Small Business, Enterprise and Employment Bill

Public Bill Committee, 23 October 2014.

Clause 13 - Target for streamlined company registration

Matthew Hancock (Conservative, West Suffolk)

It is a great pleasure to serve under your chairmanship, Mr Robertson. Clause 13 signals the Government’s ongoing commitment to reduce burdens on business, embrace new technology and deliver more public services digitally. Part 2 is about reducing regulation, and clause 13 specifically does that by imposing a statutory duty on the Secretary of State to ensure that by the end of May 2017 a streamlined system for registering new companies is in place.

We have an ambition to make Britain the best place in the world to start and grow a business, and the clause is part of delivering on that ambition. Rather than inputting the same data several times to incorporate and register for taxes, a new company will be able to provide their information just once, digitally, to incorporate with Companies House and to register with Her Majesty’s Revenue and Customs for corporation tax, VAT and PAYE. We have already reduced the burdens in that area. Companies House has saved £20 million for companies by lowering its fees using digital filing, and HMRC has reduced the overall administrative burden of taxes on business by £250 million by 2015, often using new technology.

Clause 13 uses a statutory target to demonstrate, in the strongest possible terms, the commitment to improve the current system and to ensure that it is given the highest priority across Government to deliver a solution as quickly as reasonably possible. We are committed to a service that is easy to use and cost-effective. The new system will be developed with businesses’ needs at its heart, involving businesses at every stage and adapting the solution in response to their feedback. In simplifying how companies are set up, we hope to save entrepreneurs time and money to ensure that they can do what they do best: starting and growing their businesses.

Toby Perkins (Labour, Chesterfield)

In much the same way as human beings are said to hatch, match and dispatch, businesses are born, develop and branch out. Unfortunately, on occasions, they come to an end. Everyone accepts that some kind of process is required to manage the transitions. As policy makers, we have the duty to ensure that the procedures are as simple and straightforward as possible. The previous Labour Government set up the Better Regulation Executive to improve the design of new regulations, simplify existing ones, and improve how they are communicated. It is important that all of us in this place, while accepting there will always be political debate and discussion, do not do anything to give the impression that Britain is anything other than a great place to do business. It is important that we all get behind clauses such as clause 13, which sets a target and intends to ensure that Britain is the easiest place to set up and run a new business that it can be.

In addition to the Better Regulation Executive, Labour put in place the regulators’ compliance code and set up the Regulatory Policy Committee to provide independent scrutiny of proposed regulatory measures put forward by the Government. As my hon. Friend the Member for Streatham (Mr Umunna) has made clear, it is important that the Department for Business, Innovation and Skills is not just the voice of business at the heart of Government, but is working strongly with other Departments to ensure that all regulations from any Department are tested against the impact they will have on the business community and on Britain’s capacity to be competitive in the modern world.

Labour introduced the Legislative and Regulatory Reform Act 2006, which gives Ministers certain powers to make legislative reform orders that remove or reduce burdens resulting directly or indirectly from legislation, with significant safeguards to prevent abuse. The House of Commons Library estimates that our programme of simplifying regulation delivered savings of £3 billion a year to business. When anyone talks about the previous Government’s record on regulation, we cannot talk too often about the savings and the efforts that went into ensuring Britain is a great place to do business, while keeping the regulatory burdens on business to a minimum.

We are pleased that the Government are building on that work through the clause, which we support. It places a duty on the Secretary of State to ensure that a system is in place by 31 May 2017 that provides a streamlined company registration system. We welcome the two principles inherent in that proposal. The first is that Government should use digital platforms to interact with businesses where possible. Labour has been calling for many years for such electronic developments to save small businesses and the state time and money. Back in 2012, the insolvency practitioners’ professional body R3 set up a working group to design a new online report on delinquent directors, replacing the antiquated paper system whereby forms were manually filled in and transported by courier up and down the country. That work enjoyed tremendous support but was stopped at the time by BIS because the Government had a moratorium on new regulation for micro-businesses. Despite the fact that 82% of insolvency practitioners wanted to change to an electronic system—a digital system that would make life easier—the fact that the Government had said there were to be no new regulations prevented it from being introduced. We tabled amendments to the Deregulation Bill earlier this year to bring about such a change but were unsuccessful in persuading the Government to help small businesses in that way. We are very glad that, with this clause, the Government seem to accept our basic principle and we will fight for this change when we get to the latter stages of the Bill.

The second principle inherent in the clause is that business registration should be as straightforward as possible. It will not surprise my colleagues—though it may surprise some Government Members—that when Labour left office in 2010, Britain was ranked by the World Bank as the easiest place in Europe to set up a business. In fact, it was ranked the fourth easiest place to do so in the entire world. When we hear the Government say that they want to take steps to make it easier for people to set up businesses, we of course support that. We are the party that made Britain the easiest place in Europe to set up a business between 1997 and 2010, and we will be right behind the changes for that reason. The Government could always do more to simplify regimes—even efficient ones. We think this is a sensible change.

Ian Murray (Labour, Edinburgh South)

On streamlining company registration, could we look at a step before that? When people are setting up their own business, they are often not sure which kind of business they wish to set up—for example, they could set up a partnership or go down a different route—and whether they should register for corporation tax. There could be some flexibility in providing a pre-registration stage to ensure that we have the right kind of company for the business.

Toby Perkins (Labour, Chesterfield)

One of the great things about the shadow BIS team is that we are open to new ideas and are constantly looking for ways to improve the system that we will inherit in 2015, when my hon. Friend the Member for Streatham becomes the Secretary of State. My hon. Friend the Member for Edinburgh South is absolutely right to say that we need to look at every stage of the business cycle, even the embryo stage prior to taking the plunge and setting up a small business. We are looking at how to make setting up a business easier and more efficient, and at how to make the regulations more robust. My hon. Friend is absolutely right to say that.

Currently, at least two Government agencies need to know about a company’s birth: Companies House, the main company registrar in the UK; and Her Majesty’s Revenue and Customs, the tax authority. Later on in the business life cycle, there are VAT, PAYE and corporation tax hurdles to jump. The picture is not the same for our competitors. Many of the emerging economies of south America provide compulsory membership of their national chambers of commerce, so all those interactions take place with just one organisation, which can also act as a powerful lobby group on behalf of its member businesses. That important idea was proposed by Lord Heseltine in his report “No stone unturned”. However, I recognise that business support groups are legitimately concerned about which organisation would take on that role and whether making registration statutory would affect businesses’ independence. Although the clause is a step towards making the process of registering a business easier, there may be other ways in which we can simplify it and minimise the regulatory burdens when businesses get themselves going, employ staff and pay taxes.

The clause requires the Secretary of State to deliver a truly simplified system of company regulation that is electronic and provides businesses with a single receipt for all processes, and we are pleased to support it. My hon. Friend the Member for Streatham looks forward to standing before the House on 31 May 2017 and confirming that we have been compliant with measures that all of us were happy to support on this day back in 2014. We are happy to support the Government on this clause.

Clause 14 - Streamlined company registration: duty to report on progress

Matthew Hancock (Conservative, West Suffolk)

I shall speak very briefly to clause 14, which will ensure Parliament is kept informed about the progress made on clause 13 by requiring the Secretary of State to publish a report at regular intervals during the lifetime of the project. We propose to have two reporting periods: first, a period from the project’s commencement up to 31 March 2016; and secondly, a period covering the subsequent 12 months. The reports will provide Parliament with an update on the progress made during those periods to ensure that we put in place a system of streamlined company registration.

Toby Perkins (Labour, Chesterfield)

What should we expect from the reporting procedures between now and 2017? What progress should we expect to be made by March 2016, and what steps will businesses see between now and then?

Matthew Hancock (Conservative, West Suffolk)

We hope to see substantial progress, building on what has already happened, between now and the end of March 2016. We want to put more services from Companies House online and make them more broadly available, in order to make the process of finding out how to register a business as efficient as possible. That is what I hope.

Toby Perkins (Labour, Chesterfield)

I of course entirely agree with the principles that the Minister outlines, but will he be more specific? By March 2016, how will things look different from today? We will have this report in March 2016, with steps being taken by May 2017, but what will actually be different for businesses by then?

Matthew Hancock (Conservative, West Suffolk)

As I said, I hope that we will be able to make interim progress, but what I really care about is that we get to a full, agile, streamlined system by 2017. I do not want to go further than saying that I hope we make significant progress to show that we are on track, because what really matters is that we are on track to deliver a system that hangs together, that works across Government and that brings together as much registration across Government as possible. The report will help answer the hon. Gentleman’s question by ensuring and insisting that we deliver in time.

Toby Perkins (Labour, Chesterfield)

We supported clause 13, so of course we also support clause 14 and agree that the Secretary of State should be accountable to Parliament for the new duty that the Government are being given. I am slightly surprised that the Government are not able to be a little more specific. Given that they have put these road maps in place, and given that the Minister has rightly said that a process is going through that will consider every stage to make life easier for people who are registering new businesses, I am surprised that there has not been more thought about where we go from here in 2014 in order to arrive in May 2017 with a streamlined system. We are debating a clause that will tell the Secretary of State that he or she has to come back and report to the House, so I am slightly surprised that we are unable to say what progress will have been made by 2016.

Matthew Hancock (Conservative, West Suffolk)

There is a good reason why I do not want to put more on the record: I do not want to jeopardise the best possible delivery by 2017 by insisting that, in a year’s time, the project second-guesses what is necessary in order to fit with comments that I, as the Minister, am making in Hansard now. I want us to be able to deliver a complicated IT project. Government IT projects are difficult enough to deliver on time without having to hit a description written in Hansard of what we now expect to happen in the interim, with the consequent full expectations for the delivery of this Bill. I want to ensure that the project happens, happens properly and happens at the set date, and I want to ensure that the Secretary of State reports on the way.

Toby Perkins (Labour, Chesterfield)

I thank the Minister. I may be being optimistic, but I suppose there is a timeline and project plan for the work that needs to happen once we have approved the Bill. I suppose that has all been costed, budgeted and timed. Clause 14 is simply about a report in 2016 and 2017 to update the House on the progress that has been made. The idea that it would damage the process if we, as Members of Parliament, knew what the Government intend to achieve, and that it makes the Government less likely to be able to deliver, is a spurious point. None the less, it is the Minister’s point.

We strongly agree with the principle that Ministers should be accountable to Parliament for their performance in supporting British businesses, just as Ministers must be accountable to Parliament for their performance in managing the national health service. Businesses are the lifeblood of our economy and the employers of so many of our constituents, so businesses also require the Government’s focus and support. As the Bill passes through the House, the Minister should reflect on whether it would better help the House to deliver on the principles of the clause in holding the Secretary of State to account if we knew what the Government expect to have been achieved and delivered on behalf of businesses by March 2016.

The principle of ensuring that Ministers are accountable is why the Opposition not only support clause 14, but also tabled new clause 4, which builds on the principle by creating a new duty on the Secretary of State to make a statement to the House at the end of every financial year outlining what the Government have done to support British small and medium-sized enterprises in the previous 12 months. I had hoped that new clause 4 would be discussed along with clause 14, but I hope that when the time comes the Government will support the new clause.

The idea of having the Secretary of State make a report, which has been mooted by Members on both sides of the House, will be an important factor in focusing the Government’s mind on supporting and delivering for Britain’s great small businesses and ensure that their concerns are taken seriously. Britain’s small businesses are in some ways at a competitive disadvantage because of the lack of a proper industrial strategy supported by Government. For example, we are the only country in the G8 without a proper state-backed business bank. If Ministers were directly accountable to Parliament for their performance in backing British small businesses, even Ministers in this unloved Con-Dem Government—it is hard to find anyone in it who thinks that it is really where they would like to be—might wake up to their responsibilities and take the necessary action, which includes reducing the business rate bill, as suggested by my right hon. Friend the Leader of the Opposition, and freezing energy prices until 2017 to save the average small business £1,800 a year. Those are precisely the sort of things that a future Labour Secretary of State would report back on to Parliament in an annual statement.

The clause is a step in the right direction and we will support it today. My preference would be that the reports, including those in new clause 4, are made orally to the House so that all Members are able to question the Secretary of State on their progress and commitments, and so that small business owners across the country can watch the statement for themselves and make their own judgments. Will the Minister confirm whether he expects a statement to be made on the Floor of the House? Will he be doing anything to encourage that to happen? Would having a publicly announced plan as to how the principles of clause 13 will be delivered by 2016 and 2017 prevent the Government from doing so? The explanatory notes state that the Government consider the May 2017 deadline to be “stretching but achievable”, but obviously do not state what would happen were it not met or how Parliament would be able to hold the Government to account on the various steps on the road between now and 2017. Will the Minister clarify the consequences and think again about producing a road map to enable the House to hold Ministers to account on the timeline?

Matthew Hancock (Conservative, West Suffolk)

It seems slightly like we are dancing on the head of a pin. As I said before, the process of reaching a simplified, streamlined company registration system involves IT changes that are difficult to introduce but necessary. They are challenging but doable. The process involves a lot of consultation and testing with businesses to ensure that it works properly. In this type of project, we are clear about the end goals and the need to consult all the way through. I will therefore not prejudge what should happen halfway through, and asking us to do so misunderstands how project management is most effectively done.

Our proposal is that the report is not an oral one. This is an important project, but there are many important projects, not least as part of the Bill. We propose that it should be a report to Parliament. As with most reports to Parliament, there are many opportunities to then debate those issues on the Floor of the House.

Toby Perkins (Labour, Chesterfield)

I take the Minister’s point. However, I take issue with the idea that he says, “We want accountability to Parliament,” through clause 14 but then says, “Actually, we’re not going to tell you what we should have achieved by March 2016. If you did know what we should have achieved by then, it would prevent our ability to achieve it.” I would think that the idea of a timeline that people know about and which we are able to question the Minister on is precisely what he is attempting to achieve. It is baffling that he thinks we are misunderstanding project management.

Matthew Hancock (Conservative, West Suffolk)

I do not know whether the hon. Gentleman genuinely thinks that his contribution helps to achieve the goal of having a streamlined company registration system. I am absolutely sure, having run projects in Government, that the best way to get there is to have a clear goal and then consult on the process. He suggests that we set out today exactly where we should be in 2016 and not allow the project team to move off that. I am afraid that I will not make their lives more difficult in that way; I will support them in getting to the goal by 2017. He apparently supports that goal but does not seem to want to help us get there.

I know that does not answer the hon. Gentleman’s question, but that is because what he is asking for is unhelpful. I want to have the project delivered by 2017, which we think is realistic. There will be a written report in the first instance but Parliament has many opportunities—for example, Back-Bench debates and Select Committees—to debate reports laid before it. Normal parliamentary processes will decide whether it gets elevated to an oral debate and how much time is allocated in Committees or on the Floor of the House.

Clause 15 - Review of regulators’ complaints and appeals procedures

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 74, in clause 15, page 16, line 17, at end insert—

“(cA) an assessment of whether and, if necessary, the extent to which, any business, having challenged a regulator, has been discriminated against thereafter as a consequence.

