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Small Business, Enterprise and Employment Act 2015

Part 1: Access to Finance

Power to invalidate terms of contracts prohibiting etc. assignment of receivables and UK businesses: duty to publish report on payment practices

5.On 7 December 2013, the Government published the “Late payment of finance: building a responsible payment culture” discussion paper, a consultation on which ran until 31 January 2014. The paper proposed a number of possible measures that could be introduced to prevent or discourage companies from paying their suppliers late or imposing unreasonably long payment terms on them – a problem that is estimated to adversely impact on 85% of small businesses. The paper also called for views on what could be done to improve public procurement processes and make alternative financing options, such as factoring and invoice financing, more accessible for small businesses.

6.In May 2014, the Government published a response document, which provided a summary of replies received to the discussion paper and outlined the Government’s proposed actions. These include a combination of legislative measures and collaborative work to be carried out with industry and stakeholders, including the Chartered Institute of Credit Management, designed to increase transparency over companies’ payment terms and encourage companies to commit to reducing these where excessive and/or unfair. The response document also sets out the Government’s intention to address contractual barriers that can make it more difficult for small businesses to raise finance using their receivables.

7.This Part contains provisions which:

i.

will allow the Secretary of State to introduce a reporting requirement requiring large UK companies and limited liability partnerships to publish their payment performance to other businesses; and

ii.

will allow the Secretary of State to introduce regulations that would make ineffective any ban on assignments of receivables in contracts, with the exemption of contracts for some financial products.

Small and Medium Sized Business Credit Data

8.At Budget 2013 the Government announced that it would investigate options for improving access to small and medium sized business credit data. The Government further announced in the Autumn Statement that it would consult on proposals to require banks to share information on their small and medium sized business customers with other lenders through Credit Reference Agencies (CRAs).

9.When assessing the creditworthiness of small businesses with a view to making a loan an important source of information for the lender is a business’ past financial performance. This information is, however, often held by the bank that provides the business’ current account and is not widely shared. New lenders and alternative finance providers therefore do not have access to the same level of information as the bank with which the small business already has a relationship.

10.In the UK, CRAs provide the infrastructure through which lenders share credit data on a voluntary and reciprocal basis. This system generally works well - the UK receives the highest ranking available from the World Bank for depth of available credit information. However, the current system can produce barriers to entry for new lenders and alternative finance providers.

11.This is because certain data (notably current account data) is not widely shared by banks and, where it is, there is not equal access to it for alternative finance providers. This is because the data is shared within closed groups which only certain lenders have access to. This represents a considerable barrier to entry for new lenders and alternative finance providers.

12.The problem of a lack of available credit data has been highlighted by a range of informed comment on small and medium sized business access to finance. The Office of Fair Trading, the Competition Commission and the review headed by Tim Breedon (“Boosting Finance Options for Business”) have all cited a lack of information about the creditworthiness of small and medium sized businesses as a potential barrier to competition in the market for the provision of banking services (and lending in particular) to such businesses.

13.Section 4 gives the Treasury power to make regulations imposing a duty on designated banks to provide specified information about their small and medium-sized business customers to designated CRAs, and a duty on designated CRAs to provide such information to lenders, subject to the agreement of the business to which the information relates.

Small and medium sized businesses: information to finance platforms

14.The largest four banks account for over 80% of UK smaller business’ main banking relationships. Many small businesses approach only these largest banks when seeking finance. Although a large number of these applications are rejected - in the case of first time small and medium sized business borrowers the rejection rate is around 50% - a proportion of these are viable and are rejected simply because they do not meet the risk profiles of the largest banks. There are often challenger banks and alternative finance providers with different business models that may be willing to lend to these small and medium sized businesses.

15.The Government therefore announced at Budget 2014 that it would consult on whether, and if so how, to take legislative action to help match small and medium sized businesses that have been rejected for loans with challenger banks and alternative finance providers that are looking to offer finance.

16.The consultation sought views on whether there should be a process backed by legislation whereby smaller business that are rejected for finance could have information about them provided to platforms that would help them to make contact with alternative lending opportunities. The Government published a summary of responses in August 2014, confirming that there was widespread support for these proposals, and that it would proceed with legislation.

17.Section 5 contains provisions giving the Treasury power to make regulations:

(a)

requiring designated banks to share information on businesses that they reject for finance (where those businesses have agreed) with online platforms that will help them to make contact with alternative lenders;

(b)

enabling HMT, on advice of the British Business Bank, to designate private sector platforms to receive the information;

(c)

setting out clear criteria for the designation of platforms, including: ensuring small and medium sized businesses’ information is properly protected, and removed at businesses’ request; and giving fair access to credible alternative lenders; and

(d)

enabling HMT to de-designate platforms that fail to meet minimum standards.

18.These provisions are designed to complement the provisions on Small and medium sized businesses credit data (section 4).

