Small and Medium-sized Enterprises: Late Payments — Question

– in the House of Lords at 11:14 am on 19th June 2014.

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Photo of Lord Harrison Lord Harrison Chair, EU Sub Committee A - Economic and Financial Affairs 11:14 am, 19th June 2014

To ask Her Majesty’s Government what progress has been made on the late payment of debt for small and medium-sized enterprises.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

Late payment has a damaging effect on the best-run companies, which is why the Government are taking firm action. Through the small business, enterprise and employment Bill, large firms will be required to publish their payment practices, which will hold poor payers to account and help small businesses to be paid on time. Further reforms will ensure that public authorities run timely and efficient procurements and give Ministers greater powers to investigate procurement complaints.

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

My Lords, given that the Federation of Small Businesses finds that five out of 10 of its members are experiencing difficulties with late payment and that members of the Forum of Private Business have experienced a 23% rise in the problem, along with the NSCC discovering that only 3% of small firms are paid within the agreed 30-day period, is it not time to enforce the labour legislation permitting charging of commercial debt against both big businesses and big government?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The noble Lord makes a good point about the fact that late payment is still very much an issue. In our discussion paper, Building a Responsible Payment Culture, we asked for views on radical options for tackling late payment, including greater legislation. What was clear is that businesses did not want legislation that restricted their freedom of contract, further fines or a Government to collect fines on their behalf, all of which were felt to harm business relationships. That is why we are working to create transparency in payment practices and work with industry to create a more responsible payment culture and, indeed, make some behavioural change.

Photo of Baroness Sharples Baroness Sharples Conservative

Are all government departments paying their bills on time?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The record for government payment is improving the whole time, and I am pleased to say that my own department, BIS, has a 97.3% record. We keep a very strong eye on the stats, and we are very aware of the fact that the public sector has to keep up.

Photo of Lord Brookman Lord Brookman Labour

My Lords, I speak specifically about the roofing industry. As many other noble Lords are, I am a member of the All-Party Parliamentary Group for the Roofing Industry. The industry is in an appalling situation, with money held back when work is completed; in some instances, people are going out of business. Seriously, Minister, these people need help.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The noble Lord refers to the construction industry, concerning roofing, if I read him correctly. We welcome the principles announced by the Construction Leadership Council to end the unfair use of cash retentions. The use of retentions is, I am pleased to reassure the noble Lord, in decline, with many of the construction industry’s better clients no longer withholding payments. Indeed, the Government have committed to reduce their use on their own contracts.

Photo of Lord Cotter Lord Cotter Liberal Democrat

Will the Minister consider very carefully the issue of retention for the construction industry and, specifically, the roofing industry? Will he also give a firm commitment that he will listen to the Federation of Small Businesses and the construction industry, because there are considerable problems still, with over 50% of small businesses waiting for payment? Would he have a constructive consultation, because there have been concerns about them, to ensure that there are tangible measures in this Bill on the payment charter, for example, to make it more mandatory?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I hope that I can assure my noble friend that, in addition to introducing the new reporting requirement, we are looking at giving suppliers more information on what to expect from their customers and therefore to be in a better position to make an informed judgment on whether to enter a commercial relationship, and how to negotiate fair terms or challenge unfair terms, as well as how to understand what they need to do to ensure that they get paid on time.

Photo of Lord Broers Lord Broers Crossbench

My Lords, what are the Government doing to help small companies to obtain payments from overseas companies that refuse to pay?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The noble Lord raises an important point. This is very much a question for the companies and the contracts that they enter into. The Government can certainly produce a framework and, indeed, from the UK angle, the small business Bill will take matters forward to give greater clarity and transparency.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Business, Innovation and Skills), Opposition Whip (Lords), Shadow Spokesperson (Culture, Media and Sport)

My Lords, in August last year the Daily Telegraph reported that Vince Cable was considering a late payment levy. In October it reported that Michael Fallon was “going to war” on the issue in the context of a report that outstanding bills to small businesses had reached a record £37 billion. The Minister mentioned the small business Bill but was a bit light on detail. Why does it not include a late payment levy? Further, why does it not consider representations made from this side, including banning bad payers receiving public sector contracts?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I have already commented that we do not think that it is right to legislate on that at the moment. However, we are taking a number of important actions, including incentivising fair and transparent payment practices by requiring large companies to report, which I have mentioned, strengthening the Prompt Payment Code, working with industry to establish codes of best practice on fair payment, making further reforms to increase prompt payment in the public sector and increasing access to alternative finance options.

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

My Lords, surely my noble friend the Minister must be aware that the best way to tackle this matter is by ensuring that every single government department pays and that no government department delays payments; otherwise, how can we tell anyone else that they had better not delay payments?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

We have committed to bring in a number of further reforms to streamline procurement and improve public sector payment practices, including requiring public authorities to accept e-invoices and adopt timely and efficient procurement practices, and giving greater powers to Ministers to investigate complaints raised by the Cabinet Office’s mystery shopper scheme.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

Does the Minister accept that invoice discounters and factoring companies have a major role to play in dealing with this problem? Why do the Government not promote those services more positively?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I believe that we do. Around 80% of business-to-business transactions are undertaken on credit terms of some form. Trade credit constitutes about 37% of total business assets. The House will know that late payment is not a new issue. Although the problem worsened during the financial crisis, it is starting to improve. In 2013, £30.2 billion in overdue payments was owed to business. This is down from £36.4 billion in 2012.