My Lords, I thank the noble Lord for his amendments on treating businesses as consumers. Like my noble friend Lord Deben, I have worked in small business—in fact I ran a small garden centre business, and represented 6 million small businesses in Brussels for some time. No one is more determined to try to think about the effect of legislation on small businesses and how to get that right and incentivise innovation, which my noble friend Lord Deben referred to. However, we should not entirely condemn our great companies, which deal in everything from electronics to aerospace and food. They do innovate, and many of them lead very substantial export efforts around the world. Like my noble friend Lord Deben, however, I worry about the free enterprise culture. In fact, I have been trying to get one of my four sons to create a small business, so far without success.
As a Back-Bencher last year, I learnt a lot about the difficulties of dealing with utility providers. That informed us on the Consumer Rights Bill, which we debated in this Room for many weeks—and I am delighted that the noble Baroness, Lady Hayter, has joined us after so many constructive discussions on that Bill.
I agree that we must support small and micro-businesses and put in place the conditions for them to prosper. That is why the Bill is so important and why this Government are doing all that they can to support these businesses. None the less, I remain concerned about the scope of the amendments. They are wide-ranging and not consulted on. Small business might be keen on them until they discover the unintended consequences for their own businesses. That may be wrong, but we just do not know. For example, the
small printer gets more reassurance when he buys his ink, but he suddenly has to give full refunds to his small-business and micro-business customers for 30 days because of a fault that might previously have been subject to a more agreeable negotiation—if he had cash flow problems, for example.
We also need to remind ourselves that businesses, including small and micro-businesses, are not unprotected at the moment, as the noble Lord, Lord Mendelsohn, said. Provisions under the Sale of Goods Act and the Supply of Goods and Services Act apply to them now and will continue to apply. Under the unfair terms legislation, a business may limit its liability to another business if that is reasonable in the circumstances when they make an agreement. The existing regime gives appropriate protection, which is important, while allowing businesses to enter into flexible transactions, a point that I shall return to.
Small and micro-businesses make up 99% of all businesses in the UK—a total of 5.2 million businesses. Of those, 5 million are micro-businesses, which in aggregate employ 8.3 million people and have a turnover of £655 billion. That is an extraordinary and very good thing, but it means that a lot of businesses—a lot of value added—would suddenly face a change in operating rules under either of these amendments, even if those amendments are well meant. It also means that there is an incredible range of small businesses across all sectors of the economy, many being very specialist in their sectors and skilled negotiators in transactions. They are able to judge exactly what their interests are.
Businesses think about value for money and do not always require the detailed protection that we give to consumers. We give consumers general protections because they almost always face the same information asymmetries when they buy goods and services—that is, the range of goods and services that consumers are likely to purchase is so wide that they are unlikely to have detailed knowledge of them. The same is not true for small businesses. It is in the interest of these businesses to reduce this information asymmetry. The same incentives simply do not apply to consumers. In addition, consumers are less able to assess the cost and implications of their purchase decisions, whereas efficient businesses, by their nature, assess this information and make these decisions more effectively. The Government are of course keen to encourage businesses to become more efficient and to see a healthy and competitive market.
All businesses also need to enjoy the freedom to contract for goods and services on an individual basis. The current legislative framework allows for that already. The amendment would, at a stroke, reduce that freedom for 99% of all businesses—in the case of the second amendment, 96% of all businesses. The default obligations under the Consumer Rights Bill would apply, whether it suited a business or not. This could place a restriction on business negotiations.
Consider risk and reward—a defining concept of enterprising activity. This proposal could have a chilling effect by removing all risk in business transactions. Superficially, that sounds attractive for small one-off purchases, but what about the bulk deals, the order of
specialist items or the removal of old stock? How would this encourage suppliers to take risks with cash flow? A supplier faced with the possibility of having to give a full refund to all its small business customers for 30 days, without scope to negotiate reasonably about any liability, would need to be extra cautious about its financing. Is that the right culture?
I of course recognise that the intent behind the amendment is to protect small or micro-businesses where they might not know more than a consumer when buying goods and services unrelated to their core commercial activity—I remember that in Committee we talked about kettles as well as hairdressers. But how do we make the distinction? What is core for one business may not be for another. The Consumer Rights Bill does not have a legal definition of a consumer good or service that we could rely on.
A further point is the difficulty for a seller in deciding the difference between the small or micro-business to whom the Act would apply and larger businesses to which it would not. That would certainly complicate implementation and I am passionate about having a good and simple implementation plan for the Consumer Rights Bill so that sellers abide by the new rules and consumers know where they stand.
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The noble Lord rightly raised the question of the Federation of Small Businesses. The Government consulted on the subject of these amendments in 2012, and when the previous Administration was in power, they consulted in 2008. Stakeholders were clear that they preferred the simplicity of a Bill that dealt with consumers alone. The CBI and the BRC recognised that there were difficulties in treating small businesses as consumers when they gave evidence to the Commons Committee on the Consumer Rights Bill in February 2014.
I know what was said about the FSB and that its views may have come on since it responded to the 2012 consultation, but it did helpfully commission research on the issue. Its report, published in January last year, recognised the complexity and that there could be potential difficulties. It concluded that Government should carefully consider the point when drafting consumer protection legislation and that it was important for the sector regulators to look to protect small businesses. Ofcom was mentioned. We recognise and welcome protections in sector-specific regimes but, as I outlined, we have concerns with applying more general protections in this way.
I have some sympathy with noble Lords in their quest but, as I said when we debated the issue in the Consumer Rights Bill, we risk giving with one hand and taking with the other. The amendment has not been properly tested and could potentially undermine what we are trying to achieve in helping small and micro-businesses, which has to be the focus of the Bill. I hope the noble Lord will understand that this is not a sensible addition and agree to withdraw his amendment.