VAT Data Sharing

19.The Government consulted on proposals for VAT data sharing as part of the HMRC ‘Sharing and publishing data for public benefit’ consultation published on 17 July 2013. The consultation closed on 24 September 2013, having received 54 responses. The Chancellor announced on 19 March 2014 that the Government intended to proceed with a controlled release of non-financial VAT data as set out in Chapter 4 of the consultation paper. Section 8 gives effect to that commitment by providing HMRC the power to release non-financial VAT data for the purpose of assessing creditworthiness, fraud risk or compliance with financial services regulation. It also enables the purposes for which data may be disclosed to be amended by regulation.

20.The permissive (as opposed to mandatory) nature of the power implicitly allows for conditions to be placed on any disclosure, for example with regard to security. The section provides that those to whom data has been disclosed may not onwardly disclose that data to another party without the specific consent of HMRC.

Disclosure of exporter information

21.There is increasing demand from the public and private sectors for access to export information that HMRC holds. This would be used to help efforts to boost exports by enabling appropriate services and support to be made available to a wider range of businesses and would create greater visibility of UK exporters, especially small businesses, to new overseas customers. The Commissioners for Revenue and Customs Act 2005 does not, however, permit HMRC to share this information and the absence of a reliable publicly available data source has been highlighted as a constraining factor to delivering better export services.

22.To address this, section 10 gives the Commissioners for HMRC the power to make regulations to permit sharing of certain information on exports. This is deliberately tightly drawn and specifies the categories of information that may be disclosed under the regulations, but limited to less sensitive but nonetheless useful information. The formal consultation on ‘Sharing and publishing export data for public benefit’ will be completed before HMRC makes any regulations, to ensure that all views are taken into account.

Power of the Secretary of State under section 1 of the Export and Investment Guarantees Act 1991 (EIGA) and Commitment limits

23.In February 2011, the Government published the Trade and Investment for Growth White Paper, noting that ‘trade and investment will be crucial to achieving strong, sustainable and balanced growth’. This White Paper set out the Government’s goal of improving growth and productivity by overcoming the barriers to doing business overseas. A number of commitments were set out in the White Paper with a view to increasing access to trade finance for businesses. The Government has also set targets to improve the UK’s export performance, specifically, to achieve by 2020 £1 trillion of exports per annum, increase by 100,000 the number of companies that export and for UK companies to win a greater number of overseas High Value Opportunity projects.

24.The Government’s policy is to widen the ability of the Export Credits Guarantee Department to support UK exports and exporters, to assist them in contributing towards these goals. This is in the context of the role of the Export Credits Guarantee Department to complement private sector provision of relevant products and services.

25.This Act contains provisions the effect of which is to give the Export Credits Guarantee Department:

i.

a broad ability to assist and support businesses in the UK that are, or wish to become, involved in exporting or exporting supply chains;

ii.

the ability to support exports of intellectual property rights and other intangibles; and

iii.

the ability to support exports in circumstances where there are complex contracting chains and financing arrangements or where exports are made via overseas subsidiaries or joint venture companies.

26.Other technical changes are also being made through measures contained within the Act, including to:

i.

consolidate the foreign currency and sterling limits on the liabilities that can be incurred by the Export Credits Guarantee Department in supporting UK exports and investments overseas and in managing its portfolio of risks; and

ii.

remove the requirement that the Secretary of State must consult the Export Guarantees Advisory Council on matters relating to the provision of reinsurance to other export credit insurers.

Cheque Clearing

31.Payment systems sit at the heart of the economy. They are the mechanisms that allow money to flow continually among and between households and businesses. Cheques continue to form an important part of the British payments landscape, accounting for ten percent of all payments made by individuals in 2012, and forming a fifth of all outgoing payments made by sole traders, other micro businesses and small businesses.

32.Section 13 makes provision for cheques and other similar instruments to be presented by providing an electronic image, in place of presentment of the cheque itself. It also enables HMT to make regulations enabling compensation to be claimed from the bank which receives payment of the instrument, for any specified kind of loss suffered in connection with electronic presentment.

Payment Systems Regulator

33.The Financial Services (Banking Reform) Act 2013 (“the 2013 Act”) made provision for a new Payment Systems Regulator (PSR). The PSR has objectives to promote competition, innovation and the interests of end-users of payment systems. Its remit covers all retail payment systems operating in the UK, where these have been designated by HMT.

34.Section 14 removes an unintended restriction on the ability of the PSR to exercise its powers for the purpose of requiring access to be granted to systems designated under the Settlement Finality Directive. Section 14 corrects the application of that restriction so that it applies to payment systems to which the provisions of the Payment Services Directive relating to access apply.

35.Section 14 also amends the 2013 Act to extend the Payment Systems Regulator’s power to order divestment of ownership interests in payment systems to ownership interests in infrastructure providers to payment systems, to ensure that the ownership of both payment systems and the underlying infrastructure by a small number of banks does not act as an impediment to open access and competition in the market for payment systems and payment services.

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