(cB) recommendations for mitigating steps to be taken if an assessment mentioned in paragraph (cA) concludes that discrimination has taken place.”

John Robertson (Labour, Glasgow North West)

With this it will be convenient to discuss Government amendment 21.

Ian Murray (Labour, Edinburgh South)

It is always a great pleasure to serve on a Committee with a fellow Scot in the Chair, Mr Robertson. Congratulations on the referendum result—for the record, we won it by 55% to 45%. We welcome the thrust of the clause and what it tries to achieve. However, we want to ensure that small businesses are not discriminated against in any way when challenging regulators or, indeed, trying to enforce issues with regard to the clause.

Many small businesses say to me and my colleagues that a key issue in how they operate is not regulations but the way they are enforced, as well as their relationship with regulators at a local authority level or anything up to central Government level. We have failed to persuade the Government to accept a number of amendments in this Committee, but we have tabled amendments that we genuinely think would strengthen the Bill. We welcome clauses 15 to 17, which are connected and introduce a mechanism allowing businesses the space to seek redress in resolving complaints and appeals.

The purpose of amendment 74 is to ensure that the reviewer’s report has due regard to any impact that a business encounters if it has challenged the decision of a regulator. Indeed, that is the intention behind clause 15(4), which says that a report should be produced that gives

“an assessment of the extent to which the relevant regulator’s procedures of the kind mentioned in subsection (2)(a) are accessible and fair to businesses”.

It asks for the report to provide

“recommendations to the relevant regulator”

should those procedures require change, and suggests that recommendations can be made

“to the Minister of the Crown who appointed the reviewer for any change in the law which the reviewer considers would lead to improvements in the procedures or their operation”.

Amendment 74 requires that the measure goes just a little step further on the production of that report, which should provide an assessment of whether and, if necessary, the extent to which any business having challenged or, indeed, just queried a regulator has been discriminated against as a consequence of that approach. There should be recommendations for mitigating steps to be taken if an assessment mentioned in the proposed new subsection (cA) of our amendment, which looks at the discriminatory features, concludes that discrimination has taken place.

With amendment 74, we are not asking for any remedies but if a report is being produced, it would be only right and proper for those issues to be taken into account. The fear of small businesses would be that they would not want to challenge a regulator or reviewer of those regulations, on the basis that they could be subject to other regulations or, indeed, that the number of visits or assessments for that particular business could be increased.

The Forum of Private Business stated in its written evidence that although it welcomes the clauses,

“a fear will remain that should challenges be made, the business might be subjected to an increased level of assessment.”.

We always fear that. When I ran my own small businesses, if we made a complaint about an authority, there was always the fear that regulatory inspections would increase, the business would be informally blacklisted, and so on.

If a business feels that, having made a challenge, it has subsequently been subjected to an increased level of assessment from the regulator, it should be able to report those concerns to the reviewer, as mentioned in clause 13, and find out how they could possibly deal with them through that particular reporting mechanism. If that becomes a requirement of the reviewer, businesses can feel safe in the knowledge that they can challenge regulators on decisions that affect them and that they feel are unfair, without fear of retribution or other unpleasant consequences. I do not want our proposal to sound draconian but it is really about a perception. What most small businesses fear most from regulations, whether employment regulations, health and safety regulations or any other regulations that their sector is subject to, is the possibility of retribution. The existence of a proper reporting mechanism would allow them to feel a little bit more comfortable if they decided, in such circumstances, that they wished to challenge the reviewer or the regulator.

I would like to raise some other issues on this part of the Bill. The British Chambers of Commerce questions whether the proposed reviewers are

“likely to be drawn from existing employees of the regulators”

or whether additional employees will be required. There are no details on that in the Bill, as far as I can determine, so perhaps the Minister would answer that question directly when he gets to his feet. I can see that he has jotted that down so that he can answer it; I am looking forward to the exact number, if he is able to provide that.

As the Association of Chartered Certified Accountants said in its submission to the Government’s consultation on the small business appeals champions and non-economic regulators,

“the individual appointees must inspire the confidence of small business and the respect of the regulators.”

That is an incredibly important aspect of the appointment of any reviewer. The British Private Equity and Venture Capital Association said that if the reviewer appointee

“is ‘grafted onto an existing position’ as a Non-Executive Director as suggested in the consultation document, SBACs may not be as independent as necessary to ensure a unbiased view untainted by existing culture within particular regulators.”

That is an incredibly important point. The reviewer must be seen to be independent for these clauses to operate properly for small businesses.

We have no problem with the clause or Government amendment 21, which is a drafting amendment, but we want the Minister to confirm what the appointment process for reviewers will be. Will the reviewers be drawn from the regulators’ existing employees? Does the Minister agree that it is important to clarify that point to show that the reviewers are impartial and independent and ensure that they instil confidence in the regulators and the small business environment?

Matthew Hancock (Conservative, West Suffolk)

I am grateful for the opportunity to have this debate—it often says that on my speaking note, but in this case I genuinely am. The Opposition’s point is important, so it should be recorded and its spirit should be taken into account. There is one specific reason why we should resist the amendment: there is a problem with it, which I will come to. Nevertheless, its broad thrust, which is that the appeals champion should take into account whether an individual business has been discriminated against, is important, and I agree with it.

The difficulty is that the amendment requires that if evidence of discrimination is found, the appeals champion must make recommendations to mitigate it for the businesses concerned. My concern is that if the appeals champion must make an assessment of each individual business, they will end up not only looking into each individual case, which is fine, but reporting on each case. Therefore, they will end up doing the work that they are supposed to be overseeing.

The purpose of the appeals champion, which is set out in clauses 15, 16 and 17, is to ensure that at a senior level in all regulators there is somebody with a statutory duty to take into account how well the appeals process and the regulator are working for small business and ensure that complaints are taken up. Too often, we, as constituency MPs, have had businesses say to us, “This regulator has come down on me like a tonne of bricks. I think it was unreasonable,” or, “It made these mistakes, and there wasn’t anybody for me to go to.” Normally, those businesses must go down the route of approaching an external ombudsman, but they want the process inside the regulator to change so that the mistakes are not made again. The appeals champion will help to change that process.

Mark Garnier (Conservative, Wyre Forest)

On the subject of the regulators, I am slightly confused about where the financial services regulators, in particular the Financial Conduct Authority, stand on this issue. I am not sure whether they are specifically covered by the Bill. Will the Minister clarify whether the financial services regulators will be covered by the small business appeals champion provision?

Matthew Hancock (Conservative, West Suffolk)

I am grateful for that question. The Financial Conduct Authority and the Prudential Regulation Authority will not be covered by the small business appeals champion because they are already subject to more extensive statutory accountability and scrutiny than other non-economic regulators. We are creating a route for small businesses to go down to ensure their concerns are taken into account. That principle is already embedded for those two regulators. In fact, a stronger route is already set out in legislation.

Toby Perkins (Labour, Chesterfield)

I entirely support what the Minister is attempting to do here. Provisions in the Deregulation Bill mean that a whole variety of regulatory bodies now have a growth duty, which could ultimately lead to businesses taking their regulators to court if they feel they have not delivered on that growth duty. What thought has the Department given to ensuring the right balance between regulators being answerable, and still being able to get on with their regulatory functions without being cowed by powerful interests?

Matthew Hancock (Conservative, West Suffolk)

That is an important point. The purpose of the appeals champion alongside the growth duty is precisely to ensure that the organisation has a duty to consider impact on growth and that there is a route for statutory recourse. Someone within the organisation will have a statutory duty to ensure that the appeals process works for small businesses. We have chosen the statutory route to allow someone within the organisation to make these arguments in favour of growth, in the same way that regulators have statutory duties in many other areas. Too often, the onus for regulators is on the regulation coming into effect, without any statutory requirement to consider how that might minimise the burden on businesses.

Through our deregulatory work, we have found some areas of deregulation where the purpose is to remove regulation altogether. That is fine, but there are other areas where we can get exactly the same policy outcome with a lower burden on businesses just by doing it more effectively—for instance, ensuring that inspections of a business from different inspectorates happen at the same time, or that guidance is written in plain English rather than reams of legalese. There all sorts of different and detailed methods. The purpose is to ensure that when a regulator considers how it should regulate, someone with a statutory duty makes sure that it listens to the concerns of small businesses and acts on them in a reasonable way. If the concern is not reasonable, it should not necessarily be acted on. I have explained that as well as I can, and I hope I have not tied myself in knots.

Toby Perkins (Labour, Chesterfield)

I am grateful for that explanation, which aids the debate. I do not want to revisit the debate on the Deregulation Bill about the growth duty and organisations such as the nuclear installations inspectorate being held to account for how they deliver on it, but we need to be very conscious that regulators still have a statutory responsibility. We absolutely want them to support growth, but what safeguards are there to ensure that we do not end up with weakened regulators that say, when there is a catastrophe, “We were so worried about the growth duty that it undermined safety”?

Matthew Hancock (Conservative, West Suffolk)

This is not about the growth duty; it is about the small business appeals champion, but the structure is similar. I do not think we will go down the route mentioned by the hon. Gentleman because regulators have statutory duties which they must, by statute, carry out. This is a question of ensuring that someone listens to concerns about how statutory duties can be carried out with a less negative impact on small businesses. I am grateful for the intervention because I found it useful to clarify that point.

Mark Garnier (Conservative, Wyre Forest)

I apologise for interrupting my right hon. Friend as he gets into full flow. Before he turns back to the amendment, may I press him a little further on the Financial Conduct Authority and the PRA regulator? Various constituency MPs will have smaller independent financial advisers that are regulated by this. Will he go a little further on how he will make sure the FCA is included in what the Government are trying to achieve in the Bill?

Matthew Hancock (Conservative, West Suffolk)

Yes, of course. I am happy to return to that point on Report. We must make sure that the way the system is organised is practical and proportionate, but I will take that point on board and make sure that the interaction between the two systems works as well as possible and more broadly, as my hon. Friend says.

Returning to amendment 74, one of the key principles of the duties of the champion is that they should not interfere in individual cases or individual regulatory decisions. Clause 15(5) spells that out explicitly. We did this deliberately to ensure that the integrity and role of the regulator is not undermined—precisely the point made by the hon. Member for Chesterfield. We would not want the appeals champion themselves to be the process for the appeal. They should be inside the organisation to assess whether the appeals process has worked. Requiring the champion to assess whether any business has suffered discrimination, and then potentially to make recommendations to address that, might make them the final arbiter of appeals and therefore unintentionally require them to be involved in individual cases, which is not the point. The point is that they are meant to oversee that process, rather than execute it.

Ian Murray (Labour, Edinburgh South)

I appreciate what the Minister is saying, but let us say that a small business executes a complaint through the reviewer, and goes back to them and says, “Yes, there was a problem with the regulations, the procedure and the process, but since I have brought this to the attention of that body, it has been very difficult to deal with”. Is that not the kind of thing that should be dealt with? The report should therefore say that there is a problem with how the regulations have been enacted, because a legitimate complaint was made and essentially, the body said to that business that it will make life more difficult for them.

Matthew Hancock (Conservative, West Suffolk)

Yes, I agree that it is critical that businesses should be able to make a complaint or an appeal without fear of discrimination or reprisal. That is why, under the existing statutory duties, the scope of the champion’s yearly assessment and the recommendations can cover this. I think this debate has made it clear that it should, but the report will be able to consider whether the regulator has adequate processes and procedures in place to ensure that businesses that challenge a regulator are not discriminated against. However, I would not want the amendment, as I interpret it, to require them to report on the behaviour in each individual case, because they might end up getting involved in a process they are designed to oversee.

We intend to set out the role of the champion in more detail in statutory guidance, on which we will consult in the new year. We will hold a series of workshops to seek the views of business and other stakeholders on precisely how the details will work, to make sure that this works for small business. I hope the hon. Member for Edinburgh South has been reassured by my response regarding the broad picture, and will agree to withdraw his amendment.

Government amendment 21 is a technical amendment. Clause 16 gives the Secretary of State the power to bring regulators into the scope of the policy to appoint a small business appeals champion by secondary legislation. The amendment corrects a drafting error to make it clear that the regulations themselves are subject to affirmative resolution, not the power to make the regulations. As I said, the amendment is minor and technical and I hope the Committee will support it.

Ian Murray (Labour, Edinburgh South)

I think the Minister is coming to the end of his remarks, but he has not really answered the questions about the appointment process for reviewers—whether they will be existing or new employees of the regulators, and whether they will be encouraged to be impartial.

Matthew Hancock (Conservative, West Suffolk)

Yes, it is envisaged that the appointment will normally, but not always, be somebody of seniority within the regulator with good links to the businesses that are covered, such as a non-executive director. Many regulators are covered by the clause and their needs will be different. The primary guard against the hon. Gentleman’s concern is that the provision will be a statutory duty on somebody within a regulator. Regulators, by their nature, act on statutory duties. Therefore, having a statutory duty is a sufficient safeguard to ensure that the person carrying out the duty does so with diligence and in the way we intend. However, I am determined to get the details of the clause’s implementation right, and I hope the hon. Gentleman will work with me on the consultation.

Ian Murray (Labour, Edinburgh South)

I appreciate what the Minister said—and it does not say that in my notes: I genuinely do. However, I do not accept that the process is robust enough. That was the principle behind the amendment. The way the champion is being developed seems to be as a non-executive director at the regulator, who will produce a report and a review on the basis of whether the processes work for a small business, if they receive a complaint. It is a bit like the Independent Police Complaints Commission: the police investigating the police on procedures of the police. We do not want the regulator to be in that position.

The Minister said that the Government would not want to put in part of the review in the reporting documentation any discrimination procedures that may need to be put in place because they would not want the reviewer to be involved in determining individual cases. However, if it is a non-executive director of that regulator, there will be some involvement—at board level, I would have thought—if a complaint has been made about the processes of that regulator. Surely such a thing would go to quite a high level in the organisation. There may be a whole level of seriousness—from minor procedural difficulties to pretty serious ones, that end up at board level. There will be a non-executive director in the regulator who is the champion of small business, essentially determining whether that small business has been wronged in some way, and producing a report to say that the procedures of that regulator should be amended. It is surely right that, as part of that reporting process, an assessment be made of the impact of the organisation’s regulations on whether businesses have made a further complaint about being discriminated against.

Matthew Hancock (Conservative, West Suffolk)

Is the hon. Gentleman prepared to withdraw his amendment on the grounds that the report should not necessarily be published on the basis of the individual complainant? I agree with the thrust of what he said about ensuring that the issue is taken into account properly. I am confident that the matter can be dealt with by ensuring that the details of its implementation are put right.

Ian Murray (Labour, Edinburgh South)

I appreciate the Minister’s reassurance. If the guidelines will take into account that kind of process, I am happy to withdraw my amendment. We will hold the Minister to account for what I think is close to a promise that he just made to the Committee. I beg to ask leave to withdraw the amendment.

Clause 16 - Power to specify regulatory functions

Matthew Hancock (Conservative, West Suffolk)

In speaking briefly to clause 16, I will mention clause 17, which is consequential. Clause 16 gives the Secretary of State the power to bring regulators into the scope of the policy to appoint a small business appeals champion, which we have just debated. Regulatory functions that have been devolved to Scotland, Northern Ireland or Wales will not be included in that secondary legislation. Regulators in Scotland, Wales and Northern Ireland will be in scope only for aspects of the regulatory powers reserved to the UK.

