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Small Businesses: Late Payments

Volume 765: debated on Wednesday 28 October 2015


Asked by

To ask Her Majesty’s Government what has been the outcome of their consultation about giving bodies representing small businesses wider powers to challenge unfair payment practices, and what progress has been made in improving small businesses’ access to short-term finance to mitigate the late payment of debts owing to them.

My Lords, our consultations on proposals to give representative bodies wider powers to challenge grossly unfair payment practices closes on 27 November. It is a part of a package of measures to tackle late payment. We will also improve small businesses’ access to short-term finance and will soon lay regulations to nullify bans on invoice assignment. This is a new measure to enhance small businesses’ access to working capital.

My Lords, given that according to the British Chambers of Commerce the new small business commissioner will only marginally help small businesses, which are deprived of £55 billion at any one time because of late payment by big businesses and government, and given that this commissioner will anyway be absented from answering disputes in the construction industry, where this problem is at its most intense, will the Government finally respond to the Federation of Small Businesses’ request for an in-depth inquiry into late payment on commercial debt or will this Government remain all talk-talk and no action?

My Lords, we are full of action. If the noble Lord comes to the Moses Room this afternoon, he will find that we are discussing the Small Business Commissioner and the question he mentioned about payments in the construction industry.

As has already been mentioned, there are special problems when it comes to the construction industry. In particular, SMEs in the construction industry have lost £30 million through cash retention so far in 2015. Will the Minister make a strong commitment to look at this issue, which is vital for the survival and growth of small businesses?

My Lords, I am happy to look at this issue. We will be discussing it in Committee this afternoon. The Government acknowledge that there are issues here. We have taken steps to improve the situation, but it is not yet right.

My Lords, will the Minister explain why even in the NHS there are ethical views about how you pay small businesses for services carried out? If we can do that in the NHS, why can business not do that?

I agree with the noble Baroness that late payment has to be got rid of in the public sector and in the private sector. We have taken a great many steps in the public sector, including in the health service. We are now seeking to do more in the private sector. We are discussing that in the Enterprise Bill, which makes really important changes.

My Lords, I declare my interest as chair of Go ON UK. We know that online banking not only prevents fraud but enables faster payments to small businesses, yet 25% of small businesses in this country have no basic digital skills and a further 5% have no access to broadband. Will the Minister say what the Government can do to help these business which would benefit greatly from online banking and financial services?

I commend the work that the noble Baroness has done as digital champion and agree with her about the importance of digital to small businesses. As she will know from our productivity plan, we are producing a digital transformation plan because we need digital skills across the economy, government and small businesses if they are to take advantage of the opportunities the digital revolution brings.

My Lords, when small businesses are late paying big businesses, the big businesses tend to charge interest on the outstanding amount. Why cannot this arrangement be made conventionally reciprocal?

My Lords, there are arrangements, particularly stemming from EU directives, about the payment of interest on late payments. The difficulty is that they are not always pushed, especially by smaller companies. We need to change the payment culture in this country, which is what the Small Business Commissioner is about and what the regulations that we will be bringing in early next year, bringing transparency to payment terms, are about as well. The small will know what the big are doing and whether they are up to scratch.

My Lords, the Enterprise Bill excludes the possibility of a complaint being resolved where a small business is in dispute with another small business as a result of a larger business’s unacceptable payment practices, especially where the small business caught in the middle is not protected from reprisals. Can the Minister tell us how much this exclusion reduces from the overall figure of late payments that the small business commissioner will be responsible for?

My Lords, we are trying to focus the work of the Small Business Commissioner when we set him up particularly on complaints from smaller businesses about bigger businesses. The noble Lord rightly says that there can be issues between small businesses in respect of payment. We are debating and looking at that but we plan to focus on the imbalance at the large/small end initially.

My Lords, what support is the Treasury giving to the idea of placing ISA wrappers around peer-to-peer lending arrangements? They would greatly benefit small businesses.

Can the Minister not understand, further to the point made by the noble Lord, Lord Elton, that small businesses, especially if they are suppliers, are in fear of losing those they supply if they insist upon being paid on time?

My Lords, that is indeed the problem, which is why we are establishing a Small Business Commissioner who can help them and change the culture, and bringing in payment transparency which will show the payment track record of bigger companies. Not everything is bad. Some practice is good. Some companies pay small businesses quickly because they understand their brilliant contribution to the economy and to innovation.

My Lords, can the Minister tell the House what the Government are doing with large companies which are contractors to the Government to ensure that they are paying small companies on time? If they are not doing anything can we build in sanctions or parts of the contract to ensure that we do that? We should start at home.

My Lords, I completely agree that we should start in our own backyard. We have done exactly that by legislating to cascade 30-day terms down the public sector supply chain, new reporting requirements in government to hold contractors to account and a mystery shopper scheme where things go wrong.