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Late Payment: Assistance To Small Firms

Volume 572: debated on Tuesday 7 May 1996

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2.53 p.m.

What action they propose to take to assist small firms facing bankruptcy, with consequent unemployment of their staff, as a result of the failure of large organisations to pay bills for subcontracted work.

My Lords, the Government are aware of the impact that late payment of commercial debt can have on small businesses. We are working with the business community on this issue. A significant package of measures was announced in 1994. In addition, the Prime Minister announced on 11th March this year new measures to tackle late payment, including consultation on whether public companies should be required to publish their payment performance.

My Lords, I thank the Minister for that Answer, but is he aware—I am sure that he is—that where payment is not made, unemployment will often result because the small firm cannot afford to keep its staff? Is he also aware that the suggestion that, for example, interest should be claimable on late payment would not necessarily help small companies because they would then become worried that they would not get another contract if they were awkward? Is the Minister aware that there is legislation in, I believe, the United States under which small firms have immediate access to the courts if they cannot get the payments that they are owed?

My Lords, as is evidenced by the fact that my right honourable friend the Prime Minister raised the issue as recently as 11th March, we are certainly concerned about the question of late payment. I agree with the noble Baroness about a statutory right to interest, but in our consultations eight of the nine small firms' representative organisations voiced their opposition to statutory interest for fear of the detrimental effect that that could have on a small firm if the company were to say, "If you are going to charge me interest, I will find another supplier for my next order".

My Lords, does my noble friend agree that if the interest was mandatory after the credit term had expired and if everybody was subjected to such provisions, there would be no such competition between small businesses or fear of a contract being taken elsewhere because any company with a contract that was then transferred to another company, small or large, would be subjected to the same fine if payment was made late?

My Lords, that may be true, but both large and small companies—small firms are not very quick to pay their bills either—could easily say, "Before I give you my business, can I have an extended term of credit from 30 to 60 days or from 60 to 90 days?" I believe that such provisions could be circumvented in that way.

My Lords, my right honourable friends the Prime Minister and the President of the Board of Trade are very keen to ensure that government departments pay their bills on time. Every government department is asked to make a return annually on the speed with which it pays its bills with relation to the 30 working days limit. Looking at the table of those returns, I am happy to say that there have been considerable improvements and that the great majority of government departments manage to pay over 90 per cent. of their bills in that period. In addition to government departments, local authorities are important to small businesses in this way. We are discussing with the Audit Commission what could be done to ensure that local authorities pay their bills on time.

My Lords, following the question of the noble Lord, Lord Clark of Kempston, is it not a fact that a number of Continental countries have mandatory interest payments and that they have found that that has expedited the payment of bills?

My Lords, I agree that a number of continental countries have such systems, but the evidence suggests that they do not improve the position greatly.

My Lords, do the rules which apply to government departments apply also to National Health Service trusts, particularly when they are contracted with private facilities? I have had notice that one particular trust has delayed payments beyond six months.

My Lords, all that I have with me is a list of government departments, so I am afraid that I cannot answer that question on healthcare trusts. However, I shall endeavour to find out the answer this afternoon and shall write to the noble Countess.

My Lords, this is a difficult problem to solve. Does the noble Lord have any evidence that the problem is getting worse? Has anything occurred in the past few years to exacerbate it? One obvious thought that I had was that when interest rates were extraordinarily high one could see a culture of non-payment or delayed payment emerging, but, although that ought to be self-regulating as interest rates fall, the people who write to me about it say that the problem is just as bad now as it ever was. Although I am sympathetic to some of the Government's solutions, they all seem to share one troubling characteristic: they will make money for the banks rather than for the real economy. Will the Minister comment on that?

My Lords, I do not know whether there is any particular reason why this has become a bigger problem over recent years, if indeed it has become a bigger problem. It would be unfair—if not against the rules of order and procedure—to ask all noble Lords who have paid bills rather late, having waited for red demands, to put up their hands. This is a matter which is probably of long standing. Something like 84 per cent. of small firms admit to paying their suppliers late. Although it is a problem, from the investigations that have been carried out, largely by Professor Nick Wilson of the University of Bradford, it is quite clear that small firms which have put in place good credit controls are not so plagued by the problem as those which do not have good credit controls in place.

My Lords, if there is any logic in the economic theory just propounded by the noble Lord, Lord Peston, one would expect that as interest rates fell the factoring of invoices of small businesses would decline. Perhaps I may ask the Minister whether that has happened.

My Lords, as I believe I indicated to the noble Lord, Lord Peston, I am not able to speculate on whether or not the position has changed due to the reduction in interest rates. I am afraid that I cannot help my noble friend in that regard either. I suspect that the increasing use of credit and cheque payments between companies and the competitive nature of business all play a part in the late payment syndrome.

My Lords, has the noble Lord had the benefit of consultations with his right honourable friend the Deputy Prime Minister, who, in the course of his excellent autobiography, described the very great benefits that accrued to middle-sized firms from delaying payment till the last possible moment?

My Lords, first I should like to congratulate the noble Lord, Lord Bruce, upon having asked that question. I took a small wager with my staff on whether or not somebody would put that question to me. My right honourable friend the Deputy Prime Minister, who has had a successful business career and has suffered setbacks in that career at various stages, has propounded the simple proposition that when companies get into trouble it is important that their creditors are understanding. In that way, those companies can get out of the trouble and become good payers again.

My Lords, while I thank the Minister for his replies to the questions, does he agree that very often it is a matter of large firms withholding payment from small firms, as has happened in the case just reported to me? Does he also agree that the Government can do a great deal to change the general culture as well as introduce legislation? It would be of assistance if the culture was changed so that fast payment of bills was insisted upon in the case of small firms.

My Lords, as far as concerns the case to which the noble Baroness has referred, of which I am aware, there is considerable dispute, as there often is in the building industry, between contractors as to the work done and the value of the work done. The case that the noble Baroness has in mind is very much on those lines rather than one where the principle is a desire not to pay the sub-contractor. The general point and those I have already made—which I believe have general agreement—that to put interest on late payment will have a detrimental effect on many small firms are issues that we come back to every time we look at the problem.