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Small Business Commissioner - Question for Short Debate

– in the House of Lords at 8:26 pm on 22nd January 2018.

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Photo of Lord Mendelsohn Lord Mendelsohn Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (International Trade) 8:26 pm, 22nd January 2018

To ask Her Majesty’s Government what progress they have made in establishing the role of the Small Business Commissioner; and what further action they are taking to support small and medium-sized enterprises, including tackling the issue of late payments.

Photo of Lord Mendelsohn Lord Mendelsohn Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (International Trade)

My Lords, I thank everyone who is going to participate in this debate, and thank everyone for their endurance. It is nice finally to be at the moment when we start. I thank the House of Lords Library, too, for an excellent briefing that I hope has been of help to noble Lords. From these Benches I thank the Institute of Directors, which has kept us constantly informed with a lot of very useful detail and data.

I hope that we will have a very constructive debate, and I hope to make some general observations for the Minister to consider. I hope that he will not feel that we are criticising, hectoring or boring him, and I hope that he understands that I am trying to make the point that late payments, and support for small businesses, matter, and that across this House we should be united in making an effort to try to achieve some progress.

I make two basic assumptions. The first is that the Government are to be credited not just for the small business Bill, and not just for establishing the requirement for notification of payments, but for the establishment of the Small Business Commissioner. These things are important steps, and important strategic anchors for what can be achieved in the long term.

I also say that the Government have made an excellent choice in the Small Business Commissioner, Mr Paul Uppal. He is a 20-year veteran owner of small businesses, including in the property sector, and a former Conservative MP for Wolverhampton South West who is now based in Birmingham. He is absolutely first class and an excellent appointment, and I wish him and his colleagues great success. We on these Benches have been invited to visit the Small Business Commissioner and we look forward to doing that. In him we have someone who will try to do his very best.

However, he faces a real challenge to make a difference. A survey in a trade magazine asked what faith companies had in the Small Business Commissioner to improve payments. Only 3% had “a decent amount”, 21% had “a little” and 76% had “none at all”. This reflects a much broader concern about some of the issues we have around late payment. The first is that there is not enough weight—and there are not enough levers—behind the Small Business Commissioner to make a real difference on late payments. I also think, in the context of the role of the Small Business Commissioner, that it is a huge opportunity, particularly if we learn some of the lessons and apply some of the models that others have, to achieve a huge amount for small businesses.

The purpose of this debate is to ask the Government to do three things. The first is to remain committed and to look for ways to continue to add pressure through the system to encourage a resolution of late payments. The second is for the Government to be open to review early and to consider additional actions and resources in the interim, while these institutions are gaining their feet. The third is for the Government to be sympathetic to the opportunities that the Small Business Commissioner may present as he starts going about his work, learning lessons and receiving a great deal of experience.

The problem of late payments is still quite large. Most surveys put it somewhere between £40 billion to £50 billion; a few have it as larger and only one as smaller. There are various breakdowns between small and large but, in general, taking the figure of £45 billion, we know that the extent is significant. Interestingly, a number of surveys put a bit more flesh on the bones of some of the problems and challenges we are facing. The Dun & Bradstreet survey has found that this is putting the future at risk for 58% of SMEs. Cash flow, profitability and future trading capacity are all being hit. This research revealed an average late payment amount of £63,881 for each SME, with 11% owed between £100,000 and £250,000. This withholding of payments brings about cash-flow difficulties for 35% and delayed payments for 29%. Some 51% say late payments are more of a problem than they were three years ago, and 51% of SME owners are using personal savings to cover the shortfall from late payments. Manufacturing was the sector most affected, closely followed by retail. Robert Blackburn, from Kingston University’s Small Business Research Centre, has also stressed that these late payments seem,

“to worsen during difficult economic times”,

and the uncertainties of the moment may well be adding to that.

The Sage survey released in December 2017 made the stark point that the UK’s late-payment culture is the worst in the world. Alan Laing, the managing director of Sage, made a number of strong points. In particular, UK businesses spend an average of 15 working days chasing late payments. That is a higher level of wasted time than in any other country in the world. The survey went further in naming the UK as the world capital of late payment, finding that 18% of all invoices paid to SMEs in the UK were late, a total matched only by Singapore, and that almost 10% of invoices become bad debts. This is extremely difficult. This was a significant survey of 3,000 businesses around the world.

