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Small Businesses: Late Payments

Volume 750: debated on Wednesday 18 December 2013


Asked by

To ask Her Majesty’s Government what progress has been made in ensuring that small businesses are not penalised by the late payment of bills.

The Government take the problem of late payment very seriously and have taken a number of steps to support small businesses. We have strengthened the UK’s legislative framework on late payment; we have put pressure on large companies to commit to good payment practices, resulting in the majority of FTSE 100 companies signing up to the prompt payment code; and we have helped small businesses help themselves by improving their access to working capital.

My Lords, given that the Forum of Private Business says that action is now long overdue on this issue, and given that 94% of the firms in the British Chambers of Commerce are habitually paid late, when will this quixotic Government, forever tilting at the wrong windmills of public policy, implement the late payment on commercial debt legislation so that government departments pay on time and big businesses do not use small businesses and suppliers as shadow banks? Will the Minister institute a kitemark for those good firms that do pay on time and that are currently unprotected by this idle Government?

My Lords, we need no lessons from the former Government opposite on how this matter is handled. The fact is that tackling late payment requires a change in business culture and that the Government alone cannot solve the problem without interfering in the freedom of businesses to contract with each other. However, the noble Lord makes an important point about a kitemark and, in effect, an accreditation system. The Prime Minister decided to consult on this issue and on 7 December we published a discussion paper on building a responsible payment culture in the UK. We are working with business organisations to ensure that we get views from a wide range of businesses, and we will decide what further legislative or non-legislative action to take based on responses to this paper.

My Lords, I welcome the Government’s consultation, but I am sure that the Minister is aware that huge quantities of money are held up through retentions and that many small businesses never get complete payments at the end of their contract. As I understand it—I would be grateful if he could confirm this, and, if it is the case, do something about it—neither of these issues is part of the consultation that the Government have put forward. I hope he can assure me that they will be included.

I cannot reassure my noble friend on that particular point, but I can reassure her that the discussion paper, Building a Responsible Payment Culturefrom my department, BIS—seeks views on changing the business culture by increasing accountability and transparency, on encouraging small businesses to make better use of the statutory rights that they already have, on whether there is a case to enhance those rights and on how we can empower small businesses to help themselves reduce the risk of late payment.

My Lords, first, I congratulate my noble friend on asking this important Question, although I hope he would agree that it is not only small firms that suffer from the late payment problem. All firms tend to find that the problem arises. Does the Minister agree that there are two aspects to this Question? One is an ethical aspect: namely, businesses simply should not, as a matter of course, use late payment as their method of financing themselves temporarily. Do the Government agree that this is a serious ethical problem and that businesses ought to start to behave better? The second aspect is an economic one. Does the Minister agree that, rather like the parable of the fleas, if a big firm does not pay the next firm down, it in turn will not pay the next firm down and it will go on ad infinitum until eventually someone will go broke? When they go broke, lots of firms will go broke and the system will become destabilised. Does the Minister agree that the last thing this country needs is any new form of destabilisation?

The noble Lord makes a couple of important points. It is an ethical issue. The previous Government brought in the prompt payment code, which is voluntary. My honourable friend in the other place—the Minister of State, Michael Fallon —contacted a number of FTSE 100 companies and managed to increase the number signing up to the code from 30 to 72. The noble Lord is completely correct on the economic issue. That is why we have made some good progress in ensuring that supply chains are properly managed.

Is the Minister aware that only 30% of the UK’s small and medium-sized businesses are able to transact online? Therefore, does he agree that building their digital skills and encouraging them to use them is a fundamental part of addressing this problem?

I know that the noble Baroness has a long and very successful history in this field. Of course, I very much support what she says and, with her, I encourage businesses to do just that.

Can my noble friend give a copper-bottomed guarantee that no government department goes beyond the pay days to pay its debts? If he cannot, can he make it very clear to his lords and masters that that is what is demanded of them and that in future we will need that guarantee?

The Government aim to lead by example. Since 2010, all central government departments have been committed to paying at least 80% of their invoices within five days. I am pleased to say that my own department, BIS, pays 97.3% of its invoices within five days. My noble friend makes a good point. We want small businesses working on public sector projects to benefit from prompt payment.

Can the Minister say what instructions or suggestions the Government have given to the state-owned banks to show understanding when small firms find themselves in difficulties through late payment?

That is a very specific question. I will certainly write to the noble Lord on the specific aspects of that.

Is the Minister aware that, due to the inefficiency of the Stortext system used by the Treasury Solicitor’s Department to pay its accounts with firms such as costs lawyers, some of these small firms have outstanding accounts going back to May? This compares unfavourably with HMRC, which pays its accounts with minimum delay.

My Lords, in January the Minister of State said that he would name and shame FTSE 100 firms that failed to sign up to the prompt payment code. However, companies that pay their small suppliers in 90 or 120 days could still be signatories to the code. In fact, at least one FTSE 100 company extended its payment terms and then signed up to the code. The Government know that 2,000 firms went bust last year due to late payments. Is it not time that they implemented minimum standards for all signatories to the prompt payment code? That is not really a lesson, but a strong recommendation for practical action.

There are two points there. First, on the example to which the noble Lord alluded, my honourable friend the Minister of State in the other place followed up quickly on that particular issue. That major company spoke to its suppliers, which were content that there was no particular issue. As far as we are aware, none of the suppliers has complained to the Institute of Credit Management, which they are entitled to do, so it is not possible to judge the merits of that particular case. However, the noble Lord makes a good point.