The regulatory landscape is complex, with more than 50 regulators potentially within scope, and it would be disproportionately complex to put them all on the face of the Bill, so a secondary power is essential to ensure the policy stands the test of time. It will allow us to make changes if, for example, a future Government decide to move regulatory powers into a statutory body or agency. This is a standard method that has been used successfully to define the scope of the regulators’ code. It is also our approach to defining the scope of the growth duty for regulators, which recently came before the House in the Deregulation Bill. We intend to begin shortly a public consultation on the list of regulators to be brought within scope of the policy. The list will be subject to the affirmative procedure, so the House will have the opportunity to scrutinise it.

Clause 17 enables the Government to issue guidance on how the role of the small business appeals champion should be implemented. It provides that the champions must have regard to the guidance when they undertake their formal duties and that any guidance issued must be published. Clause 16 is an essential element of the small business appeals champion policy.

Clause 23 - Amending the business impact target etc

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 75, in clause 23, page 22, line 34, at end insert—

“(aA) lay a statement of each amended thing before each House of Parliament to be approved by affirmative resolution procedure before the amendment is implemented;”

We are thankful for your efficient chairing, Mr Robertson, which has enabled us to fly through the clauses. However, we must now stop and reflect on clause 23 and our amendment. Amendment 75 pertains to clauses 18 to 23, but we thought it was most appropriate to table it in relation to clause 23. This is the first time I have ever read the word “thing” in a Bill—it is an interesting use of language. That is why our amendment uses the term. It would be interesting to get the Minister’s view of the word “thing” in the clause, which confers a power or duty on the Secretary of State to make secondary legislation and, in doing so, take into account the things included in part of the clause. I thought that was rather interesting terminology for the Government to use. We would like to bring the amended things before Parliament and deal with them through the affirmative procedure.

We have no problem at all with the regulatory burden on business being reduced. Indeed, my hon. Friend the Member for Chesterfield has highlighted the tremendous record of the previous Government.

Andrew Griffiths (Conservative, Burton)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

I am happy to have woken up the hon. Gentleman.

Andrew Griffiths (Conservative, Burton)

I am delighted to hear the hon. Gentleman’s support for deregulation. That is really encouraging. Will he commit the Opposition to supporting our one in, two out rule should they win the next election?

Ian Murray (Labour, Edinburgh South)

The hon. Gentleman asks a question about regulation and that is essentially what our amendment is about. We think that each Parliament place should determine regulation. He talks about the one in, one out rule—[Interruption.] He talks about one in, two out but the Government have talked about one in, one out. This is about the quality of regulation. The entire Bill has actually—

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

John Robertson (Labour, Glasgow North West)

Before you ask your question, Mr Colvile, is it about the Bill? If so, carry on.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

It was just to say that the answer is either yes or no.

John Robertson (Labour, Glasgow North West)

That has nothing to do with the Bill. Can we carry on?

Ian Murray (Labour, Edinburgh South)

We are promoting the amendment because each Parliament should, through the affirmative procedure, be able to determine what the Government of the day do in terms of this regulation. We have no problem in supporting the one in, one out rule. In fact, my hon. Friend the shadow Secretary of State for Business, Innovation and Skills said that.

Sheryll Murray (South East Cornwall) (Con) rose—

Ian Murray (Labour, Edinburgh South)

I will give way to the hon. Lady after I answer the question from her hon. Friend. My hon. Friend the Member for Streatham said on Second Reading in July:

“We support the publication of a target for the removal of regulatory burdens in each Parliament, which is provided for in part 2.”—[Official Report, 16 July 2014; Vol. 584, c. 920.]

We fully support the principle of having a regulatory environment that reduces the burden on business. The thrust of our amendment is to test that principle in Parliament each year by the Government of the day coming forward with what they wish that regulatory environment to look like.

Sheryll Murray (Conservative, South East Cornwall)

Will the hon. Gentleman therefore commit the Opposition to continuing the trend of reducing the burden of regulation on business and not increasing regulation, should they succeed next May?

Ian Murray (Labour, Edinburgh South)

I am grateful for the hon. Lady’s intervention but its premise is slightly wrong. This is about good regulation. We could all suggest that we slash regulation left, right and centre.

Matthew Hancock (Conservative, West Suffolk)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

I will answer the hon. Lady’s question first. We think that the exclusivity clauses in zero-hours contracts are a good piece of regulation to resolve some of those issues. It is about good regulation. We have tabled the amendment so that this comes before the House in a positive fashion at the start of every Parliament, for it to determine the regulatory target for the Business Secretary and the Government of the day. That is the right thing to do. We have supported the rest of the Bill’s provisions—clauses 18 to 22 have already been approved. We agree with the Bill’s premise but this is about the value of those regulations.

Matthew Hancock (Conservative, West Suffolk)

The purpose of these clauses is to ensure that a target is set by the Government at the start of each Parliament for the burden of regulation. That takes into account the hon. Gentleman’s point about the quality of regulation. We have a target of one in, two out. He has just said that he supports a one in, one out target, which is essentially a more regulatory position. The question put by Government Back Benchers, which he has refused to answer, is: does he support, in the next Parliament, under this clause, a one in, two out target—yes or no?

Ian Murray (Labour, Edinburgh South)

That is exactly why we tabled the amendment. We support the Bill and have passed previous clauses without debate.

Matthew Hancock (Conservative, West Suffolk)

What about the target?

Ian Murray (Labour, Edinburgh South)

That includes the current Government’s target, so I cannot see why this is an issue—[ Interruption. ]

John Robertson (Labour, Glasgow North West)

Order. Mr Murray can answer the question if he wishes to, as can the Minister.

Ian Murray (Labour, Edinburgh South)

Maybe I can emphasise—

Chris White (Conservative, Warwick and Leamington)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

I can only answer one intervention at a time. Let me get through this one and I will be happy to take another.

Let me re-emphasise what my hon. Friend the shadow Secretary of State for Business, Innovation and Skills said on Second Reading:

“We support the publication of a target for the removal of regulatory burdens in each Parliament, which is provided for in part 2.”—[Official Report, 16 July 2014; Vol. 584, c. 920.]

That is what this part of the Bill provides for, and we support that principle.

Toby Perkins (Labour, Chesterfield)

My hon. Friend is doing very well. It seems we are in the same place on this, yet attempts are being made to create a false division. I know he is keen to get back to the amendment rather than be dragged into other matters, but does he agree with me that many businesses say that there is a huge number of regulations that made no difference to them—redundant regulations—that are being got rid of in order to bring in new regulations, and they do not think that under this Government the amount of time they spend on regulation has reduced at all?

Ian Murray (Labour, Edinburgh South)

That is why the raw figures are so difficult to achieve. It is about the quality of regulation. Many of the people who came to speak to us last week in the evidence session posed that question. The British Chambers of Commerce said the same—it was not as easy as just having raw numbers; it was about the quality of regulation—and that is essentially the purpose of our amendment. Actually, the interventions from Government Members emphasise the fact that they should support our amendment, so that at the start of every parliamentary term a Government could come to the House with an affirmative resolution on their target for the burden of regulation, and it could be voted on. That seems a perfectly sensible approach. We could all have the debate at the start of every Parliament. In eight months’ time, when my hon. Friend the Member for Streatham is Business Secretary, he will have a view of what the burden of regulation should be and will bring it to the House for debate.

Chris White (Conservative, Warwick and Leamington)

Earlier in the sitting, a Labour Member claimed that the Opposition are the friend of business. Is not that claim completely devalued by the fact that they are not prepared to make any commitment to reducing the burden on business?

Ian Murray (Labour, Edinburgh South)

That was an utterly ridiculous intervention. I have said time and again that we appreciate and support the principle of the deregulatory process, as in the clauses that we have just passed without debate. It is completely ridiculous to suggest that we do not support any reduction in regulations on business. I emphasise again, and will continue to emphasise, that all the Opposition Front Benchers here have run our own businesses and realise what regulation is, but let me say to the hon. Gentleman that cutting health and safety regulation and employees’ rights at work is not necessarily good for business—indeed, it is bad for business, because what businesses want is a level playing field. They want regulations on their business imposed fairly, they want fair enforcement, and they want a level playing field for all their competitors as well. That was essentially the thrust behind our previous amendment, which the Minister has committed to introduce, proposing that reviewers of regulators be able to look at whether there has been an impact on businesses and whether they have been discriminated against. It is therefore ridiculous to suggest that we do not look at the burden on business and do not support small businesses. That was a complete waste of the Committee’s time.

Matthew Hancock (Conservative, West Suffolk)

First, on a factual point, the number of businesses that perceive regulation to be an obstacle to success has fallen from 62% in 2009 to 51% in 2014. However, I think that 51% is still too high. Anybody listening to this debate—and believe me, they will hear about it—will hear the Opposition refusing to commit to our one in, two out target on the burden of regulation, unless the hon. Gentleman stands up now and commits to it.

Ian Murray (Labour, Edinburgh South)

The Minister is at it again, isn’t he? We are debating our amendment, which essentially says that at the start of every Parliament the Government should bring to this place their deregulatory target for that session of Parliament. We cannot bind a future Government on legislation; it is up to each Government to determine that. I can only emphasise again that my hon. Friend the shadow Secretary of State for Business, Innovation and Skills said quite clearly at the Dispatch Box on Second Reading:

“We support the publication of a target for the removal of regulatory burdens in each Parliament”.—[Official Report, 16 July 2014; Vol. 584, c. 920.]

So to suggest that we do not want to reduce the regulatory burden on business is, frankly, absurd. That is what my hon. Friend said on Second Reading, and we have just supported clauses 17 to 22 in their entirety—[Interruption.] The Minister is chuntering from a sedentary position that we are against it. I do not know how many times I can emphasise that we are not against it. Perhaps the Minister would like to listen to the fact that we are not against the target for reducing the regulatory burden on business. He knows that, and to suggest otherwise is completely wrong.

Mark Garnier (Conservative, Wyre Forest)

I am grateful to the hon. Gentleman for giving way. I hesitate to press him too much, but he is suggesting a subjective measure to reduce the regulatory burden. Businesses want a quantitative solution. They want to feel that it is something they can grab hold of and say, “This is definitely something that is helping us.” That is why the Government are talking about a one in, two out reduction of regulations. Does he not grasp the point that businesses do not need to have to go through a plethora of regulations? They want to see specific numbers guaranteeing that they will see a reduction in the number of regulations with which they have to comply.

John Robertson (Labour, Glasgow North West)

I say to hon. Members that they have an opportunity to take part in the debate. Some of the interventions are almost speeches in their own right, so perhaps hon. Members could take that on board and make a contribution, rather than an intervention.

Ian Murray (Labour, Edinburgh South)

Thank you, Mr Robertson. The interventions are almost speeches in their own right—they are not particularly good speeches, but they are indeed speeches in their own right.

In this debate the Government tend to miss that it is not about the quantum of regulation; it is about the quality of regulation. It is easy for Governments and Oppositions to say, “We will slash x, y and z from regulations,” but that is completely and utterly meaningless; it has to be done on the basis of the regulations that we will take out and the regulations that we will put in. There is sometimes a great drive to regulate a particular industry. The Government, for example, were dragged kicking and screaming to regulate payday loans, which they did not want to do because they then had a target of one in, one out. In that example of regulation, we should have been protecting people from payday loans, rather than hiding behind the one in, one out approach to regulation. That is one example, and I have yet to hear the Government tell us what regulations they want taken out on that basis. I can give lots of examples of where people want regulations to be introduced to protect the most vulnerable in society and small businesses in this country.

Iain Wright (Labour, Hartlepool)

Good afternoon, Mr Robertson. Will my hon. Friend the Member for Edinburgh South respond to the intervention by the hon. Member for Wyre Forest, who talked about subjectivity and objectivity? Is it not a fact confirmed by the World Bank that it is getting more difficult to start a business in this country? Last year, the UK was ranked 19th, with it taking 13 days to complete the process of starting a business. This year it is getting worse. We have fallen down the rankings to 28th in the world. In Afghanistan it takes only five days to start a company. We are lower in the business rankings than Afghanistan, Burundi and Mongolia on the time it takes to start a company. Should we not be addressing that? That is what the amendment will help to do.

John Robertson (Labour, Glasgow North West)

My ruling applies to both sides of the Committee.

Ian Murray (Labour, Edinburgh South)

I am delighted by the short speech—known as an intervention—by my hon. Friend the Member for Hartlepool. He is absolutely right that, as my hon. Friend the Member for Chesterfield said at the start of this sitting, under the previous Government the UK was No. 1 in Europe and No. 4 in the world for starting a business. The figures we have just heard from my hon. Friend the Member for Hartlepool show that that is no longer the case. To be behind some of the countries that he suggested when it comes to starting a business and being a business owner shows the problem that we have had. Do not take it from me. In its written evidence to the Committee, the British Chambers of Commerce said:

“In some cases, it is not the regulation itself that places burdens on companies, but rather the unfair or heavy-handed implementation of this.”

That goes back to what I said at the start. It is easy throw around numbers, but what matters is implementation, the quality of regulation and doing what is right for small businesses.

Mark Garnier (Conservative, Wyre Forest)

On numbers, 400,000 new businesses have been created in the past four years. Is that not testament to this being a good place to set up businesses?

Ian Murray (Labour, Edinburgh South)

Again, that is another meaningless figure from the hon. Gentleman—he just stands up and throws figures around without putting them in context. The previous Government, from 1997 to 2010, created 1.2 million businesses and hopefully we will see many more set up in the years ahead.

The significant chuntering from Government Members shows that their economic plan is failing. This week we have seen that while unemployment is down the deficit is up, and that PAYE tax receipts are flat when a significant increase was expected. That is telling of the quality of our economy, in exports in particular.

Oliver Colvile rose—

Ian Murray (Labour, Edinburgh South)

I am delighted that I have managed to wake up the hon. Gentleman. Perhaps his intervention will be slightly more helpful than the rubbish we have heard so far.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

May I point out that it is individuals who start up businesses? Indeed, I did so during the time when the Labour Government were in power. It was me, however, who came up with the idea, with my business partner.

Ian Murray (Labour, Edinburgh South)

I am not quite sure what question the hon. Gentleman was asking—[ Interruption. ] I will be delighted to come back to the amendment. The hon. Member for Plymouth, etc. said that he started his own business. Let me emphasise again that I did so, too.

For the record, I refer Members to my entry in the Register of Members’ Financial Interests, which shows the businesses that I have started as well as my non-remunerated directorships with other businesses. When I was running my own small business, what was key was not the number of regulations, but their implementation and quality. To take health and safety and the example of a local authority inspection for food safety, it was the regularity, consistency and quality of those visits that was the issue, not the regulation itself. That is the whole point of our amendment: to allow the Government to come forward at the start of every Parliament, propose what they think the regulatory impact on business should be and have that voted on in this place.

