To ask Her Majesty’s Government what measures they propose to protect small and medium-sized businesses from late payment of debts by large companies and government departments.

My Lords, the Government have an unprecedented record on protecting business from late payment and helping business to manage cash flow. We were one of the first countries in the world to introduce late payment legislation—we did so in 1998—and since October 2008 we have introduced a range of measures to support business to manage cash flow. Government departments are now paying invoices more quickly than ever and UK payment times for December 2009 showed a return to pre-downturn levels.

My Lords, that sounds very encouraging, but late payment is still continuing, together with the inability of small and medium enterprises to obtain bank credit, so they are suffering a double hit. What can the Government do about that?

The noble Viscount has identified an important consideration for businesses. The House will appreciate that there is a limit to the extent to which the law can be applied in business relations. The supplier may be able to invoke the law to make an impact on the purchaser, but that may not be in the long-term interests of its business relationships, so the law has some limit in this respect. However, as I indicated in the initial Answer, public authorities have an obligation in the context of the great difficulties over the past 18 months or so and we are ensuring that government, local authorities and the health service are meeting reasonable deadlines for the payment of invoices. That is of great importance.

I declare an interest as chairman of a small quoted company. Will my noble friend consider two ways in which the Government could provide positive help? First, while they cannot do a lot about private companies, will he consider the possibility that any grants from government sources would have to be repaid if there was evidence that small companies were being paid late? Secondly, in the case of HMRC and the deferral of tax payments, interest charges are so high that it is a positive incentive to pay early, so will my noble friend consider delaying interest charges for about six to 12 months?

My Lords, the interests of the broad body of taxpayers have to be taken into account, so we do not want to be indulgent about late payment, although I know that my noble friend is not asking for that. On the more general issue of helping business, we are concerned, as I said, that public bodies should take account of these difficult times particularly for small suppliers. The public sector is setting an example and we hope that large businesses, which often command these resources from small suppliers, share exactly the same attitude and follow the same perspective.

Is every government department checked for late payment to small businesses?

My Lords, they certainly are. My statement applies right across government.

My Lords, I hear what the Minister says but, despite that, a survey by the FSB last month disclosed that local government pays one in four invoices late and that central government and agencies pay one in three late. Will the Minister consider that again? As part of the solution there is a call for a social clause to be inserted into contracts. If payments are not made within time, there should be strong penalties.

The noble Lord is right on the latter point and in 1998 we introduced legislation that assisted that. However, he will know that, as I indicated, using such sanctions may not be in the interests of the supplier’s long-term relationship with the purchaser. Therefore, that is a limitation on the law. I hear what he says about public agencies involved in making payments. We have clear statistics and data, which are collected monthly, on the 10-day payment performance by central government across all departments to monitor and check that what I have said about payments is correct.

My Lords, the 1998 Act has not been successful because the only person who can sue is the creditor and he does not want to upset long-term relationships with his suppliers. Would it not be better if officials such as trading standards officers were empowered to sue late payers of debt on behalf of the several creditors that there usually are in cases of bad payers?

My Lords, I will certainly take that constructive suggestion back—well, I know that it is intended to be constructive, but I am not sure that it gets around the problem. It may guarantee that the payment goes to the supplier on that occasion through the intermediary body, but it does not guarantee that the relationship between the supplier and the purchaser is enhanced. I will take my noble friend’s point back; I know how experienced he is in the area and all government departments can learn from the experience of this House.

My Lords, what is the situation regarding payments to foreign contractors offering services overseas?

My Lords, the code of practice, which we seek to enjoin, applies to all. Therefore, we would expect the broad norms that I identified for the relationship between government departments and others and between private companies to be followed. There is one additional factor, which is not to be overlooked. In our analysis of invoices—we looked closely at £400 million-worth of supplier invoices concerning a large number of small businesses—we found that a very high percentage was deficient in some respect. Therefore, the company seeking to make the payment had some cause for not making the payment as promptly as would otherwise be the case. We want to improve the understanding of small companies in particular on how to present their notes.