Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:17 pm on 23rd March 1987.

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Photo of Richard Ottaway Richard Ottaway , Nottingham North 7:17 pm, 23rd March 1987

They fall into the professional services sector. They take up to 206 days to pay.

Unbelievably, no remedy has yet been put forward as suggested by the Law Commission. It may come as a surprise to hon. Members, but it is not possible to sue for the interest on a debt after the principal has been paid. That makes us the odd man out in Europe. The only way that a creditor can be sure of being compensated for being out of his money is by issuing a writ with the invoice, and that will hardly make the wheels of industry go round.

The Government have adopted a mixed attitude to the problem. Following the CBI guidelines in 1980, they launched a voluntary code in 1986 in a booklet entitled "Payment On Time". It is a rather woolly document and gives no recommended period for the payment of debt. The credit agency Dun and Bradstreet said that it had noticed no change in the time taken to pay debts since the publication of the booklet. That comes as no surprise, as we have had a voluntary code since time began.

Whereas the Department of Employment, which published the booklet "Payment On Time", did not receive much of a response, the Treasury has been far more positive. Last year it introduced penalties for late payment of VAT, and the response to a written question of mine shows quite dramatically that the receipts of VAT have gone up and the outstanding backlog of unpaid VAT has gone down.

The problem will be slightly alleviated by the welcome measure proposed in the Budget, but that measure would not be necessary if bills were paid on time. The answer is a right to interest on the late payment of debts as was recommended by the Law Commission. I am sure that that would result in a more rapid payment of bills.

In its survey the CBI asked firms whether, if they were automatically entitled by law to interest on any debt paid late, they thought their customers would pay more promptly. A staggering 85 per cent. said that they did. As a result, I introduced my Right to Interest Bill, whose main proviso was that interest on the late payment of a debt was deemed to be an express term of every contract. There has been considerable argument since then about whether that should be a statutory entitlement or a statutory discretion. My preference is for the statutory entitlement, because I believe that any discretion available to the courts is accompanied only by vast armies of lawyers trying to persuade the court how its discretion should be exercised.

The Government's position on this proposal is that they are open to persuasion. I am delighted to report to the Government that a consensus is emerging. My early-day motion 63, which is not by any means frivolous, and which calls for the introduction of legislation, is now supported by 176 hon. Members from all parties, including some of the hon. Members now present. Both alliance and Labour spokesmen have spoken in support of the proposal. I do not know whether it will he in their manifestos, but they have shown a distinct interest in the idea.

The excellent Forum of Private Business, which has about 20,000 members in the small business category, has conducted no fewer than five surveys on the topic, which have shown support varying between 70 per cent. and 84 per cent. in favour of a statutory entitlement. I now have the support also of the Engineering Industries Association, the Small Business Bureau and, I am afraid to say, the National Farmers Union, although I am not sure whether 1 want to pray that organisation in aid of my proposal. The CBI has come out in favour of the statutory discretion, and that is a welcome development. The Association of British Chambers of Commerce has a rather woolly, ambiguous approach to it all. It says that it supports future legislation so long as there is no change in the law. I suggest that the Government ignore that garbled advice.

Of all the major pressure groups in industry, the Institute of Directors alone stands opposed to the introduction of the statutory interest. That is primarily because it is a free market organisation. It believes that such a proposal is interventionist. It is not. It is regulation of the market place, which we are only too pleased to accept in the present climate. I believe that even at this late hour the Institute of Directors can be persuaded to change its mind.

The concern of my right hon. Friend the Chancellor is welcome. Speeding up the cash flows of small companies is important. 1 believe that the VAT measures announced by my right hon. Friend will do that and that my Bill will do so even more. The great advantage of my Bill is that it does not cost the Treasury a single penny. The important thing for the Government is to create the right conditions in which small businesses can operate. The Budget has done that, and I welcome it very much.