Andrew Griffiths (Conservative, Burton)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

I hope that the hon. Gentleman’s intervention will be on the basis of our amendment, because that is what we want to get to and I have hardly started on it. He will be desperate to go for lunch soon and, thanks the health and safety regulations that are in place, he will not get poisoned.

Andrew Griffiths (Conservative, Burton)

It is exactly on that point. The hon. Gentleman raises a number of regulations from local authorities. Will he therefore welcome the fact that the Government have reduced the number of regulations that councils can impose on building standards from 100 to 5? That is surely good for business.

Ian Murray (Labour, Edinburgh South)

That is surely good for business and no one is suggesting that that is not the case. The Government are trying to paint a picture that Labour is trying to put regulatory hurdles in the way of business, but if we can remove unnecessarily complicated regulations, we absolutely should do that.

I have not yet got past my first sentence on moving the amendment, but let me emphasise what the shadow Business Secretary said:

“We support the publication of a target for the removal of regulatory burdens in each Parliament.”—[Official Report, 16 July 2014; Vol. 584, c. 920.]

That is what the clause tries to do. Therefore, I think that we are in unanimous agreement with that.

Toby Perkins (Labour, Chesterfield)

I want to give extra weight to my hon. Friend’s point. The Library has said that the previous Government’s deregulatory measures save businesses £3 billion, yet this Government’s Deregulation Bill, with more than 100 clauses, will save a total of £30 million a year. Does that not demonstrate the difference between the action delivered by a previous Labour Government and the rhetoric and hot air—changing the way that yarn is sold and so on—provided by this Government that does not make much difference to many businesses?

Ian Murray (Labour, Edinburgh South)

That is absolutely right. My hon. Friend’s intervention emphasises the point I have been making since the start: it is about the quality of regulation. The British Chambers of Commerce said exactly that in evidence—that the problem with regulation is not necessarily the burden on companies, but rather the unfair and heavy-handed implementation of it. It is very easy to throw around figures of one in, two out, two in, one out, and shake it all about, and all the hokey cokey that goes with that, but we need practical examples of what that means. The impact assessments that the Government would put forward will show what the impact on business would be. The Deregulation Bill, with over 100 clauses, merely reduced the regulated burden on business by more than £30 million. So we have to see what the impact of that will be.

Mark Garnier (Conservative, Wyre Forest)

Will the hon. Gentleman give way?

Ian Murray (Labour, Edinburgh South)

If the hon. Gentleman just lets me read another paragraph from my contribution before he intervenes, his question may be answered. I emphasise this: it is right to remove unnecessary regulatory and legislative burdens from individuals, civil society, businesses and public sector organisations. I do not know how many times I am going to have to say that for the Government to realise that we support them in these clauses. One would think that we did not, given the way that they have been trying to bend it into something that is not the case. We need to be mindful of the quantity of regulation we impose on business, but it is equally important, if not in some circumstances more important, to ensure that the quality of the regulation is up to scratch. My hon. Friend the Member for Chesterfield said quite clearly that the Labour party has a proven track record of doing that in government. We set up the Better Regulation Executive.

John Robertson (Labour, Glasgow North West)

May I just say that there is an awful lot of repetition going on. Would hon. Members take the discussion forward, rather than being static?

Mark Garnier (Conservative, Wyre Forest)

The hon. Gentleman talks about the stuff that the Labour party got rid of, but it did not get rid of stopping the offence of a person not reporting a grey squirrel on their land, or the burdens and regulations that micro-manage the location and design of no-smoking signs. It did not, when in government, get rid of the regulation whereby childminders who give food to children have to register as a food business with the FSA. He asked for examples and there are many.

Ian Murray (Labour, Edinburgh South)

Well, Mr Robertson, honestly I think that the hon. Gentleman has just emphasised the quality of regulations. The grey squirrel regulation is, indeed, something that is probably never used, so removing it from the statute book makes no difference at all. He emphasised my point. He can stand up in the Chamber and say, “We’ve removed the grey squirrel regulations so we have taken a regulatory burden off business and corresponded to our parliamentary burden with one in, two out.” However, one regulation might put tens of millions of pounds of burden on business. His example shows that our point is absolutely right; it is about the quality, not the quantity of regulation. I hope he will bring a ten-minute rule Bill to have that particular regulation struck from the statute book, on the basis that he seems to be so passionate about removing regulations on business.

Let me go back to where I was. We set up, as my hon. Friend the Member for Chesterfield said, the Better Regulation Executive to improve the design of new regulations, simplify existing regulations, and improve how they are communicated. We put in place the regulators’ compliance code, and set up the Regulatory Policy Committee to provide independent scrutiny of proposed regulatory measures put forward by the Government. Our programme of simplifying regulation delivered £3 billion of savings a year to business. It is about the quality rather than the quantum of regulation that is removed. We introduced the Legislative and Regulatory Reform Act 2006 which gives Ministers certain powers to make legislative reform orders that remove or reduce burdens resulting directly or indirectly from legislation, with significant safeguards to prevent abuse. I hope the Minister will take his hon. Friend the hon. Member for Wyre Forest up on removing the grey squirrel regulations because he has the power, under the Legislative and Regulatory Reform Act, to do that. He may do so over lunch today. That would certainly be one more regulation out of the pile.

Labour’s approach saw that regulation was never too arduous, ensured that it maintained the confidence of the business community and showed that regulation works best when businesses are better off when they stick to it than when they do not. That is the issue about the level playing field that we spoke about earlier.

It is right that the Government work to remove unnecessary regulations from small businesses, but we must recognise that, as the report “The impact of regulation on growth” commissioned by the Government in May 2012 found, the relationship between regulation and growth can be positive and negative depending on the type of regulation considered. I hope that the Minister recognises that, and that good regulation can have benefits for businesses and consumers. Many businesses in my constituency often say to me, as their local MP and a member of the shadow business team, that they would like some regulations to deal with some of their problems. It cannot purely be about numbers. Our amendment is so important because the Government must introduce those regulations.

If the Secretary of State intends to amend the business impact target, the interim target, the qualifying regulatory provisions or how the impact of the target is assessed, the amendment would require them to lay out the changes in a statement to both Houses of Parliament, which must be approved by affirmative statutory instrument. If the Secretary of State wishes to use the power in the Bill, it seems prudent to require them to report to the House and let us know what they intend to do with the business impact target or whatever else. The amendment would allow both Houses to scrutinise properly the proposals that the Government bring forward under the target. Improving regulation for businesses is about more than gimmicky titles. With the grey squirrel intervention, we heard a gimmicky title for what the Government propose to do here.

The amendment would give us the opportunity to question the Government’s one in, two out approach to regulation. If Government Members had given me the chance to get through my contribution, we could have started to discuss the Government’s one in, two out approach, which clearly fails to recognise that sensible and proportionate regulation, introduced and implemented properly, can promote healthy, competitive markets. Conservative Members have spent so long telling businesses that any problems they face are down to Government regulation that they feel duty bound to throw out as much regulation as they can without a clear sense of direction or notion of what it is meant to achieve. We have already heard that the Deregulation Bill in its entirety saved businesses only £30 million.

We are concerned about the fact that there has been no formal consultation on the business impact target proposal. Will the Minister clarify why that was the case? Does he intend to hold a formal consultation on these proposals?

We seek assurances from the Government about the important regulations that underpin environmental protection, which are consistently raised by the Environmental Audit Committee. Perhaps the greenest Government ever would like to assure the Committee that they will keep environmental protection regulations on the statute book to ensure we satisfy our commitments to the environment. Does the Minister agree that the business impact targets in clauses 18 to 24 should not be used to remove valuable regulations merely because there is a need to introduce a new regulation in another area, and that the Government should regulate for the needs of small businesses as well as removing regulations?

Matthew Hancock (Conservative, West Suffolk)

I think we have just heard one of the most pro-regulatory speeches imaginable in a small business Bill debate. The hon. Gentleman’s arguments were all about why we should not have a one in, two out target. He refused to commit to a one in, two out target and obfuscated about why we should not always be trying to improve regulation. I thought it was pathetic.

Ian Murray (Labour, Edinburgh South)

Will the Minister give way?

Matthew Hancock (Conservative, West Suffolk)

No, because I am going to set out my policy. So far, the one in, one out and one in, two out policies have saved businesses £1.5 billion a year in reduced burdens. The hon. Gentleman is absolutely right that it is not about the number of regulations but the burden of regulations, and that is exactly how the target is set. We have reviewed 5,600 regulations, and more than 3,000 of them will be scrapped or improved, which will save £850 million each year by the end of this Parliament. The Government’s reduction is having an impact, and the purpose of having a statutory target is to insist that every Government are accountable for the amount of regulation that they bring in.

The hon. Gentleman said that things such as the grey squirrel regulation do not matter because people ignore them, but I think it is much better to be a country in which people live under the rule of law and which does not have regulations that people do not abide by. And, by the way, we have already abolished the grey squirrel reporting requirement, along with many others. I can give the hon. Gentleman a long list of ridiculous regulations that the Government have removed.

Ian Murray (Labour, Edinburgh South)

I am delighted that the Minister has at last given way after a few minutes of casting aspersions on what we are trying to achieve with the amendment. He fails to understand what the British Chambers of Commerce and other organisations have said to us: it is not about the quantum of regulation, but how it is used and its quality. Indeed, one thing I did not mention when moving the amendment is the number of times that regulations change. Those are the key issues for business, rather than one in, two out. If the Minister has removed the grey squirrel regulations, did that count towards the target for reducing the burden on business?

Matthew Hancock (Conservative, West Suffolk)

Well, of course, because regulations count towards it, but they are counted in terms of burden. The hon. Gentleman is completely right about burdens, but that is precisely how the target is met. The UK’s ranking has improved from 89th in 2010 to 37th in the global competitiveness report on how burdensome it is to comply with a Government’s administrative requirements—precisely the goal that he was setting. The rise has been significant, but 37th in the world is by no means good enough. Labour Members have made it clear that they have no aspirations to climb further up the table because, for all their talk, they refuse to commit to the one in, two out target.

Turning to the amendment, the hon. Gentleman is quite right to pick on the word “thing”. The “thing” is shorthand for the business impact target, the interim target, the scope of the target or the methodology of the target. I take very much the spirit of the amendment, but I want to go further than I have in response to some other Labour amendments. We want to ensure that the scrutiny mechanisms for the target are as robust as possible, and, given the debate we have had, the more robust, the better. We are content to take away the amendment and consider further opportunities for strengthened parliamentary scrutiny. There is a complex interdependence between making something subject to an affirmative resolution and the consequences for the legislation in question if it is outwith the target. Nevertheless, I understand the starting point and principle behind the amendment.

We want as much scrutiny as possible, especially if a Government propose to loosen the one in, two out regulatory structure. I therefore propose to return to the principle of the amendment on Report, but I am glad to hear the broad and widespread support for the clause as a whole and for the group of clauses, which will make it a legal requirement for every Government from now on to publish their deregulatory target and how they will reach it. We will publish further details on how that will be implemented, but on that basis I hope that the hon. Gentleman will not only support the clauses but withdraw the amendment, and that he will await the proposals, which I am happy to discuss with him, on how we can increase public and parliamentary scrutiny of the target.

Ian Murray (Labour, Edinburgh South)

I will not delay the Committee for too long, but is it not remarkable that after all the bluff, bluster and nonsense from the Government Benches, the Minister agrees with the amendment? I have never in my time in this place heard a Minister so exercised about an amendment that the Opposition have tabled, only then to decide that the amendment should be withdrawn so that he can go away and consider whether or not he includes it in the Bill on Report. On the basis of the two promises I have had from the Minister, I will withdraw the amendment. Anyone who wants to watch the Committee’s proceedings or to read Hansard will see that, after the most remarkable bluff and bluster from the Government Benches, the Minister agrees with what we propose and wishes to take it forward. I am absolutely delighted that the Minister agrees with the Opposition that it is the quality of the legislation that is important, so I beg to ask leave to withdraw the amendment.

Clause 29 - Sections 25 to 28 etc: supplementary

Ian Murray (Labour, Edinburgh South)

I beg to move amendment 76, in clause 29, page 25, line 26, at end insert—

‘(1A) Prior to secondary legislation making or amending the regulatory provision coming into force, the review set out in sections 25 to 28 and this section shall be subject to public consultation with specific reference to the views of businesses, business organisations, civic organisations and trades unions, and any such other organisation which the Secretary of State considers to be appropriate.”

I am sorry to inform the Committee that I did not have time for lunch. I was too busy reporting grey squirrels to the Serjeant at Arms. [Hon. Members: “We do not need to do so any more.”] It may not be a regulation of this place but it is my moral duty to report these things.

I move on to amendment 76 in this fun-packed afternoon in the Small Business, Enterprise and Employment Bill Committee. The amendment would ensure that the review by the Secretary of State of the original legislation included the views of businesses affected by that legislation and its possible repeal and amendment. I am going for a hat trick, if the Minister can agree with this, as he agreed with our previous two amendments. He even tweeted about our previous amendment over lunch, although he forgot to mention in his tweet that he agreed with it. This would be a hat trick of victories for the effective Opposition.

Labour is the party of small business. That is why we tabled the amendment. We want to make the Bill, which is good for small businesses, even more effective. We recognise that it is important to ensure that all new regulations affecting business are reviewed regularly, that regulations are effective and necessary and that businesses are not subject to unnecessary burdens. As my hon. Friend the Member for Streatham (Mr Umunna), the shadow Secretary of State for Business, said on Second Reading:

“We also support the proposed statutory review provision for new regulations that affect businesses.”—[Official Report, 16 July 2014; Vol. 584, c. 920.]

I hope I do not have to repeat that 20 times.

We believe that there is the need for a formal role for stakeholders in the review of secondary legislation. Businesses and other relevant stakeholders should be able to shape the Government’s thinking on business policy in general and these sunset-like provisions in particular.

Therefore the intention of our amendment is that, prior to any secondary legislation being implemented or amended, the review of the original legislation would include the views of businesses and all other key stakeholders affected by that legislation. We are not suggesting a full public consultation exercise, but an appropriate consultation none the less for Ministers and officials to speak to stakeholders and the affected organisations and businesses. They would therefore fully understand the impact and the burden of these regulations directly on business.

An opportunity must be made available for businesses to say that they agree with what the Government are trying to do, or that they disagree and want the Government to consider something else. Using businesses as the arbiters of secondary and primary legislation offers the opportunity to shape any regulation better as they will ultimately be affected by it. We need to ensure that business policy is not dictated to businesses, but is produced in full consultation with them.

With this amendment, we want to put on record the importance of consultation with businesses affected by secondary legislation. There is a lot of secondary legislation in this Bill that the Minister and the Secretary of State will introduce either as the Bill proceeds through Committee or when it receives Royal Assent. We know that businesses require the regulatory environment to be as clear cut as possible so that they can plan and adapt, and they can help inform the Government on what that regulatory landscape should look like. If the Minister can provide assurances to us that engagement with key stakeholders will be an important part of Ministers’ duty to review, we will not press the amendment to a vote. However, it would be interesting to hear about the Minister’s plans for the review of secondary legislation.

