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Commercial Debt

Volume 281: debated on Wednesday 17 July 1996

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To ask the President of the Board of Trade what representations he has received on a statutory right of interest on late payment of commercial debt. [36065]


To ask the President of the Board of Trade what representations he has received on a statutory right of interest on late payment of commercial debt. [36075]

I announced to the House on 11 January 1996 that I was seeking representations to inform a review of the case for introducing a statutory right to interest. More than 100 submissions were received. The resulting analysis has been placed in the Library.

Is my hon. Friend aware that many small businesses in my constituency are concerned about late payments by large companies and other organisations? When I talk to local business organisations, such as the chamber of commerce, the industrial association and the business association, there are mixed views on whether a statutory right of interest is appropriate. What is the Government's policy on that?

Few hon. Members have more experience than I of the issue of late payment to small firms, and I know how important it is to them. I understand the confusion about a statutory right to interest, but no magic bullet or cure will automatically result. Some facts must be appreciated. Companies, both large and small, can charge interest for late payment. However, any company that will not pay must still be taken to court and go through the due processes. A statutory right to interest is not the easy solution.

I echo the concerns of my hon. Friend the Member for Eastbourne (Mr. Waterson). Does my hon. Friend the Minister agree that there are dangers in a statutory right of interest, especially for small and medium-sized enterprises? Have the Government done research to discover the views of SMEs?

The submission that has been laid in the Library shows that eight out of nine of the small firms organisations that have made representations came out against a statutory right to interest. The one that supported it is, I understand, the smallest of those organisations. I have not taken that as the be-all and end-all. Various surveys have been carried out, such as those by the Institute of Directors, on the moneys owed by and to small businesses, and by the university of Bradford. Both concluded that small businesses receive more credit than they give. An effective pointer emerges from that: small businesses that carry out effective credit management control stand a 38 per cent. better chance of receiving their money than those that do not.

If the Minister does not have much experience, the Deputy Prime Minister does. What is the Deputy Prime Minister's advice?

My right hon. Friend the Deputy Prime Minister's advice was quite simple. He said that, when a company could not pay because of cash flow difficulties, it should contact the creditors, reach an arrangement and thereby enable the company to get over its difficulties rather than walking away and not paying.

The House should not be surprised by the Minister's complacency, given that the Government pay their own bills late and have a Deputy Prime Minister who boasts about stringing along his creditors. In fact, that right hon. Gentleman is actually blaming small firms for under-performing and the recession. What does the Minister say about the survey conducted by the Forum of Private Business, which found that 95 per cent. of firms supported the Labour party's proposals for a statutory right of interest? What about the findings of the surveys conducted by Lloyds bank and Business Pages? Given the Government's small majority, the Minister should heed the fact that a quarter of his Back Benchers support the Labour party's policy for a statutory right to interest on late payment.

The hon. Lady asked three questions. As soon as I was appointed as Minister with responsibility for small firms, I asked for a review of the Government's policy on payment. Although that showed that we had a good record, my right hon. Friend the Prime Minister decided that that policy should be further monitored and toughened. That is exactly what will happen. The results will be out in the autumn. I thank the hon. Lady for her support of that particular campaign.

I admire the hon. Lady's loyalty in supporting the Leader of the Opposition's policy on statutory right of interest. That policy was made on the hoof before the results of the consultation were known, and simply shows that Labour wants to tell business what to do, whereas we want to consult business.

Is my hon. Friend aware that I have always opposed a statutory right to interest, as suggested in the question, because I believe that it would be a danger to a large number of small businesses and not be much help to many others? I am, however, a strong supporter of the proposals in his document on tackling late payment. They include a recommendation for a statement of payment practice in the directors' report. I realise that the consultation period is still running, but it represents the way to improve matters.

My right hon. Friend is very experienced concerning the small firms sector. We are endeavouring to change the culture. We have required companies to state their payment policy in their annual reports. We are consulting now on the point made by my right hon. Friend about companies publishing their payment practice in their reports. The Government are leading by example by getting every Department to sign up to the prompt payment code. The Lord Chancellor is conducting a review to ensure that the civil enforcement agencies operate more efficiently. A change of culture is the way forward and that is the direction in which we are pushing.