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Commercial Debt: Late Payments

Volume 768: debated on Tuesday 2 February 2016


Asked by

To ask Her Majesty’s Government what action they plan to take, in the light of the report by the Groceries Code Adjudicator regarding Tesco’s supplier payment policy, to address the late payment of commercial debt.

My Lords, the Government are implementing a package of measures to help create a responsible payment culture, where larger companies recognise the benefits of having a sustainable and robust supply chain and smaller businesses feel able to challenge poor behaviour. A new reporting requirement on the UK’s largest companies this year will compel larger companies to report on payment practices and policies. Our proposed Small Business Commissioner will help small businesses resolve payment disputes with larger businesses.

Given that the Groceries Code Adjudicator found in one case that a supplier was owed a multimillion pound payment for two years, and given that many smaller suppliers find the risible Prompt Payment Code entirely useless when it comes to getting their rights, will the Minister say what powers and resources both the adjudicator and the newly created commissioner will be given to help the 5.4 million small businesses, which have laboured for too many years under this imposition of slow and late payment of commercial debt?

My Lords, the noble Lord is quite right in what he says about late payment to SMEs. From my own experience in that area, having jointly run an SME, I know how difficult it is for a profitable and competitive SME if you get late payment from your customers and have to pay early to your suppliers. I should also make the noble Lord aware that the Government are taking significant steps to tackle late payment. In addition to the measures I have already outlined, we have strengthened the Prompt Payment Code to promote 30-day payment terms as a norm. The code will also enforce maximum 60-day payment terms for all signatories. At the moment, there are over 1,700 signatories to the Prompt Payment Code, many of which are some of our largest companies.

My Lords, as far as the public sector prompt payment measures are concerned—to pay 80% of undisputed invoices within five days and all within 30 days—my department, BIS, exceeded this target and paid 99.5% of its invoices on time in 2014-15.

My Lords, we all applaud that. The Groceries Code Adjudicator’s report definitively establishes that Tesco has been in breach of all 10 of the undertakings required of members of the Prompt Payment Code. The Enterprise Bill is still in the other place, so would it not be sensible for the Government to bring forward an amendment to that Bill that would make a statutory Prompt Payment Code, backed by significant penalties for those who are unable to meet it?

My Lords, as the noble Lord is aware, because he took a leading role on the Enterprise Bill in your Lordships’ House, the Groceries Code Adjudicator does have weapons and is able to fine companies up to 1% of turnover, which is a considerable amount of money. The Government welcome the findings of the first investigation by the GCA. The report highlights that we still have some way to go to create a responsible payment culture in the UK. The Government remain committed to tackling the poor payment practices that hinder our small businesses.

My Lords, I understand that the terms of reference are shortly to be finalised, but will my noble friend confirm that, in the forthcoming statutory review, there will be full consultation with the grocery supply chain, including farmers, NGOs and Civil Service organisations?

My Lords, my noble friend refers to the performance review in the Groceries Code Adjudicator Act. My noble friend will be glad to hear that consultation will be as wide as possible.

My Lords, this report lifts the lid on the abuse suffered by suppliers at the hands of Tesco. On late payments, the Liberal Democrats urged the Government to impose statutory fines for repeat offenders in the Enterprise Bill, which was alluded to by Labour earlier. The Government refused, and the Small Business Commissioner, who the Minister has already mentioned, has barely any powers to tackle this scourge. In the light of this report today, and if the Government do not want to be perceived as having a deferential attitude towards big business, will they think again?

My Lords, I cannot answer for part of what the noble Baroness says, but, basically, the whole issue is for companies to treat their suppliers in a way that cuts down late payments. However, the noble Baroness is quite right to say that we are not going to impose sanctions as she described.

Will the Minister congratulate the Groceries Code Adjudicator on this her first decision? Will he insist that a proportion of the fine be used to increase her resources to enable her to do more such investigations? Will she be allowed to take own-initiative investigations, off her own bat, rather than wait for a referral from small producers that simply are too timid to do so?

My noble friend is quite right that support has to be given to small producers and SMEs in this instance. As far as more powers for the adjudicator are concerned, I feel that those will be part of the performance review. However, if there is anything more that I can add to that, I will write to my noble friend.

Does the code cover the cases that I came across in my early days as a Minister, where big companies did not just squeeze their suppliers but found out who the suppliers to their suppliers were and squeezed them, too? The big companies know they have the supplier over a barrel, and the suppliers do not complain about it because they are scared stiff. This is not a straightforward A to B; it is A jumping over B to get to the supplier’s supplier and squeeze them as well.

The noble Lord is quite right. I do not know the answer to his question, I am afraid, but I will write to him. It goes back to the issue that I talked about before, where SMEs are being squeezed at both ends of the job. They are being squeezed by the people they have to buy from, sometimes they have to pay money upfront, and if they find that they have to pay 90 days later, they are being squeezed by their customers.

My Lords, we are being tough on companies. The Groceries Code Adjudicator, as I said earlier, has had powers for all investigations since April 2015, when the order went through, and to fine these companies up to 1% of their turnover, which in anybody’s language can be a considerable amount of money.

My Lords, milk production is going through a difficult position at present, but I will have to write to my noble friend about that issue. I can say that any mistreatment of the suppliers by the large supermarkets is basically unfair.

The Minister may be aware that, certainly in Northern Ireland this year and I suspect elsewhere, farm incomes dropped by 41%. I am sure that that is the case in many other areas. How is it possible to ignore the fact that large companies are screwing these small farmers because they can? There needs to be a more vigorous approach by his department. Does he agree?

My Lords, farmers who are being squeezed in the middle by the low price of milk and high seed costs have great problems. I am afraid that I am slightly out of my knowledge area here, but I will write to the noble Lord to see if I can give him any more information.