There is another damaging trend which I cannot account for. I would be grateful for the Minister’s view—I am not blaming him for it. Research by MarketInvoice, in which 80,000 invoices were studied, found a very peculiar situation. Almost three-quarters of invoices sent by UK businesses to EU firms were paid late in 2017. This figure represents a huge increase from the 40.4% of invoices that were paid late the year before. This significant increase is not just with EU firms. United States firms have also extended their payment dates and have a higher proportion of late payments. I do not know, and cannot account for, the reason, but that is a significant shift. Overdue invoices from the US have also risen from 40.4% to 71%. This is of great concern.

Last year, the insolvency body R3 said that more than 20% of business failures had been caused by late payment or the domino effect of other business failures. With the recent collapse of Carillion we saw that it had extended payments to 120 days, even though the Government said they tried to compel it to pay on time. There is, of course, no mechanism to highlight to anybody that the period has been extended to this point. Indeed, the whole public sector—late-paying councils, trusts and government departments—are outside the scope of the Small Business Commissioner. The public sector pays small businesses late over 62% of the time, and that is a huge concern.

There are things in place to try to encourage payment, some of them long standing, such as the Late Payment of Commercial Debts (Interest) Act 1998, amended and supplemented by the Late Payment of Commercial Debts Regulations 2002. These allow one to claim interest and debt recovery costs if another business is late in paying for goods and services, if a time is not agreed and it becomes due after 30 days. The percentage is the base rate plus 8%, so the interest due on a £10,000 debt over 90 days is £205. This is, and has been, insufficient to make any material change. I would be interested to know whether the Government have ever had any data on how many late payments have been made. For example, they should know how many interest payments have been made to small suppliers in the public sector. I would also be interested in that figure. However, that in itself was insufficient to make a huge change in this area so the Government introduced the Prompt Payment Code, which has approximately 2,087 members. It is an attempt to encourage suppliers to pay promptly. Like Ronseal, the code does what it says on the tin. Unfortunately, it does not.

I would be grateful for the Minister’s observations on companies’ duty to report under the Prompt Payment Code. It appears that they are probably not paying on the due date. The Sage survey makes the most important point—namely, that the Prompt Payment Code addresses the wrong thing. This is not about people paying; it is about making sure that they are chased for the money they owe. We have a cultural problem in that in the UK it has become unacceptable to chase people for money. We have to change that culture so that it is reasonable to expect late payments to be chased.

I am getting into the swing of this. In Australia, where the concept of the small business commissioner was first invented, the purpose was to change the small business environment for the better. It was not about late payment. In fact, Australia’s experience is that soft measures are not sufficient. People in Australia are campaigning for legislation to allow electronic payments to be tracked and all the other significant measures that we have discussed. I hope the Minister considers that in the future we should be alive to the opportunities that others are creating and the initiatives that others are introducing to ensure not just that we tackle late payments more effectively but that the role of the Small Business Commissioner is to improve the business environment and the capacity of small businesses to access justice as regards information and trading. Those are the proper tasks for the commissioner. I hope that the Government are alive to those opportunities.

Photo of Lord Cope of Berkeley Lord Cope of Berkeley Conservative 8:37 pm, 22nd January 2018

My Lords, I was surprised when I saw that the noble Lord, Lord Mendelsohn, had tabled this Question for Short Debate.

Given that the Small Business Commissioner has been in place such a short time, I wondered whether the noble Lord was trying to help publicise his existence. That would be a worthwhile by-product of this debate. I did not believe that the noble Lord would try to undermine the commissioner given the tremendous welcome that he gave to the former’s appointment on 6 December, which he repeated this evening. Like the noble Lord, Lord Mendelsohn, I believe that he will make an excellent commissioner and look forward to that fact becoming obvious in the future. After all, he has been in post only a short number of weeks.