Matthew Hancock (Conservative, West Suffolk)

I will speak about the amendment and the clauses that we have agreed should stand part. Clause 29 is supplementary to those clauses. The purpose of this group of clauses is to ensure that all regulations—unless they are covered by an exemption—have an automatic date for review rather than an excessively burdensome impact when they are ineffective or out of date. That is a very sensible proposition. We have introduced that principle administratively in this Parliament, and many of the regulations we have brought in have a review date. This sets it in statute.

The red tape challenge has demonstrated the importance of keeping regulation under review, with thousands of regulations being reviewed and many scrapped or improved. Our debate on the previous set of clauses demonstrated that some regulations just need to be got rid of. Even if Opposition Members think that it is only a legislative tidying-up exercise, having regulations on the statute book that are no longer followed is not a good way to govern a country.

The Bill will ensure that all new regulations include a statutory review provision, except where it is not appropriate. We intend the new obligation to have a broad application to all secondary legislation that regulates business and civil society organisations. That includes legislation implementing EU obligations and domestic measures, and the detail is set out in the clause. We have proposed exemptions for certain categories of secondary legislation—for example, legislation relating to tax, tax administration, spending and procurement—and the Bill contains provisions to set out those excluded areas. Many of those categories have their own system for scrutinising and reviewing legislation; for example, tax legislation is scrutinised and reviewed by the Office of Tax Simplification. We also exclude temporary measures since that is not required if a measure needs to be scrutinised after a period of time.

In conclusion, we recognise the need to keep the legislation under review and up to date. We have already taken action but are now putting it on a statutory footing. I am grateful for the amendment because it has given me the opportunity to set out how we will include formal consultation where proportionate and appropriate. I accept the spirit of the amendment, but it has a technical deficiency which may mean that all new regulations, as opposed to the review of them, need a consultation. I hope that the Opposition acknowledge that we will have consultations where appropriate. Given that and the amendment’s technical deficiency, I hope that they will withdraw it. I welcome the cross-party consensus on these clauses.

Ian Murray (Labour, Edinburgh South)

It is great that the Minister can accept the principle and spirit of our amendment, even if he cannot accept the amendment itself. He just cannot bring himself to accept it and include it in the Bill, but he has been very helpful and I therefore beg to ask leave to withdraw the amendment.

Clause 30 - Definitions of small and micro business

John Robertson (Labour, Glasgow North West)

I call Toby Perkins.

Toby Perkins (Labour, Chesterfield)

I am glad to see that my colleagues had such a good lunch.

I beg to move amendment 39, in clause 30, page 26, line 7, after “business””, insert ““medium-sized business”, “large business” or “super corporate””.

John Robertson (Labour, Glasgow North West)

With this it will be convenient to discuss the following:

Government amendment 22.

Amendment 40, in clause 30, page 26, leave out lines 10 to 18 and insert—

““Micro business” means a business with 1-9 employees

“Small business” means a business with 10-49 employees

“Medium-sized business” means a business with 50-249 employees

“Large business” means a business with 250-1000 employees

“Super corporate” means a business with over 1000 employees”.

Toby Perkins (Labour, Chesterfield)

The amendment is an opportunity to embrace and support the principle of clause 30, but to extend the definitions. We very much support the basic concept of the clause. All hon. Members recognise that businesses face different challenges at each point on their life cycle or growth journey. My hon. Friend the Member for Streatham and the Minister have both spoken about the definition of the term “small and medium-sized enterprise”, which, in a single stroke, can include a window cleaning business that employs one person and a manufacturing firm with 240-odd employees. In some ways it is damaging, and it is certainly lazy, because it does not take into account the fact that businesses face different challenges at each point along the path.

I spent my entire life in the private sector before coming to this place. I worked for a business that had 60 or 70 employees when I started and 300 or 400 when I left eight years later. That business faced different challenges at each point on its journey. The purpose of the clause is to recognise those different stages so we are able to consider who is affected by the legislation that we propose. We must have clear definitions when we make policy.

The Government, like the pervious Government, have introduced policies from which micro-businesses are exempt, and tax breaks that are particularly beneficial to micro-businesses. It is important that we put those definitions in statute so that we can introduce policy that recognises the panoply of business set-up options and the different points along the business life cycle.

We understand the need to make regulations proportionate. We must not place unnecessary burdens on businesses in general and in particular small businesses, which find it difficult to absorb new costs. In contrast to what the Minister rather ungenerously said earlier, of course we recognise that things on the statute book that are redundant or out of date should be removed. It is wrong to have out-of-date laws that everybody ignores simply because the Government have not tidied them up. We do not dispute that it is sensible to do that, but we must not confuse it with making life easier for businesses. If we remove a law that nobody observes, let us not pretend that we are doing it to lift burdens on businesses. That is the point that we were attempting to make, and I am glad to be able to put that on the record.

Defining in law what is meant by the terms “small business” and “micro-business” will make it possible for future Governments of any colour to exempt enterprises of that nature from new regulatory obligations. It is important that we get away from this lazy SME distinction. We must instead recognise that there are micro-businesses with fewer than 10 employees, in which the owner knows every person in the business, and in which each of the members of staff do a variety of different jobs. There are businesses that are moving to the next stage and have between 10 and 50 members of staff. One stage for someone who sets up a business is when they get from the first person they employed to the first person employed whom they do not already know. The next stage is when they cannot necessarily name everyone in the business and what they do. A business will move through stages, from being a small business to a medium-sized business, to a manufacturing firm with 200-odd employees that distributes products around the world. That may be a medium-sized business; it would certainly be among the largest businesses in Chesterfield and, indeed, in any of our constituencies.

When we get beyond a medium-sized business, we have already covered 99% of all businesses. In practical terms, we then get to what are currently described as large businesses, with more than 250 employees. That could be a business of 300 or 400 employees—perhaps a leisure business such as Alton Towers or a supermarket such as Tesco. They are all lumped together but face very different challenges. That is the principle of our amendments.

As originally written, the clause used the definitions of small enterprise and micro-enterprise contained in EU Commission recommendation 2003/361/EC, under which a small business is defined as,

“an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.”.

Likewise, a micro-business is defined as,

“an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.”.

The sum effect of Government amendments 22, 23, 24 and 32 and new clause 3 is to jettison those definitions and replace them with a more complex system.

Since the clause was written, the Conservatives have embarked on a new strategy of expressing the foolishness of the fruitcakes and loons in the UK Independence party by copying all their policies. They say that imitation is the sincerest form of flattery; we will see where it takes the Conservative party to continually deride a party at the same time as copying its policies. In that light, it is important to recognise that what is being proposed is the jettisoning of the EU Commission recommendation, to be replaced by what appears to be a slightly more complicated definition.

Under Government amendment 22, the headcount part of the definition stays in place. Small businesses still need fewer than 50 employees, and micro-businesses still need fewer than 10. However, under Government amendments 23 and 24, the limits on the size of balance sheet or annual turnover will now be defined by the Secretary of State at a time of their choosing. Limiting the definition to being about employees, imperfect as that is, is probably the clearest way of achieving the definitions. I am worried that, far from bringing the clarity that the situation requires, it brings confusion and raises a worrying possibility that the definitions in law may be stretched or redefined by a future Government to bring different companies into new regulations they may set. It is important that we have specific definitions.

The new clauses are limited, only setting down definitions for two types of business, leaving all others unclear where they sit in the Government’s eyes. Even the European directive, on which the Government previously relied, included a third category of a medium-sized business. The Government were right to define small and micro-businesses but our amendment seeks to define medium-sized and large businesses, and super-corporates —companies with more than 1,000 employees—which is more helpful and will be of great assistance to future Governments.

Although we agree with the principle of laying down those definitions in law, the Government have not yet got it quite right. Amendments 39 and 40 propose five new definitions of business size. A micro-business would have one to nine employees; a small business, 10 to 49; a medium-sized business, 50 to 249; a large business, 250 to 1,000; and a super-corporate would have more than 1,000 employees.

There are four key advantages to that approach. Every business in the UK will know where they stand. There will no longer be any confusion for those who employ more than 50 staff, as there would be under the Government’s proposals. The criteria used are simpler and more clearly understood than the Government’s. By just sticking to employee headcount, the definitions remain timeless, without issues of inflation and currency changes altering their meaning. The definition is not open to meddling or interference from a Secretary of State or anyone else. That gives added certainty to British businesses.

By creating a total of five definitions in UK law that can be relied on in subsequent legislation, the amendments allow the Government to take greater account of business reality when setting policy, for example, when subjecting only the largest corporations to certain regulation or exempting the smallest businesses from new legislation. I hope the Minister will look kindly on that helpful attempt to tidy up the legislation and I look forward to the support of the Committee on that.

Anne Marie Morris (Conservative, Newton Abbot)

First, I commend my right hon. Friend for bringing forward legislation that seeks to clarify the definitions of a micro-business and a small business. The Minister and I have had many conversations about that and I am pleased to find that he is listening. I also commend the Government for using a UK rather than a European definition. I take issue with the shadow Minister. It has nothing to do with UKIP and everything to do with the fact that the UK is a very different country from Germany, France and so on. The Government have also included an amendment to give them the discretion to review and change that, which is absolutely what we need, so I support the Government’s approach.

However, in many ways I share the concern of the shadow Minister on the point of defining medium and other. It is clear that we need to segment our business community so that we can target policy making appropriately. It is not just about exclusions and exemptions. My challenge to his proposals is that once beyond small it is simply a matter of size and turnover. We are then getting into the realm of businesses that are AIM listed or fully listed. We are looking at very different beasts. While I understand the intent behind what he is trying to do, I am not sure that is quite right.

What might be helpful, if the Government allowed themselves discretion, is to introduce in future other definitions that might be helpful to assist in policy making. That might also include a sole trader, because the shadow Minister clearly identified that SME is 99%. The next level of small is 95% and micro is 90%. In fact, the individual sole trader accounts for about 70% of businesses in this country.

So looking at those different segments and the appropriate policy making would be a way forward. My proposal would be for the Government to allow themselves even more flexibility than now. This is a serious issue which could impact on decision making and policy making, whatever the Government.

Toby Perkins (Labour, Chesterfield)

I am interested in what the hon. Lady is saying. She speaks with great passion on the subject of small businesses. I believe it is still Government policy to trade with countries across Europe. When we are defining how our markets operate, those policies will often reflect a need for companies from other countries to trade with us here in the UK. Is she concerned that the greater discretion she talks about might mean that we end up disadvantaging British firms, with our firms having to comply with regulations that our competitors in Europe do not?

Anne Marie Morris (Conservative, Newton Abbot)

The short answer is no, because there is some confusion. The EU has its own definitions. In fact, it is currently going through a process of reviewing whether its definitions are right. It uses those definitions for its initiatives and schemes which then apply to a number of different countries. That is a different issue from the individual approach that each country needs to take to ensure that its businesses are best served by their local Governments. I understand the hon. Gentleman’s point but I do not think that problem would arise, because the EU retains its ability to make its rules for its schemes. EU definitions may be important but that should not drive what we do here in the United Kingdom.

In the UK, we have not always adopted European definitions of businesses. We certainly do not do so in the Department for Work and Pensions; we use a much smaller definition of micro-businesses as being smaller than five employees. This definition is used in many different ways, and what we define at this point in time will be important in 17 different Departments. Frankly, it is a bit of a mess at the moment.

Despite the fact that we have a review clause in the Bill, we have immediately adopted the EU’s current definitions with the turnover amendments that the shadow Minister referred to. We are talking about businesses with 10 employees and I am concerned that that definition is too big. I will explain why. Whatever definitions we choose, the importance is that they look at and reflect the life cycle of these businesses. Policy making must help these businesses as they grow. A business with up to 10 employees will face very different challenges to one with just two or three employees. By and large, a business with 10 employees will have at least one or two people with some expertise. They may have someone who knows about finance, without being called a finance director, and also someone technical. In a business with only one, two or three employees, everyone is working hand to mouth.

Quite a bit of research has been done into the life cycle of these businesses and appropriate definitions of them. Over the last decade, nine countries—many of them using the nought to 10 definition—have reviewed their definitions and decided that nought to five is more appropriate for policy making. Those countries include Australia, Canada, India—the old colonial countries, which are not that different from us in many ways—as well as Japan, Norway, the Czech Republic, South Korea, Jordan, Costa Rica and others. We must ensure that the definition is right. As we go through the rest of the Bill, I urge the Government to look carefully at whether we have the right start point. Whatever that start point is, it will always be harder to move it once we have it.

As the shadow Minister said, turnover is helpful for the definition. However, research indicates that we cannot entirely classify a micro-business or small business by its turnover. We therefore have to come up with a proxy. All the research I have read indicates that turnover is not helpful and we are better off sticking with the number of employees for the definition.

Toby Perkins (Labour, Chesterfield)

The hon. Lady is making an important speech. To reinforce that point, I add that the type of business makes a difference. A service-based industry would probably turn over less, but might be very large and a majority of turnover would be profit, and similarly in the manufacturing sector there might be a very large turnover but not all that many people. That is precisely why we have proposed making it a lot narrower and neater.

Anne Marie Morris (Conservative, Newton Abbot)

I understand entirely where the shadow Minister is coming from. If the Minister has some time to read on the train, I commend to him a report produced in November 2011 by the all-party parliamentary group for micro businesses, which I chair, entitled “The Importance of a Definition for Policy Making”. We got input from 80 business schools across the country and we had lead articles written by LSE, Imperial, Lancaster and Manchester Metropolitan universities. There was agreement that nought to five was more appropriate than nought to 10. Indeed, the London Business School concluded that the use of the EU definition may explain why

“we are good at encouraging people to establish a business, but less proficient at producing significant numbers of high growth enterprises”,

because of the difficulty of focusing the help on where it is really needed. I commend the Government for what they are doing and for giving the Government the power to amend, but I strongly urge the Minister that, before this is committed to legislation, he again reviews the start point that he is setting in the Bill.

Matthew Hancock (Conservative, West Suffolk)

The Government amendments are designed to introduce a free-standing UK definition of small and micro-businesses and largely replace the existing clause 30. That means that the definitions will be easier to understand and will work effectively in a UK context. I firmly believe that we in the UK have the full capacity to define these figures for ourselves. Before turning to the detail of the amendments, I pay tribute to my hon. Friend the Member for Newton Abbot. Without her work and her interventions, this clause would not be in the Bill. It is singularly down to her efforts that it is. I therefore take no personal credit for the clause but pass it all to her.

Clause 30 is very important for a couple of reasons. First, it means that in law we will have a consistent definition of what small, micro, medium and large enterprises are. I have long argued that the term “SME” should be abolished. I think that that is the position of both Front-Bench teams and it shows something that we cannot manage it. People automatically fall back on SME as an acronym but the difference between a company of four or eight people and one of 204 or 208 people is enormous. It is hard to legislate for micro-businesses without a definition in law, and that is why we have brought this in.

