Small Businesses: Late Payments — Question

– in the House of Lords at 2:37 pm on 11th June 2013.

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Photo of Lord Harrison Lord Harrison Chair, EU Sub Committee A - Economic and Financial Affairs 2:37 pm, 11th June 2013

To ask Her Majesty’s Government what steps they will take to amend the legislation on late payments to improve the cash flow of small businesses.

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the Government take the issue of late payment very seriously. We recently transposed a European directive to combat late payment into UK law. The amended legislation came into effect on 16 March this year and builds on existing UK law. It further strengthens the legal obligation on payment terms, including a statutory obligation on public authorities to pay commercial creditors within 30 days.

Photo of Lord Harrison Lord Harrison Chair, EU Sub Committee A - Economic and Financial Affairs

My Lords, the prompt payment code has been a palpable and egregious failure. Only one in five of Britain’s limited companies and only two out of 42 police authorities have signed up to it, leaving most small businesses £45,000 short in their ability to invest. While it is welcome news that the Government are implementing the March 2013 late payment legislation, failure has occurred so far. Therefore, could the Government put teeth into the legislation prepared by the Labour Government? Secondly, will they consider encouraging credit capital markets to be available to small businesses in the same way as they are in America, to allow small businesses the ability to invest?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, 75% of the FTSE 100 companies have signed up to the prompt payment code; something like 1,500 companies are now signing up to it. With regard to the public organisations, including police authorities, we are taking every action possible. My colleague, the Minister Michael Fallon, has written to them, giving them 90 days to ensure that they sign up to the prompt payment code. With regard to funding, the Government have a number of schemes to help SMEs finance their existing cash flow, including funding for lending.

Photo of Baroness Browning Baroness Browning Conservative

My Lords, what assessment have the Government made of the potential for early payment schemes for the cash flow of small businesses?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the Government fully support early payment schemes, which offer suppliers the option of early payment in return for a discount or a fee, as long as that is offered in conjunction with fair payment terms rather than as a substitute. The Government’s view is that all businesses should agree fair payment terms at the outset of the contract and that they should pay their suppliers on time, according to the agreed times.

Photo of Lord Borrie Lord Borrie Labour

My Lords, why do the Government not empower a public authority, such as the Financial Conduct Authority, to take up cudgels on behalf of small enterprises, to ensure that prompt payment is made of cash that is due to them?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, we have a voluntary organisation, the Institute of Credit Management, which oversees the prompt payment code on behalf of the Government. We do not need a statutory organisation to bring in prompt payment.

Photo of Lord Cotter Lord Cotter Liberal Democrat

When the Government place contracts with large companies in future, will they ensure that it is a requirement that those companies sign up to the prompt payment code, and that they publicise their record on the payment of bills in their annual reports?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the Government are doing everything possible to encourage a culture of prompt payment. As I said earlier, 75% of FTSE 100 companies have already signed up to prompt payment.

Photo of Baroness Sharples Baroness Sharples Conservative

Can my noble friend say whether the ministries are paying their debts on time?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

The noble Baroness raises an important issue. The department is doing everything it can to speed up prompt payment, both for SMEs and for large companies.

Photo of Lord Mitchell Lord Mitchell Shadow Spokesperson (Business, Innovation and Skills)

My Lords, the Government have been prolific in announcing new schemes designed to assist small businesses to grow. They all have one thing in common: not one of them is working. The money simply is not getting through. If large organisations could be shamed into paying within 30 days, small companies would benefit immediately. Here is an idea: why not make it compulsory for all organisations, public and private, to include payment performance in their annual accounts?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, government departments are obliged to pay 80% of their invoices within five days. We are promoting a culture of prompt payment. We would not like to bring this in as part of legislation. In many ways, we inherited this particularly important and good legislation from the previous Government. We will now further enhance it by taking the European directive to make sure that UK suppliers are paid by member states of Europe.

Photo of Baroness O'Cathain Baroness O'Cathain Chair, EU Sub Committee B - Internal Market, Infrastructure and Employment

My Lords, I ask my noble friend whether it is a great thing that 75% of the FTSE 100 who actually pay have subscribed to this code? First, a code is a code, not a law. Circumstances are such now, with austerity in such a state, that we ought to look at this seriously. If 75% of the FTSE 100 pay on time, that still leaves one in four of our major companies that do not. I also support the point that my noble friend raised: is the Minister able to give us details of which government departments actually pay on time, not the ones that do not?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, at least 80% of invoices are paid within five days by government departments. In March 2013, the biggest paid 97.1% of its invoices within five days. Although 75% of FTSE 100 companies have signed this code, we are doing everything possible to encourage and support the other 25% who have not signed. However, there is a good chance that these companies do not supply that many goods and services in the UK, even though they are FTSE 100 companies listed in the UK.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, why do the Government not promote invoice discounting and factoring more vigorously?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the discount depends on the supplier and the buyer. Quite often there is an agreement to make prompt payment, and if there is early payment a discount is offered by the supplier to the buyer. Factoring is very common; most banks like to factor invoices, rather than provide additional funding in the form of an overdraft. That is because factoring brings their capital back more quickly than an overdraft facility would.