The commissioner published the website on 20 December, just a few weeks after we debated the regulations setting up the post of commissioner on 6 December. It is an excellent website in my opinion, full of advice for businesses struggling with payments. It offers good advice to not only small businesses but any business that finds itself in this position. It is refreshingly practical and comparatively free of government jargon and is to be found at www.small businesscommissioner.gov.uk. It offers straightforward advice on monitoring late payments, as the noble Lord has just mentioned, and on how to encourage improvements in the payment record of customers. I have no doubt that the Small Business Commissioner will improve the website in the light of comments from small businesses, but it is an excellent start.

It is important to make the point that the website will become progressively more valuable as the months go by because the reports on the payment practice of large firms, which are required under separate legislation and are to be signposted on the website, will soon be available and will come thick and fast. They will apply to large firms with financial years from 7 April last.

As the noble Lord, Lord Mendelsohn, indicated, the commissioner is concerned only with late payments in the private sector. It is important to make it clear that there are stiffer requirements for the public sector, policed by the Cabinet Office body called the Crown Commercial Service. Anybody who has a complaint about any public body—or, for that matter, about somebody operating under a contract as a subcontractor for the Government—can complain to the Crown Commercial Service if they are receiving late payments. I am glad that this is being handled by the Cabinet Office. It leaves the commissioner, Paul Uppal, to concentrate on his job without having his efforts spread too widely. After all, there would be no point in duplicating the services and advice.

This is all about changing the payment culture in this country, which, as the noble Lord, Lord Mendelsohn, set out in summary, has proved to be a very stubborn problem. Cultures change slowly, and the forces that lead to companies paying late are strong. A company of any size that finds itself stretched financially—and who does not at some stage, certainly in these times?—can improve its cash flow by slowing down payments, and Carillion was one obvious example. In a case such as that where there have been profit warnings and warnings of late payment, obviously some creditors and potential creditors will have reviewed their position and minimised their exposure to Carillion. However, others will not have been in a position to do that.

Small suppliers frequently tend to do worst when a company goes under. I am afraid that there is a certain inevitability about that. Some of the others—the employees and so on, and, for that matter, the Government in the form of the taxman—are preferred creditors and take precedence, but they may suffer in other ways. The employees in particular are liable to lose their jobs and their pensions will be affected, but the small suppliers are at the back of the queue. The banks and the other big lenders will no doubt have protected themselves with agreements.

Late payment is a stubborn problem and one which has been around for a long time. Not only the noble Lord, Lord Mendelsohn, but the rest of us will be watching the Small Business Commissioner with interest to see how he gets on with trying to alter this part of our commercial culture. The silver lining of this debate is that it will help—admittedly in a very small way—to publicise the existence of the commissioner and the fact that he has begun work in a vigorous and energetic manner.

Photo of Baroness Maddock Baroness Maddock Chair, Lord Speaker's Advisory Panel on Works of Art 8:44 pm, 22nd January 2018

The noble Lord, Lord Mendelsohn, has introduced a timely debate, not only with the appointment of the Small Business Commissioner but in the week after Carillion went down. Also, I have read in the past few days a number of pieces in newspapers about how the Royal Bank of Scotland has treated small businesses in the past. In my remarks I will dwell on the plight of small builders in particular, and reflect a little more widely on the importance of small businesses in our communities and our country.

Access to finance and late payment of bills are major factors in the failure of many of our small businesses. Last week, in a debate in the Commons, we heard yet again about the Royal Bank of Scotland’s treatment of small businesses. There it was claimed that, since 2008, 16,000 small businesses had been put into GRG—the bank’s global restructuring group—and the vast majority ended up being liquidated.

My right honourable friend Sir Vince Cable referred to allegations over the restructuring group to the City watchdog four and a half years ago and has questioned why the regulator is still withholding its full report into what many people recognise as a scandal. Does the Minister have any information on that?

As we have heard, access to finance is a particular problem for small and medium-sized builders and I am grateful to the Federation of Master Builders for its briefing. In 2017 its survey of housebuilders showed that 54% of its members cited access to finance as a barrier to enabling them to build more homes; 14% reported a deterioration in lending conditions in the past year; and 45% said they were involved with sites that had stalled for financial reasons.