On the point about having five or 10, I will read my hon. Friend’s report. The reason we went for 10 is that it is used around the world, in Brazil, the United States and much of the EU, but I recognise that five is used elsewhere and there is a debate between the two. The reason I prefer the larger to the smaller is that the most frequent use of this legislation will be to set out micro exemptions from regulations. On balance, I would prefer that a micro exemption covered all the under-fives and all the under-10s, rather than the smaller subset. I take her argument that, when it comes to grant support and focused positive support, we want the definition focused on those that really need it, but given that, at least in the first instance, the main use of this clause will be for exemptions, I would rather they covered a larger subset than a smaller one. Having said that, it is undoubtedly a judgment call. There are arguments on both sides, and we should be open-minded. I will explain why we came down with 10, rather than five.

Toby Perkins (Labour, Chesterfield)

I agree with what the Minister is saying, but will he address the point that the hon. Member for Newton Abbot and I made about turnover definitions being subject to what a business is doing? Would it not be neater just to make it an employee definition?

Matthew Hancock (Conservative, West Suffolk)

That is also a reasonable argument, and it is a balanced decision. On balance, a definition that is broader than headcount alone is the right one because different types of businesses in different sectors can be of a different scale with very different headcounts. A financial business could have an enormous turnover with a small headcount, for instance, whereas a retail business or a business in the care sector could have a much lower turnover on a much bigger headcount and therefore not have the financial resources that a business with a smaller headcount but a higher turnover has to be able to deal with a load of regulations. There is a balance to be struck.

I take the hon. Gentleman’s point about inflation meaning that the nominal value of a turnover measure needs to change over time. Inflation is now low and relatively stable in the UK—it is 1.2% at the moment. A 2% target has been in place for more than a decade, and before that the target was 2.5%. We have had almost 20 years of low inflation, which means that only occasional revisions would be needed. It is therefore not unreasonable for revisions to be made through secondary legislation.

I take the hon. Gentleman’s point, and I have listened carefully to the arguments that he and my hon. Friend made. Their arguments have merit, but on balance it is better to have a dual definition. Although people tend to look to the headcount first, the turnover definition will ensure that there are no unintended consequences due to unusually shaped businesses.

Anne Marie Morris (Conservative, Newton Abbot)

I hear what the Minister says, but will he consider giving himself the flexibility of including wording saying that the turnover can be zero? It is still at the discretion of the Government of the day, which is what he is trying to put in the Bill. If he extended his freedom of movement by making it clear that turnover can be zero, were he to choose to review this he would have the flexibility of changing the definition through secondary legislation, rather than through primary legislation.

Matthew Hancock (Conservative, West Suffolk)

I will think about what my hon. Friend says. Businesses with a turnover of zero are not going to last very long if turnover continues to be zero, especially if they have a very high headcount. As drafted, there is some flexibility for Departments to adapt the definitions where needed.

Toby Perkins (Labour, Chesterfield)

I will bring some experience to bear that has particular relevance to this topic. I worked in the recruitment industry for many years. For permanent recruitment, businesses in the sector tend to have a very low turnover because it is just a fee attached to the recruitment, which can be quite profitable with a relatively low turnover. Similarly, for temporary recruitment, businesses tend to have a very high turnover. Those two businesses, which may be equally profitable and with equal numbers of employees, will be treated differently under this definition.

Matthew Hancock (Conservative, West Suffolk)

I think that can be taken into account by the flexibility within the existing definition. In a sense, the hon. Gentleman has also made the argument for why there should be a wider definition than just the headcount.

I will now address the Opposition amendments. There is cross-party agreement on this subject, which I welcome. Because the policy intent behind the definitions, at least in the first instance, is to facilitate exemptions, or to enable other proportionate treatment, it is not necessary to extend the definition to include very large businesses. Large businesses are, in effect, defined in the Bill by merit of not being micro, small or medium-sized businesses—the rest are large businesses. Our exemptions tend to be at the smaller end. They tend to be micro-exemptions rather than extra burdens for the very largest businesses. I hope the purpose of the amendments is not to turn business on business and separate out super-large and large businesses in order to take down any particular size of business. The amendments are not therefore necessary.

Toby Perkins (Labour, Chesterfield)

We discussed measures on Tuesday that proposed a late-payment requirement for businesses with more than 250 employees. The Government have done many things, including through the prompt payment code. At the moment we have a definition that means that businesses either have more than 250 employees or are in the FTSE 350. There is nothing in between. It may be about exemptions, and it may be about new requirements, but it is also about recognising the reality of what businesses want.

Matthew Hancock (Conservative, West Suffolk)

Having explained why we should resist the Opposition amendments, I just want to deal with the point that my hon. Friend the Member for Newton Abbot made about sole traders. This definition will be used in statute for exemptions in the first instance. They will, of course, be covered, whether it is five or 10. Sole traders can be covered for administrative purposes like business support. They can already be covered separately when issues are administered. Therefore I do not think it is necessary to have a definition of a sole trader set out here, not least because a sole trader with zero employees is a natural person in law. I take my hon. Friend’s point about sole traders being the ultimate small business. However, I considered that point before coming forward with these proposals and I do not think that it is necessary to include them in this definition in law. Having dealt with that final point, I look forward to the Committee’s support for the Government amendments.

Toby Perkins (Labour, Chesterfield)

I listened carefully to what the hon. Member for Newton Abbot and the Minister said about our amendment. I am not entirely convinced that creating a definition for large businesses and businesses beyond that would be unhelpful. It was somewhat revealing that the Minister said that if the Government created these definitions they would have to introduce some legislation that would be bad for them. It betrays a view of Government, which is that all that they ever do is make things worse for people. That is a view of life that some on the right of the political spectrum have held in the past. I should have thought that the Minister might take a more positive view and say that if they create a definition of large firms, medium-sized firms and super-corporates, they might be able to direct more accurately their policy of recognising the challenges facing those organisations and think about how they might help them better. It is somewhat disappointing.

I accept, as both contributors said, that these definitions are always imperfect and that we should recognise that turnover is also a factor in the size of a business. I think that the definitions we proposed were neater. I look forward to working with the Government to see whether we can come up with definitions in which everyone can have confidence. As we have a great deal to get on with this afternoon, I beg to ask leave to withdraw the amendment.

Clause 31 - CMA to publish recommendations on proposals for Westminster legislation

Jo Swinson (Liberal Democrat, East Dunbartonshire)

It is a great pleasure to serve under your chairmanship, Mr Robertson, as you are my parliamentary neighbour. I am delighted to begin my contributions to the Committee on the Competition and Markets Authority measure in clause 31. I very nearly had the opportunity to speak on Tuesday morning on the prompt payment measures, but thanks to the generosity of the hon. Member for Edinburgh South and his directions to my hon. Friend the Minister, I did not have that pleasure.

The Government believe that competition and competitive markets can help consumers and fuel economic growth. The clause will ensure that proposed laws are competition friendly, which will benefit consumers and the wider economy. The clause amends section 7 of the Enterprise Act 2002, and gives the Competition and Markets Authority a new power to make recommendations on the impact of legislative proposals on competition, and a duty to publish them.

The Federation of Small Businesses welcomed this measure and its potential benefits for small businesses. The Government stated in our strategic steer to the CMA that we see

“the CMA playing a key role in challenging government where government is creating barriers to competition.”

The clause builds on the ambition set out in the strategic steer by establishing a clear means for the CMA to set out its views on proposed legislation. Its recommendations must be made to the Minister proposing the legislation and brought to the attention of other interested parties. That transparency will ensure that there is further pressure on the Government to consider competition at the design stage of new policy and legislation.

In recognition of the CMA’s independence, the use of the power will be entirely at the CMA’s discretion. No one will be able to require it to make recommendations or, conversely, prevent it from making recommendations. It will be for the CMA to decide whether the effect of a legislative proposal on competition warrants its using the measure.

A key principle underlying the measure is that it is much better for the Government to consider competition before policy gets to the stage of legislative proposals. The CMA stands ready to share its expertise with the Government. The earlier on in the process of policy development it is able to do that, the better. It is significant that the Government committed in the strategic steer report to adopt the CMA’s recommendations for improving competition

“unless there are strong policy reasons not to do so.”

The intention behind the measure is clear. We want the effect on competition to be properly considered before Government legislation is introduced. Therefore, we want the independent experts to hold us to account publicly if they feel that the proposed legislation could create barriers to competition.

Toby Perkins (Labour, Chesterfield)

The Opposition welcome the clause, which gives the Competition and Markets Authority the power to publish recommendations about the effect of legislative proposals on competition. It is right that the use of the power will be at the discretion of the CMA, that it will apply to any proposed primary or secondary legislation and that the recommendations must be published in such a way as to bring them to the attention of the persons likely to be affected by them.

The Labour party strongly believes in having fair and free markets. That will be an emerging theme, not just of the Bill, but of much of what we will discuss over the next seven months. Consumers, including small businesses, need markets with proper competition and a range of options and choices to get a good deal. For example, our pledge to freeze energy prices until 2017 would save the average small business £1,800 but, more crucially, it will give us two years’ breathing space to reform the market and introduce genuine competition so that it works for consumers as individuals and as small businesses. That is also our approach to banking. We want to stop the same old big five banks from dominating the market and barring new players from entry, so we are committing to growing a new generation of local banks and supporting alternative forms of finance such as online peer-to-peer lending. The new power and responsibility for the CMA could help a future Labour Government to identify other markets that are vulnerable to becoming oligopolies and suggest action.

We will be supporting the clause but it would be helpful if the Minister, who has taken her place to a great fanfare—she was generous to remind us that we almost had the same pleasure on the opening day of proceedings—would clarify how the clause will work in practice. Will the CMA pay particular attention to barriers to market entry for new start-ups, and, given that consumer protection and promoting competition are two of its core aims, will it assess the impact of closed markets on vulnerable consumers? How will small businesses and, specifically, individual start-ups be supported by the clause? Will they have the right to advocacy and advice if they feel they are being excluded from a market? I look forward to the Minister’s response and to supporting clause 31.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I welcome the cross-party support for clause 31 expressed by the hon. Member for Chesterfield. I hope it is a sign of things to come for the rest of the clauses that I shepherd through the Bill. He posed a couple of questions about the way that the power will be exercised by the CMA. I reiterate the issue about its independence, which he mentioned the importance of, and that will be up to the CMA to do. It has already set out its approach to promoting competition, published its report in April 2014 and said that it would prioritise according to its principles of whether something has a degree of impact, the strategic significance, the risks and the resources. Those broad headings have an impact on a wide range of issues, including many that the hon. Gentleman mentioned, such as barriers to market entry for new start-ups. That is particularly about competition and the impact on vulnerable consumers. He may be aware that the Government have recently taken other measures, particularly to protect vulnerable consumers, such as the new misleading and aggressive practices secondary regulations, which complement existing consumer legislation and provide a lot of additional protection. That is hugely important.

On the issue of small business and competition, although the Bill can help small business, there are measures in the Consumer Rights Bill, which is in the other place at the moment, about empowering small businesses to take competition actions through the private courts. The provision is one of many measures that the Government is putting forward to ensure that we can have a more competitive economy, recognising the benefits to business and consumers, and ensuring that we build a stronger economy. I am glad that we have the Opposition’s support for the clause.

Clause 32 - Exemption from liability for bodies concerned with accounting standards etc

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The clause is quite specific and technical, and its purpose is to deal with the financial reporting and the regulation of accountancy, audit and actuarial services. In 2004 the regulatory landscape for accountancy and audit changed. The Financial Reporting Council, which now makes and enforces accounting standards, assumed the functions of the Accountancy Foundation, which made and enforced professional standards for accountants and auditors. The expanded FRC is partly funded by a grant from the Secretary of State.

As part of that change, the Companies (Audit, Investigations and Community Enterprise) Act 2004 provided an exemption from liability for bodies carrying out certain regulatory functions. That exemption applies only to bodies that receive a grant from the Secretary of State and lasts for 12 months after the grant is paid.

We think that it is important to have an exemption from liability. The FRC must be able to act decisively and courageously without being threatened with legal action. It must be able to attract and retain top-quality people who are credible with business, the profession and the investment community. We do not want the FRC to be afraid of legal action. We do not want it to feel that it has to collect more information than it would otherwise need, or take longer to make decisions than would otherwise be the case. That kind of over-regulation and excessive caution benefit no one.

The 2004 Act provided that the exemption applies only where a grant is received. We do not think that that constraint is any longer appropriate or necessary, particularly where, as is now the case, the body is otherwise self-funding. It has led to an anomalous situation where the FRC gets a relatively small grant each year, merely so the exemption can apply. That grant is less than 3% of the overall funding of the FRC’s core operational costs.

Although we have not yet taken a decision about the future of the Government contribution to the core funding of the FRC, we do not think it is right that the Government should have to provide funding just to provide that exemption from liability.

Clause 32 would allow us to consider whether Government funding is appropriate on its own merits. It replaces the existing exemption based on funding and a grant with a new power for the Secretary of State to exempt specified bodies from liability. That would mean there would be no requirement for a body to receive a grant to be granted an exemption. Instead, it would be based on their activities, such as setting standards, monitoring the quality of the accounts and audits and overseeing the regulatory activities of the accountancy and actuarial professional bodies. I think that exemption from liability is right for those carrying out those regulatory functions.

However, it is important to tell the Committee that that does not mean that anything goes. If something is done or not done in bad faith, or if it is unlawful under section 6(1) of the Human Rights Act 1998, then the exemption will not apply. Those are appropriate limitations but the payment of a grant from Government is not.

Toby Perkins (Labour, Chesterfield)

Again, this is an important clause. We have discussed many other markets and industries over recent months and during the course of the Bill’s progress so far. There are questions about the way that the audit industry operates in the context of competition. As we have heard in relation to other industries, we are conscious that a small number of firms dominate the profession. It is important to have a sense of competition in the industry. The Enron scandal is an example of what can happen. Following that scandal, the Companies (Audit, Investigations and Community Enterprise) Act was passed by Labour in 2004 to strengthen the system of regulating auditors by imposing independent auditing standards, monitoring and disciplinary procedures on the professional accountancy bodies.

Section 3 of the Act gave the Secretary of State the power to set up a regulatory body, which became the FRC, and other subsidiary bodies funded by industry and the accountancy profession and by Government rule were established by it. Granting immunity from legal action, other than judicial reviews, to regulatory bodies is fairly common. In particular, successive financial regulators have enjoyed that immunity, and the FRC has it currently. Removing the need to receive a grant from the Secretary of State may smooth over that process, so we will accept that.

However, will the Minister explain what has prompted a look at the issue now? Neither the explanatory notes nor the Second Reading briefing made that clear. The Library confirmed yesterday that it has not managed to find any comment on the reason for the clause. That has not been commented on by any of the professional bodies or in the accountancy press. Will the Minister elaborate on why she proposes this action? Have there been any representations to the Government expressing concerns about the proposals? If so, will she detail who expressed those concerns and what they were?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I welcome the support of the hon. Member for Chesterfield on this issue. We want to ensure that the legislation is fit for purpose. This is an example of an unnecessary additional piece of bureaucracy which gets in the way of deciding whether a body should receive grant funding. I reiterate that no decision has been made about whether that funding should continue. This is not prompted by us saying, “We definitely want to get rid of that.” There is an opportunity in the Bill to tidy up an anomaly. It is only one clause in a Bill which does lots of other things, but it is a useful opportunity to make a small but none the less important change.

