Enterprise Bill [Lords] — House of Commons, 2016-02-02
Topic: Mixed Topics
Alan Brown (Scottish National Party, Centre-left): I fully agree with my hon. Friend. The Lords asked for an impact assessment to be undertaken, but that has not happened, so I hope the Minister will take note of that To finish on the public sector payment cap, what we need is good governance, not Whitehall-imposed caps. We heard earlier that this is all about devolving power to local government, and this issue is an example of where we could follow that through, rather than allowing Westminster to hit care workers, teachers, nurses and emergency workers Let me turn to an issue that other Members have raised: prompt payments and their effect on small businesses. Once again, I would suggest that the UK Government could take a lead from the Scottish Government. The Scottish Government have commissioned a review on public sector procurement in the construction industry, where cash flow can be a major issue I am a civil engineer, so I am well aware of the problems late payments can cause, particularly when companies have to make large outlays on materials as part of a job specification. I have actually been a client and a consultant, so I have been at both ends—I have received begging phone calls from companies that are desperate for money, and I have had to go cap in hand to chase up money that a company needed for its cash flow That is why I welcome the Scottish Government’s current project bank account trial for public sector procurement projects. Project bank accounts are ring-fenced and underpinned by legal trust status. They allow subcontractors to receive their money at the same time as contractors, rather than having to wait for it to be channelled through the main contractor, which leads to delays and allows the main contractor to withhold moneys to have leverage over the subcontractor Another omission from the Bill, which was raised in the Lords, is cash retentions in the construction industry. For too long, that has been the elephant in the room. The Government have not wanted to talk about it, and that seems to have been the case again today. From my experience in the construction industry, I understand the need for a mechanism to deal with snagging at the end of a project or during the maintenance period. I know how difficult it can be to get a contractor back on site once they have moved on to the next job. Equally, however, no contractor should have to wait years to get their retention money back, because that hits cash flows. The 5% retention money is also often the contractor’s profit margin on the job, which shows how important that money is to contractors. With up to £3 billion held in retentions at any one time, and with £40 million lost in 2015 alone due to insolvencies, we can see how important cash retentions are in the construction industry The cash-flow problems that can be caused manifest themselves in different ways, such as an inability for companies to bid for other projects because the risk is too high, or borrowing from banks being impeded. Banks do not recognise retentions as a future income because of the uncertainty that goes with the release of retention moneys. That completely impedes companies’ ability to invest in training and apprenticeships. That is counter-intuitive considering that, while one section of the Bill is about encouraging apprenticeships, it does not tackle the issue of cash retentions that stops companies taking on apprenticeships. It seems incredible that the Government recognise cash-flow issues in general, yet avoid dealing with retentions being paid years late We can also imagine the administration time that is wasted in chasing these retention moneys up. I mentioned main contractors using payments as leverage over subcontractors, and it is absolutely the same for retention moneys. Specialist engineering contractors have correctly observed that a scheme could be implemented without impeding the Government’s ongoing review. That review is completely reactive in terms of amendments tabled to the Bill in the Lords, and not proactive. Again, that is indicative of the UK Government’s approach The suggested model is a retention deposit scheme based on the tenancy deposit scheme. That seems logical, and it would easily align itself with the trial currently being operated by the Scottish Government. A constituent has said to me that he has given up on this issue being addressed in his lifetime. We can deal with it in this Bill.