.

Matthew Hancock (Conservative, West Suffolk)

I am delighted that the hon. Gentleman has now returned from his ramble to the clause. Does he not welcome the clause and the work that it will do to expand export finance, as well as the action that has been taken to boost exports—such as the 38 potential deals in the direct lending facility that we discussed earlier—notwithstanding the challenges in the economy around the world?

Ian Murray (Labour, Edinburgh South)

There is no political divide about trying to boost exports. We all agree that we should boost exports. As I said at the start of my contribution, I welcome the provisions in the Bill to assist with that. However, surely that emphasises that we should assess any good practice in exporting, and see whether we can expand it into other areas and get the message to small and medium-sized businesses. That is what the measure is about—it is a small business Bill. A review before it comes into force would be useful and allow us to examine the types of exporting we have, the kinds of industry that we are good at and the sort of areas in which we should export. It would also allow the Government to take stock of the plethora of support we have for small businesses, include that in a report and present it to Parliament.

That is a perfectly reasonable suggestion, but it seems that the Government are perfectly happy with our plummeting exporting figures—also known as almost flat. That is unacceptable when we are trying to diversify the economy and create high value jobs in this country. I am therefore disappointed that the Minister has decided not to accept the amendment and I would like to test the view of the Committee.

The rest of the debate is in Hansard.