The hon. Gentleman asked if any representations had been made expressing concern about this. That has not been the case. This change is generally understood to be very straightforward. On that basis, I hope that the Committee will be happy to accept the clause as part of the Bill.

Clause 33 - Regulations about procurement

Iain Wright (Labour, Hartlepool)

I beg to move amendment 57, in clause 33, page 28, line 40, at end insert—

“(a1) duties to establish the past payment performance of potential parties to a contract, before contracts are entered into;

(a2) duties to ensure contracts entered into include the contractors’ obligations for prompt payment of their suppliers.”

John Robertson (Labour, Glasgow North West)

With this it will be convenient to discuss the following:

Amendment 77, in clause 33, page 29, line 8, at end insert—

“(eA) duties relating to the assessment and publication of the extent to which apprenticeships and training opportunities were provided as a result of procurement of contracting authorities.

(eB) duties to publish reports about the amount and proportions of expenditure within procurement undertaken by a contracting authority in relation to—

(i) small and medium-sized enterprises; and

(ii) the area local to the contracting authority.

(eC) duties to disclose and explain any reasons why specified business or company, or specified category of business or company, may be excluded from consideration by a contracting authority, and

(eD) duties to publish information about the allocation, draw down, usage, sub-contracting or other third-party deployment, and results of the consumption of public resources by private entities.”

Amendment 78, in clause 33, page 29, line 16, leave out “negative” and insert “affirmative”.

Iain Wright (Labour, Hartlepool)

I want to focus on amendment 77 in particular. Procurement is a hugely important function of government. Central Government spends about £45 billion a year on the purchase of goods and services. Local government spends about the same again—a quarter of its total annual expenditure. The NHS spends about £20 billion every year on goods and services. That is about one third of hospitals’ operating expenditure. In total, £230 billion is spent on the procurement of goods and services throughout the public sector. That is one pound in every three of total managed expenditure. Given the scale of spending, it is important that the taxpayer gets effective value for money. I stress the importance of value rather than mere focus on the lowest possible price.

I am a strong advocate of the notion that procurement should not only be used to ensure that goods and services are purchased, thereby fulfilling a somewhat narrow and short-term role. We also need to procure in a smarter way that reduces costs for public sector authorities. Procurement must be used as an effective tool for public bodies to secure important long-term strategic, social, economic and environmental objectives.

Subsection (5) specifies the means by which regulations can impose certain duties on contracting authorities. Those duties relate, for example, to the process through which contracts are entered into, compliance with the regulations, procuring in an “efficient and timely manner” and electronic invoices. Amendment 77 tries to articulate further the means by which regulations could be used to advance social and economic objectives.

I am very mindful of the conflict between centrally imposed, one-size-fits-all national regulations and a more flexible and responsive model which emphasises the importance of local decision making and devolved powers. Members will have seen the submission to our Committee from the Local Government Association, which aims to see clauses 33 and 34 deleted from the Bill. We will perhaps discuss those concerns in more detail during the clause stand part debate, but I hope the Minister will reflect on this passage from the LGA’s submission:

“Local authorities support the objectives that the Government is seeking to achieve with this legislation. They are keen to work with small businesses and voluntary sector organisations because this increases the potential for retaining value within the local economy. There is no need for legislation to address these issues and the continuing work of the LGA and the Local Government National Advisory Group for Procurement creating a National Procurement Strategy will do much more to enforce these messages.

We fear that over-regulation may have the effect of discouraging local authorities from thinking strategically about procurement opportunities and preventing access to markets for small scale providers who may not have the capacity to acquaint themselves with and respond to statutory procedures.”

In tabling this amendment, I do not wish to stifle innovation or impose unnecessary regulation, but I do want to address how certain objectives could be met. We propose to amend subsection (5) to include at the end of that subsection the need for the regulations to include a duty for contracting authorities relating to the assessment of the training opportunities and apprenticeships that were provided as a result of procurement by those authorities. I think that is quite simple and straightforward and I would be surprised if it did not command the support of the Minister and the rest of the Committee. Public authorities are specially placed, given the scale of their collective expenditure each and every year, to ensure that some of that spend is devoted to improving the training and career opportunities of people as a result of that contract. A more skilled work force is more productive and therefore more competitive in the domestic and international fields. The economy as a whole improves its performance as a result; society is enriched by having a more skilled population that can enjoy better pay and higher standards of living and we have increased tax receipts for the Treasury. What is not to like?

There is much good practice around the country from various public authorities. The TUC has championed over the past five years or so the one in a million campaign, which aims to ensure that, as far as possible, every £1 million of public spend on procurement results in at least one apprenticeship opportunity for a young person. Local authorities up and down the country are carrying out good practice here. The Minister, as a former apprenticeships Minister, will no doubt say that apprenticeships have risen in recent years. That is true, but I hope he will also accept my point, as one former apprenticeships Minister to another, that the number of young people enrolled on an apprenticeship has actually fallen over the lifetime of this Government.

In 2009-10, when we left office and I left the Department for Children, Schools and Families, some 117,000 people aged under 19 were studying for an apprenticeship. That has fallen over this Parliament by 4%. The proportion of young people embarking on an apprenticeship as a proportion of the total number of apprenticeships has been turned around, and not in a good way. In 2009-10, 42% of all apprenticeship starts were for people aged 19 or under. In 2012-13, that proportion was just 23%. Those changes might have something to do with the fact that Government pay 100% of the training costs if the apprentice is aged between 16 and 18, 50% if the apprentice is aged between 19 and 24, and only up to half if the apprentice is aged over 25.

From the evidence, it looks as though the Government have tried to reduce their financial exposure by skewing apprenticeship starts to those over 25. The amendment could be deployed to ensure that those young people can be given apprenticeships and fresh opportunities in training, so that they get a really good start on the career ladder. It would provide increased transparency for those contracting authorities to be able to publish, and therefore demonstrate to a wider audience, what that particular organisation was doing to use procurement to provide apprenticeships and training opportunities. That is the purpose of subsection (5)(eA).

Subsection (5)(eB) would provide a duty for the contracting authority to publish, and therefore improve transparency and opportunities for scrutiny, the amount and proportions of expenditure within the procurement function used to spend money both with small and medium-sized enterprises and the area local to that particular contracting authority.

Ian Murray (Labour, Edinburgh South)

My hon. Friend mentions the contracting authority. He will be aware that last week we had an urgent question on the position of Tata Steel. When the Scottish Government were procuring the steel for the new Forth bridge—a huge contract—they decided to procure it from China, because it was the cheapest. In fact, 34 miles down the road was a steel plant where they could have procured the steel and, although more expensive, it would have had much wider impact on the local community.

Iain Wright (Labour, Hartlepool)

My hon. Friend makes an important point. He may recall that there were no Members from the Scottish National party present for that urgent question to question the Minister. Procurement can be used to enhance industrial capability—not to revive protectionism or ensure that a domestic firm or sector becomes flabby and uncompetitive, but to ensure that our industrial capability is enhanced as much as possible. The Opposition certainly agree with that idea, and I think the Minister does, as part of his industrial strategy. We need to go further and faster in pushing our industrial strategy to be able to do that.

Stephen Doughty (Labour, Cardiff South and Penarth)

My hon. Friend is making some key points. Is he aware that many British military uniforms are procured in China? It is a significant number. In the past, many were made in Remploy factories in Dundee and elsewhere. Does that not strike him as slightly odd?

Iain Wright (Labour, Hartlepool)

That is a fair point. My hon. Friend has touched on a significant element of procurement, namely defence industrial strategy. Other countries around the world will be thinking, “If equipment from British defence firms is not good enough for the armed forces of the United Kingdom, which are held in very good regard, why should we buy it?” That sends out an important message.

There are a lot of positive moves in this regard, especially in local government. The FSB’s report of earlier this year, “Local procurement: making the most of small businesses”, revealed that local authorities spend around half of their total procurement expenditure with small and medium-sized businesses. Central Government have an awful lot to learn from local government: although the Government’s target is that a quarter of all spend should be with small and medium-sized businesses by the end of this Parliament, the current level is about 13%. They will miss their target by miles, to the detriment of many tens of thousands of small businesses up and down the country.

The FSB report found that 78% of small firms have not bid for or worked on any public sector contracts. They have been put off for several reasons, such as lack of awareness, a misplaced belief that Government would not be interested in dealing with a small firm and an inability to devote precious money and staff time to procurement exercises that are far too often seen as cumbersome, bureaucratic and downright hostile, and that involve pre-qualification questionnaires and other off-putting things. The CBI recently cited the example of a construction company that spent an average of £8,000 per PQQ. With 200 tender exercises a year, that put the pressure on the firm’s profit and loss account of an additional £1.6 million, for pre-qualification alone.

Research for the Specialist Engineering Contractors’ Group has found that its members’ firms spend more than 60,000 days a year filling in questionnaires. That is putting small businesses off bidding for contracts with public authorities. We need to ensure that bidding is made as easy as possible, including by publishing information and having a transparent relationship, so that the question can be asked, “What are you doing for small businesses?”

The purpose of proposed new subsection (5)(eB) is precisely to improve transparency. We hope that it will allow contracting authorities to explain how they are creating awareness of opportunities and engaging with and ultimately awarding contracts to smaller firms.

It is also important for reports such as that proposed in the amendment to include the amount of spend in a local area. There is incredibly powerful evidence for the multiplier effect on local economies of spending in local areas resulting from small businesses getting procurement opportunities. Research carried out for the FSB by the Centre for Local Economic Strategies found that responding authorities had collectively spent more than £8.7 billion on procuring goods and services with local firms in the previous year, generating nearly £4.5 billion of additional benefit for local economies; that is an additional 51p for every £1 spent. When the effects of local spend were analysed, it was shown that every £1 spent by a participating local authority with local SMEs generated an additional 63p of benefit for their local economy, compared with 40p generated by large local firms.

The £4.1 billion that participating authorities spent with local small and medium-sized businesses generated £2.6 billion of additional economic benefit for local economies. That means that small local firms generated over £746 million more benefit for local economies than large firms by effectively circulating that spend through their local economy’s supply chain. That is despite their receiving over £500 million less than large local firms. The benefit of them is vast.

I am particularly pleased that my region—the north-east of England—is a shining light in this regard. The Association of North East Councils has stated to me that 63% of the total procurement spend by local authorities in the region was with north-east-registered suppliers, while spend with the region’s small and medium-sized suppliers was 52%—slightly higher than the national average. The amendment is not about forcing contracting authorities down a specified path but about stating on the face of the Bill that authorities should let in the sunlight of information by disclosing to a wider audience how much is spent with small and medium-sized companies and how much is directly contributing to the local economy.

Proposed subsection (5)(eC) states that the regulations should “disclose and explain” why a specified business or category of business should be excluded from any procurement exercise. I arrived at the amendment through the disgraceful practice of blacklisting. This ugly scar on the face of our construction industry has existed for the past few decades and needs to be eliminated as soon as possible. The notion that workers have been systematically denied employment opportunities because they have been a member of a trade union, engaged in trade union activities or raised concerns over health and safety is an absolute disgrace. It smacks of the worst form of McCarthyism, and I strongly believe that procurement can be used to ensure that blacklisting is gone from the United Kingdom forever.

Public sector bodies in Wales can exclude blacklisters from bidding for public sector contracts under Welsh Government guidance that came into effect in September last year. The Welsh Labour Government sent out a procurement advice note to all Welsh public bodies, outlining the necessary steps that can be taken through procurement to help eradicate blacklisting. The guidance makes clear the circumstances in which Welsh public bodies can exclude blacklisters from bidding for a public contract. That guidance is clear, up-front and not sneaky or surreptitious. It allows everyone concerned to be fully aware of the circumstances in which a company will not be considered for the receipt of public funds and public contracts.

On introducing that guidance, Welsh Finance Minister and Labour Assembly Member Jane Hutt said:

“The use of blacklists is wholly unacceptable and I fully sympathise with the individuals and their families who have suffered a terrible injustice as a consequence of contractors engaging in this practice. Procurement is an important part of the overall policy toolkit of the Welsh Government. Under no circumstances is it acceptable for any business in receipt of public procurement expenditure to use blacklists. I am determined to take action in Wales. I trust that other Governments in the UK will take similar action if they have not already done so.”

I agree with every single word. If it is acceptable in Wales, why can we not have something similar in England? This seems incredibly straightforward to me.

Stephen Doughty (Labour, Cardiff South and Penarth)

My hon. Friend is making a crucial point, which I wholeheartedly agree with. Would he also pay tribute to the many trade unions—including the GMB, of which I declare membership—that campaigned long and hard for that in Wales and have also campaigned at a UK level? We surely need to take that step against this disgraceful practice across the whole country.

Iain Wright (Labour, Hartlepool)

I absolutely agree. I also declare an interest, as I am a proud member of the GMB. I understand that other trade unions may be available, although I cannot think of any at the moment. My hon. Friend is absolutely right that there has been strong campaigning. It is about making sure that public procurement is used to ensure good, ethical behaviour. We have not seen that with blacklisting, and we need to see it now.

I mentioned that blacklisting was at the forefront of my mind when tabling the amendment, but Members might think of other issues that could exclude companies from bidding for contracts. Contracting authorities might think about firms that are late payers to their suppliers or refuse to pay their employees a living wage being included in those categories. Proposed subsection (5)(eC) would allow such categories to be included in the regulations and ensure transparency and clarity. Amendment 57, tabled by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), would provide for that with regard to late payment.

Ian Murray (Labour, Edinburgh South)

My hon. Friend is giving examples of where other authorities are able to use the legislation on procurement to deal with bad behaviour and provide good businesses with opportunities they might not have had before, and also to deal with some big policy issues. He will be as disappointed as I am that the Scottish Government had the opportunity through their public procurement Bill to include the living wage as part of the conditions of gaining a public sector contract, yet they voted against the proposal.

Iain Wright (Labour, Hartlepool)

I thank my hon. Friend for raising that. It seems that the Scottish Government often talk one way and then in their actions, which they can take as a result of being in power, do something completely different. I am glad that my hon. Friend has exposed what they have done in that case.

Finally on amendment 77, subsection (5)(eD) would ensure that the regulations included

“duties to publish information about the allocation draw down, usage, sub-contracting or other third-party deployment, and results of the consumption of public resources by private entities.”

Put simply, the reason behind that is for people to be able to follow the money, find out where taxpayers’ pounds end up and ensure that proper transparency and accountability are available in all aspects of public procurement.

The Government have a clear policy of expanding the range of public services available to be bid for by private companies. That is one way of putting it—privatising our NHS is another. The Health and Social Care Act 2012 has dramatically increased the number of private contractors involved in NHS activity.

However, that sort of work is not confined to the NHS. The taxpayer often does not get a fair, or even a legal, deal with these contracting-out activities. The Committee may recall G4S and Serco, which were found to be charging the Government on their tagging contract for people who had been released or, in some cases, were dead. The cross-Government review instigated as a result of those irregularities—some would say fraud—concluded:

“The review’s overall conclusion is that in the majority of contracts there are weaknesses, some of which are significant, in the way these contracts are managed.”

