Small Business (Payments)

Oral Answers to Questions — Business, Enterprise and Regulatory Reform – in the House of Commons at 10:30 am on 7th May 2009.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions) 10:30 am, 7th May 2009

What steps he is taking to ensure that small businesses are paid promptly.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

The Government are committed to paying invoices within 10 days. We have supported the Institute of Credit Management's prompt payment code in partnership with all the leading business representative organisations, and we have launched a series of managing cash flow guides to help small businesses.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

People running small businesses in my constituency tell me that it is not uncommon for larger companies to decide to pay invoices 60 days after they have processed them. Would the Government be prepared to name and shame companies, or indeed public bodies, that take so long? I am sure that he is well aware that cash flow is vital to small businesses, and failure to act in this area could lead them to fail, thus cruelly adding to the level of unemployment.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

As a Government, we closely monitor the situation, and we are aware of examples where companies are extending payment terms. Clearly, we want to see prompt payment, and we have been leading the way. It is important that we continue to discuss with the industry what measures might be most effective. The hon. Gentleman suggests one proposal. When we talk to industry, people emphasise the importance of maintaining effective working relationships between customers and suppliers, and that needs to be taken into consideration. He will be aware of our late payment legislation, which is available to be used by small companies if they find that large companies are extending their payment terms or not paying on time.

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Photo of Ken Purchase Ken Purchase Labour, Wolverhampton North East

The Minister will recall that our Government introduced a scheme whereby small firms could charge interest on late invoices. It has not worked, nor did many people think it would. Does he agree that the most important part of the whole issue is that companies need to know how long it will be before their invoice is paid? Could we not have a scheme whereby the average number of days that companies, particularly large ones, take to pay was writ large and audited in any contract that was entered into so that people could plan properly and knew exactly how long the company they were dealing with took to pay?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

We have engaged an external research company to monitor payment performance, and the latest data suggest that the average payment beyond agreed terms has extended by three days, or 15 per cent., in the past year. That does not help, because companies need their money. By March 2009, nine out of 10 invoices were being paid within 10 days by central Government Departments. We are making progress as a Government, and we want to encourage more companies to sign up to the prompt payment code. However, my hon. Friend makes an interesting suggestion, and I will go away and reflect on it.

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Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I am sure that the Minister agrees that smaller businesses are the heartbeat of this nation. They can respond quickly and, very often, inexpensively. Sadly, however, as Mr. Purchase implied, large business still uses small business as a means of cash flow. Is there no way in which smaller businesses could, because of legislation passed by this House, automatically place an additional cost on businesses that delay paying beyond 30 days? A final small point—how often does the Minister monitor the payment records of national Government and local government, who are both very big purchasers of services?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

We closely monitor Government payment, which is why I was able to say that in March central Government Departments were paying nine out of 10 invoices within 10 days. There are figures broken down by Department.

On the hon. Gentleman's wider point, late payment legislation is in place. Often, companies do not use it, because they are concerned that they will damage their working relationship with their customer. Big companies do not always exploit smaller companies in their supply chain. I can point to a number of examples of big companies paying earlier than they normally would because of concerns about the viability of their supply chain. One key thing to recognise is that in many industrial sectors there is an integrated supply chain, and it is in everybody's interests to have payment certainty. Of course there are some examples of that not happening, and they have been highlighted to a number of hon. Members. We need to consider what more we can do to encourage that payment certainty.

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Photo of Danny Alexander Danny Alexander Shadow Minister without Portfolio

When I met representatives of the Federation of Small Businesses in Grantown-on-Spey on Sunday, they said that this is the biggest problem that they face, and that some companies are taking 90 days to pay their bills. Will the Minister ensure not only that Government Departments pay their bills on time but that any big company that has a relationship with central Government is forced to pay its bills quickly to smaller firms or lose its central Government contract?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

The Government are doing all they can to ensure that invoices are paid on time by central Government Departments, and similarly we have been encouraging local government to pay promptly, because it is a big purchaser. We have supported the prompt payment code, and we want more companies to sign up to it. As the hon. Gentleman rightly says, there are some examples of companies stringing out payments to their creditors. That is not necessarily unusual, and it prompted the late payment legislation that was introduced a number of years ago. It is important to highlight these problems where they occur. I am not sure that further Government legislation would be of practical assistance, but we need to ensure that more companies recognise their responsibilities to their suppliers and pay them on time, helping them to remain viable.

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Photo of Dari Taylor Dari Taylor Labour, Stockton South

In October 2008, the Department for Business, Enterprise and Regulatory Reform made the statement that the Government would build on their commitment to pay firms within 10 working days. The Civil Engineering Contractors Association has surveyed local authorities, and it appears that many, if not the majority, are most certainly not paying within 10 days. What discussions has the Minister had with local authorities? If he has had none, will he take on that responsibility? It is essential for small companies that local authorities pay within 10 days—they have the money.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

My understanding is that the Department for Communities and Local Government leads on ensuring that more local authorities pay on time within 10 days. I believe that this time last year one in 20 local authorities were paying within 10 days, and that now about a third are doing so. There is clearly room for improvement, and we have wanted to encourage local government to ensure that it pays as promptly as it can to support local and regional companies that supply goods and services to it.

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Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform)

Further to the question asked by Ms Taylor, prompt payment is crucial for small firms, whether from national or local government. According to independent assessors, Conservative councils have the best record on paying promptly. Why does the Minister think Labour and other councils are failing to meet that standard? Is it intentional or just incompetence?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I do not agree that there is any party political difference about prompt payment. As a Government, we are walking the walk and making stringent efforts to ensure that we pay invoices on time. We want that to occur in the wider public sector, in not only local government, but the NHS and other areas. We will continue to do all that we can to ensure that those who contract with the Government get their payments on time, within 10 days.

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