Wednesday, March 4, 2020

MPs turn up the heat on retentions reform

Kurt Hopkins, BESA Public Affairs Executive

Last week MPs debated the use of cash retentions in the construction industry for the first time since 2016. Alan Brown MP (SNP - Kilmarnock & Loudoun) secured the Westminster Hall debate, which are opportunities for MPs to raise local or national issues and receive a response from a government minister, and successfully put the case for reform well and truly back on the government’s radar. This debate was disadvantaged by taking place at 3pm on a Thursday, which is traditionally the graveyard slot where MPs have departed Westminster for their constituencies, and yet there was a stronger than expected turnout of cross-party MPs with some excellent contributions on all sides.

Debates are allotted to MPs at random through a ballot and those successful are given two weeks’ advanced notice. To ensure the debate reflected the views of BESA members and to pick up where our previous campaign in support of the Aldous Bill along with lobbying efforts to political parties during the 2019 general election, BESA wrote to the MPs that were part of the ‘Aldous coalition’ in the previous Parliament. We lobbied them to attend the debate and call on the government to adopt the now lapsed Aldous Bill as government policy and legislate for a Retentions Deposit Scheme (RDS). We also asked members to do the same thing because MPs take greater notice of representations from their own constituents.

Alan Brown’s speech provided an excellent overview of the need for reform and he himself sponsored a private members’ bill on the topic that lapsed because of the 2017 general election. He explained that the reform of the status quo should have happened in the 1990s, and that high-profile calls for the change have occurred at least since the 1960s. Despite a recommendation that cash retentions at least be protected in a trust account in the 1994 Latham report successive governments have pushed this necessary work into the long grass.

In terms of the current government’s journey into the long grass, MPs ridiculed the fact that the  BEIS had sat for two years on the findings of its consultations on Retentions payments in the construction industry and 2011 changes to Part 2 of the Housing, Grants, Construction and Regeneration Act 1996, which took place between October 2017 and January 2018. The government finally published its response to those consultations the day before this Westminster Hall debate (read into that what you may), and what it did publish was just a summary of the submissions received and this vague undertaking:

”Our aim is to work with the construction industry and its clients to achieve a consensus within the industry on how to resolve the problems associated with cash retentions. Several policy options are under consideration, a possible retention deposit scheme, and phasing out of retentions completely, and work continues to assess the viability and potential impact of these.“

As the debate wore on it became clear that BESA’s advocacy activities had paid off when Philip Hollobone MP (Con – Kettering) intervened in Mr Brown’s speech to make a point on behalf of a local BESA member in his constituency:

Philip Hollobone

I congratulate the hon. Gentleman on securing this debate and on his superb speech. Brian Griffiths of Griffiths Air Conditioning in Burton Latimer wrote to me on exactly that point:

“When monies are held for long periods (often years), SMEs simply do not have the time, resources or legal skills to chase or recover, and have to take it as loss.”

Is Mr Griffiths not spot on?

Alan Brown

He is absolutely spot on—I thank the hon. Gentleman for his intervention, which illustrates the point that I was making.

Peter Aldous MP (Con – Waveney) followed and spoke eloquently on the work that has gone on behind the scenes in the past two years. John Spellar MP (Lab – Warley) asked why Mr Aldous thought his Bill had stalled when it was ‘universally agreed to be a desirable solution’. Peter speculated that there were three factors: the Brexit impasse; that the main contractors had probably thwarted it over the years, but noted that some of these same main contractors have subsequently changed their position to reform; and finally that it was probably put in the ‘too difficult tray’, emphasising why a pilot and the Aldous Bill campaign over the past two years in demonstrating that ‘a solution is now ready to go’. Mr Aldous explained that the Aldous Bill campaign has had a strong impact on slowly grinding away opposition to change and pushing this issue closer to a resolution and specifically acknowledged the efforts of BESA and other industry bodies:     

“To the outside world, nothing has happened since January 2018. The Brexit impasse brought the machinery of government to a halt. However, behind the scenes, a fair amount has been going on. As a result of the outstanding efforts of the Building Engineering Services Association and the leading electrotechnical and engineering services body, the Electrical Contractors’ Association, the January 2018 Bill secured the support of more than 80 industry bodies and trade associations, representing over 580,000 businesses and sole traders. It was the largest fair payments campaign ever formed in the UK, representing every level of the supply chain from across the construction and engineering professions. The British Chamber of Commerce, the Federation of Small Businesses and the Institute of Directors were also supportive. Only last week, Suffolk-based Breheny Civil Engineering, one of the largest privately owned regional civil engineering contractors, wrote to me in support of the Bill.”