It must be a concern for this House and the wider country that billions of pounds of taxpayers’ money are being spent without appropriate transparency or the ability to follow the money or ensure that there is consistency of approach and accountability between the various providers of public services.

The public sector is the victim of a very uneven playing field. As I said earlier, ever increasing parts of the NHS are subject to bids from private companies. Those companies are able to issue freedom of information requests from NHS trusts, gaining detailed knowledge of activity and cost. That information can then be used to undercut or outbid those same public sector bodies when procurement exercises take place, ensuring that those private companies can cherry-pick public services, which that cannot happen the other way round. That seems incredibly unfair.

The Select Committee on Justice examined that issue during the 2012-13 Session and expressed concern. The Information Commissioner, when giving evidence to the Committee’s inquiry, stated categorically:

“If more and more services are delivered by alternative providers who are not public authorities, how do we get accountability? The Prime Minister dealt with that the other day in one respect, by saying that it is about accountability, through tracking expenditure and outcomes. That is certainly part of it, but we nevertheless need to find ways of holding the alternative providers to account if they are trousering very large sums of public money and carrying out public purposes contracted by authorities.”

The purpose of proposed subsection (5)(eD) in amendment 77 is to articulate that concern, put it in the Bill, and support the Prime Minister in ensuring that it is possible to provide accountability through tracking expenditure and outcomes, and simply, as I said earlier, by being able to follow the money.

Amendment 78 is straightforward. I am a big believer in the affirmative resolution procedure when changes to regulations are proposed, and the amendment would simply change the Bill’s provision for the negative resolution procedure to ensure that the House had an opportunity to discuss such matters properly. I hope the Minister will look at the amendments favourably.

Matthew Hancock (Conservative, West Suffolk)

I am grateful for the opportunity to debate. Clause 33 is about providing the Government with powers to regulate in a way that supports public sector procurement and helps small businesses get more access to the £230 billion of public sector contracts. That, in turn, will help the economy grow.

Chris White (Conservative, Warwick and Leamington)

Would the Minister describe how the Bill will help the social enterprise sector, which is one of the fastest-growing sectors in the economy?

Matthew Hancock (Conservative, West Suffolk)

Absolutely. Measures that we have taken, such as reducing burdensome pre-qualification questionnaires from a huge amount of low-value central Government contracts, opening up bidding to smaller enterprises, and getting more areas of Government to be provided by other organisations, including social enterprises, have done a lot to get the social enterprise public provision sector going. However, I want to see more and I hope that the steps in the Bill will ensure that where we have taken administrative steps to get central Government to open up, we are now taking statutory steps to get the whole of the public sector to do so.

Toby Perkins (Labour, Chesterfield)

Does the Minister think that there should be a Minister with specific responsibility for social enterprise in the Department for Business, Innovation and Skills? Currently social enterprise is covered by the Cabinet Office. Should there be someone in the Department with that responsibility?

Matthew Hancock (Conservative, West Suffolk)

It works pretty well at the moment on the grounds that in Business, Innovation and Skills we try to make it easier for organisations, whether they are profit-making or not, to do business. There is a range of social and profit-making enterprises: pure charities that rely entirely on donations and do not raise any direct revenue from the activity that they do; social enterprises that raise revenue from their activity but have a social purpose and do not make a profit; others that make profit but are social in their goals; businesses that are there for the primary purpose of making a profit but, in so doing, create social value; and businesses that do not particularly create social value but undertake their actions for profit and, in some cases, indirectly create social value by creating jobs. Our job in Business, Innovation and Skills is to have a strong framework for enterprise, whether that is for a social purpose or not.

Toby Perkins (Labour, Chesterfield)

I am grateful to the Minister for the definition, although I already understood what social enterprise was. My point was that we have a Minister for small business, which allows a Government focus on that, and we have a Minister for social enterprise, but he is not in Business, Innovation and Skills; he is in the Cabinet Office, which says that social enterprise is a different kind of thing. Does he take the point that if there was someone in the Department who had a specific focus on social enterprise, it might help to have that businesslike focus on supporting that important sector?

Matthew Hancock (Conservative, West Suffolk)

I do not particularly think that it matters where that position sits. However, issues of social enterprise within the Department are a matter for the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire. She has ministerial responsibility for issues relating to social enterprise but all of us in the Department have a duty and a role to improve the environment for business, whether that is a social enterprise, a profit-making enterprise or anything else in between—hence my description of the broad spectrum of organisations that we hope to support in flourishing.

The purpose of the clause, which is broadly defined, is to insist that public authorities will improve the ways that they procure. For example, in terms of benefits over time, we expect more proportionate and efficient procurement time scale; less bureaucratic processes, making it easier and cheaper for small businesses to compete and win more business; and more pre-market discussions between contracting authorities and businesses to help formulate procurement, meaning better management of contracts. The success of those reforms should be demonstrated in seeing an increase in the amount of contracts being won by smaller businesses. The hon. Member for Hartlepool raised the point on the proportion of contracts won across Government by smaller businesses. That has increased dramatically and, contrary to what he says, it is on track to reach a quarter, but my goodness, there was a lot of work needed. This situation was not in a happy state in 2010 and the number then was much lower.

However, we are determined to work to make that better and have a stronger and broader array of business, including small businesses, in the supply chain for the Government. After all, Government procurement is an enormous part of overall procurement.

I come now to the individual amendments. Amendment 57 would ensure that contracting authorities know about the historical payment performance of suppliers before they enter into public contracts with them. It would ensure that the companies entering into those contracts pay their own suppliers promptly. We agree that it is important for suppliers to be paid promptly and there are some circumstances in which a contracting authority can take account of a supplier’s past record on payment performance. In fact, we discussed earlier in the week the transparency that we are introducing around payment practices so, in a sense, that is taken care of. The measures in the Bill complement the wider package of regulations, not least the transposition of the 2014 EU procurement directive, which we will put into action in early 2015.

The new regulations will require 30-day payment terms to be passed all the way down the public sector supply chain. The essence of amendment 57 is to ensure that we have prompt payment in the public sector, and that it is cascaded down the supply chain. That will happen and will apply to all parties in the supply chain, from the largest to the smallest. In that way, the public sector will lead by example on issues of payment. The package of new regulations will also require the public sector to publish annually the number of invoices paid late to its tier 1 suppliers and show how it has performed in that area. The mystery shopper scheme, which we will come on to in clause 34, will also conduct spot checks on contracting authorities to ensure compliance with the prompt payment legislation and will publish the outcome of its investigations. Therefore, the measures that we are already taking forward, as part of either the Bill or the transposition of the EU directive, are already tackling the issues raised by amendment 57.

Amendment 77 is designed so that several additional reporting requirements can be placed on contracting authorities through regulations. We agree that transparency in reporting public sector procurement is important. Indeed, we are already working towards that 25% target for small business procurement. Having said that, the overarching aim of public procurement will always be to achieve value for money. In some cases that includes specific requirements. For instance, the Crossrail contract includes requirements for training and apprenticeships. HS2, which is holding a suppliers conference today, is also ensuring that we provide the necessary training, including through the new national college for rail engineering that we are putting in place. That is part and parcel of those contracts, but if that duty is put on the face of the Bill in the way suggested in the amendment, the difficulty is that it is essential always to ensure that the overarching aim is to achieve value for money for the taxpayer, because, after all, it is taxpayers’ money that we are spending.

Sheila Gilmore (Labour, Edinburgh East)

In terms of value for money for the taxpayer, is it not reasonable to take a slightly wider view at times on exactly what that is and whether it is purely financial or not? A supported employment factory in my city closed down—it was not Remploy, it was separate—and lack of Government contracts was one of the things that caused it problems. However, the people who work there are costing the taxpayer a great deal of money when they are not working.

Matthew Hancock (Conservative, West Suffolk)

I agree with the hon. Lady that the broader considerations for value for money should be taken into account. That is why it is sometimes right to put these details in the contract. Opposition Members mentioned the steel for the Forth road bridge. I understand their disappointment at the Scottish Government’s decision. It shows that the Scottish Government often do not act nearly as much for Scotland as they claim when they wrap themselves in the saltire. I want to reassure hon. Members that we remain very open to views on transparency measures. They are a part of the consultation that we launched last week on the implementation of the clauses.

Finally, amendment 78 is designed to increase the level of parliamentary scrutiny for any regulations under the clause by introducing the affirmative resolution procedure. I acknowledge the hon. Gentleman’s suggestion. I think the current negative resolution procedure provides for that parliamentary scrutiny, should it be required, because anyone can pray against a negative resolution. Nevertheless, I think this is worth considering. I want to do some more assessment of its impact and the likely frequency of amendment of these regulations.

Ian Murray (Labour, Edinburgh South)

When the Minister referred to amendment 77, he did not mention the living wage. The UK Government and the Scottish Government seem to have an aversion to using public procurement to try to resolve the fundamental issue in this country of poverty pay.

Matthew Hancock (Conservative, West Suffolk)

As I said, the overarching aim of public procurement must always be value for money. I am a supporter of companies paying the living wage when they can. I am a very strong supporter of the minimum wage and, indeed, have strongly supported the first rise in real terms, this month under this Government, since Labour’s great recession. I do not think it is within the parameters of this debate, but I would be delighted to spend all day debating the minimum wage and how this Government, through having a strong economic policy, can raise it. The Opposition proposition is to have a lower minimum wage, as confirmed by the former Labour Cabinet Minister, Alan Milburn, only this week. I do not think that this argument is necessary, but I certainly think that Alan Milburn was very surprised to see a lower proposition.

John Robertson (Labour, Glasgow North West)

Order. I think we will go back to what we should be talking about and not Mr Milburn.

Matthew Hancock (Conservative, West Suffolk)

I agree. With those assurances that these things will be taken into consideration in many cases and that I will look again at the case for an affirmative resolution, I hope that the hon. Member for Hartlepool will withdraw the amendment.

Iain Wright (Labour, Hartlepool)

I am grateful for the Minister’s undertaking to go away and look at amendment 78. On amendments 77 and 57, however, he has not gone as far as I would like to reassure me. He said the primary aim of procurement was to secure value for money. He is absolutely right, but how do we define value for money? Someone could buy a contract or purchase goods and services, say rolling stock for a train, and it could be at the lowest possible price, but it could be at the expense of the viability of the UK rolling stock manufacturing sector and tax receipts flowing through.

EU procurement allows a public contract to be given on two possible grounds: the most economically advantageous tender or the lowest price. When MEAT is used as a criterion it could be for things like quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after-sales service and where that contract will be delivered. So on the Crossrail project and Bombardier, for example, it would have been possible to ensure that it was manufactured here in the UK.

To reiterate this important point, EU procurement processes allow social issues such as on-site vocational training to be taken into account. I wanted them articulated in the Bill and I am disappointed that the Minister has not agreed with us. On that basis, I would like to test the opinion of the Committee on amendments 57 and 77.

Iain Wright (Labour, Hartlepool)

Will the Minister comment on the revised EU procurement directive and how it affects clause 33?

Matthew Hancock (Conservative, West Suffolk)

Yes. The procurement directive 2014 is being introduced in the UK and parts of it will be introduced in the new year. In particular, we want to ensure the 30-day procurement rule cascades down though the supply chain from public procurers. That change will come in early next year.

This is one of the most significant changes in the Bill, given the scale of Government procurement and the fact that it will cascade into private contracts between tier 1 suppliers and their supply chains. It will make a big difference to the culture. It is the culture change that we all seek.

Iain Wright (Labour, Hartlepool)

The Local Government Association said that clause 33 will allow central Government guidance and regulations to be imposed on local government, which is contrary to the principle of localism set out in the Localism Act 2011. Does the Minister agree?

Matthew Hancock (Conservative, West Suffolk)

Several clauses in the Bill broadly cast the requirements for public sector procurement. It is important to improve public procurement terms in all public authorities. Therefore, legislating to insist that all public authorities follow a high-quality public procurement process is a legitimate and reasonable step to take at a national level. If some local authorities want to argue that it should be down to them, as a principle of localism, to choose to have less good procurement policies, then I think that is a mistake. I think it is better that we have high-quality public procurement rules across the whole of the public sector.

Clause 34 - Investigation of procurement functions

Matthew Hancock (Conservative, West Suffolk)

We introduced a mystery shopper to ensure that those who face poor procurement practices have somebody they can approach to try to improve those practices. The clause establishes the mystery shopper on a statutory footing and will require public bodies to co-operate with its investigations.

We introduced the mystery shopper in 2011 as part of a range of measures to open up public sector procurement. From the outset, it has operated right across the public sector in England and in non-devolved matters elsewhere in the UK. It provides an easy-to-use route for suppliers to raise concerns about procurement practices. Importantly, small businesses are able to make their concerns known to the mystery shopper service without revealing their identity to the body they have concerns about.

The mystery shopper has received more than 700 complaints, and in 64% of those cases we found poor procurement practice. Last year, it started spot checking procurement documents online. So far, more than 400 checks have been undertaken and many recommendations for improvement have been made to ensure that procurements are small-business-friendly and that unnecessary barriers are removed.

Too often, the mystery shopper has found overly long documents that ask irrelevant questions, which cost time and money, especially for small businesses. It found that public bodies are often over-reliant on a company’s turnover or credit check rating when they assess its financial strength and ability to fulfil a contract. The documents most complained about are pre-qualification questionnaires. The way they assess bidders’ financial strength is frequently raised as a barrier to small businesses bidding for work.

The mystery shopper has made an excellent start, and its impact is increasing. However, we want the service to have more teeth so that it can tackle poor procurement practice across the public sector. In some cases, we found that public bodies are reluctant to co-operate with the mystery shopper and give it the information it needs to form a judgment about a complaint or a spot check it has carried out. That is not on. The clause will place a duty on those bodies to co-operate and supply that information. That, in turn, will give small businesses that use the mystery shopper a better service and help remove barriers to their bidding for contracts. This is all part of our broad work to improve public procurement and to open it up to small businesses. It includes important measures for a robust investigation of procurement practices that raise barriers for small businesses.

Iain Wright (Labour, Hartlepool)

I agree with this principle. I think it is a good one and putting it on a statutory footing seems to be a sound decision. I have some questions for the Minister. Now that it will be in statute, how will it be communicated so that small firms have the opportunity to take advantage if public procurement has not been carried out as they would like? Linked to that communication, if there is increased capacity, how will that be dealt with? Is the Minister confident that sufficient resources will be provided to ensure that the mystery shopper scheme continues to be a success?

Matthew Hancock (Conservative, West Suffolk)

Yes. We are publishing results of the mystery shopper on the gov.uk website and I hope that support for it, expansion of it and knowledge about it will be warmly welcomed as part of the Bill. Communication to small businesses, not least through small business bodies, will ensure that everyone knows about it.

We also communicate on social media about the mystery shopper service. The fact that it has already had some take-up, even before it is on a statutory footing, demonstrates that people know about it, but the more people who know about it, the better.