Finally, Mr Aldous posed three questions to the Minister - Did he agree that doing nothing is not an option? Will he facilitate a pilot for the RDS model? And would he work to secure government time to pass the ‘Aldous Bill’ through Parliament?

There were other memorable contributions from other MPs. Margaret Ferrier (SNP, Rutherglen & Hamilton West) echoed the calls for a legislative solution and spoke about the economic and human impact of retention abuse and late payment. She noted the widespread mental health issues uncovered in industry surveys conducted by BESA and ECA and the job losses and economic disruption as the result of the 22 major administrations of construction firms reported in 2019.  Shadow Small Business Minister, Bill Esterson MP (Lab – Sefton Central) described his reaction to the £573 million lost by construction SMEs through retention abuse since 2017 as ‘Stop, thief!’ The official spokesperson for the Opposition referred to the status quo as ‘a series of crimes has been committed over many years’ where the ‘big firm is allowed to exploit the small firm with impunity and continue to get away with it’.  

The government was represented in the debate by Parliamentary Under-Secretary of State for Business and industry Nadhim Zahawi MP (Con – Stratford-on-Avon), who inherited carriage of these issues in the reshuffle just two weeks before the debate. In response to Mr Aldous’ earlier question, the Minister accepted that there was a ‘strong case to reform the practice of cash retentions’, and confirmed that government was indeed committed to reforming the status quo in some way. However the Minister gave no indication of what form change would take or when it would happen, citing the ‘complexity of the issue’ and the need to find ‘consensus’. Minister Zahawi did say this about Mr Aldous’ question regarding an RDS pilot scheme:

“My officials have met with representatives of Pay2escrow on several occasions to discuss the proposal for a deposit retention scheme, and the meetings have been helpful in clarifying and understanding its work. We remain in dialogue with industry to try to build consensus on the future policy. As I said, given the complexity, it is important that we make the commitment when we think it is the right thing to do. I want colleagues to understand that we are committed to that process.”

Labour and SNP MPs repeatedly pressed the Minister for some inclination of a timeline for reform and scoffed at his assertions of the complexity of the issue. Mr Aldous too tried probing the Minister for specific commitments, albeit more diplomatically. Mr Esterson asked the Minister on whether the government would expand the scope of the Small Business Commissioner’s (SBC) activity to the construction industry, something BESA called for as part of our 2019 general election manifesto. Sadly, Minister Zahawi made it clear the government had no intention to do this, citing that their belief that construction contract disputes were too complex and technical for the SBC.

While the government’s response on the surface does appear to be more of the same, there are some positive developments. First, the government has put on the record that it will do something on retentions. Second, before becoming the relevant Minister, Mr Zahawi was on our list of 270+ MPs who supported the Aldous Bill campaign. Regardless of what he is allowed to say formally on behalf of the government, we may have a quiet ally in our corner. Finally, developments in devolved administrations might get the UK government over the line. The Scottish Government’s retentions consultation will close on 25 March and we are currently waiting on the response to joint committee hearings on retentions last year in the Welsh National Assembly. It is possible legislative solutions on the retentions issue could emerge first in Scotland and Wales in the coming year.

Overall, this was a great debate. There were many passionate supporters for the campaign for retentions reform in Parliament, from all sides of politics, and they hammered the Minister with the right questions. Giving the issue a fresh airing compelled BEIS to release its consultation findings and it is now on Minister Zahawi’s radar. Nevertheless, the government must continue to be pressured and reassured by MPs and the industry that the best option is for it put forward its own legislation to establish an RDS. Individual BESA members are encouraged to email your local MP and ask them to urge Minister Zahawi to establish an RDS through government legislation.

You can read the full transcript of the debate here or watch it here.

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