In addition, the late payment practice of larger firms affects the small builders who work in the supply chain. We have seen this particularly in the case of Carillion recently. Again I am grateful to the Federation of Master Builders for its briefing, which states:

“The case of Carillion is a significant one, as this highlights structural issues associated with contracts and payment practices within the supply chain”.

It continues by stating that one member of the Federation of Master Builders,

“who is involved in a number of Carillion contracts explains that when firms like his contract to work for Carillion, they are essentially investing in Carillion’s business and projects because they invest significant amounts of resources upfront in these projects. However, due to payment practices”— as we have heard today—

“and in particular retentions, most of their profit is not realised until sometime afterwards. Yet if these smaller specialised businesses want to undertake specialist work on larger projects, they often have no choice but to work for, and invest in, major contractors, while having no say as to who those contracts are awarded to”.

It is clear that late payments and the withholding of payments are a matter of course for major contractors. However, the greatest barrier for small firms is that it is difficult for them to take part in public and private sector supply chains. As we have heard, small firms operate on much smaller margins and this state of affairs makes it difficult for them to survive, let alone grow and prosper. This has resulted in the major housebuilders cornering the market. I took part in a debate in this House a couple of weeks ago about the role of the major housebuilders, who have cornered the market and yet are still not providing more homes. We are grateful to small builders, who we know can sometimes produce better results, particularly on small sites.

The Federation of Master Builders believes that Carillion’s liquidation should act as a wake-up call for the Government. Again I quote from the federation, which suggests:

“Government should now begin to look harder at new approaches which seek to spread its risks better by opening up public sector construction contracts more to small firms by breaking larger contracts down into smaller lots, and exploring where it might be more efficient to work directly with Tier 2 contractors on some contracts. Applying this logic to the Sector Deals would also improve a strategy which appears to be overlooking small firms for the most part”.

The issues we are debating are not new. In my view, the Government have contributed to the state of affairs we find ourselves in. Government spending departments continue to use the “cheapest is best” approach to main contractors. Some seven years ago, Ian Taylor, the former chief executive of Balfour Beatty, told a government-sponsored conference that contractors were winning public sector business by offering the lowest tenders and finding ways to make them profitable. At the time the Government put forward an alternative strategy and urged departments to run pilots as part of it. Apparently only one pilot came forward and I gather that there has been little further change since.

Small businesses are an important of any national industrial strategy. They are the seed corn for larger businesses and important for international players. I know of one firm that grew from being a small ironmonger’s in the ward I represented when I was first a councillor on Southampton City Council. The business was owned by two gentlemen, one called Mr Block and the other called Mr Quayle. That was the start of B&Q, which ended up with Kingfisher, which I think now belongs to something even larger. Many small businesses will not develop in this way but they will be major players in local economies. They help to shape our local communities. They provide jobs and, as employers and owners, they play an important part in the civic life of many of our towns and cities. We see businesses sponsoring all sorts of things such as Christmas lights and flowers. Those who run businesses are often involved in local chambers of commerce, which are important to the vitality of our towns. Moreover, although not so much these days, I recall when I was first in local government many businesspeople were elected on to local councils. The climate today means that many people find that very difficult to do.

Small hotels, bed and breakfasts, cafes and restaurants are run by small businesses, all of which are very important for attracting tourists. The tourist economy is an important contributor to the economy of our country. I understand that small and medium-sized enterprises train two thirds of all apprentices, so the Government intervening and investing to protect small and medium-sized businesses must be a good way of spreading economic growth more evenly throughout the United Kingdom.

I welcome the fact that we now have a Small Business Commissioner, but it is obvious from my comments that if we really want to support small businesses, there are many more things that the Government could put in place to create the right environment. I look forward to hearing from the noble Lord, Lord Henley. I have been in this House for 20 years now and I have heard the noble Lord reply to many debates. He is always optimistic about what the Government are doing and tries to convince us that all is well, but it is quite obvious that all is not well for many small businesses. I look forward to some reassurances from him when he winds up the debate.

Photo of Baroness Rock Baroness Rock Conservative 8:53 pm, 22nd January 2018

My Lords, I too congratulate the noble Lord, Lord Mendelsohn, on securing this important and extremely timely debate. On this side of the House we are often referred to as “the party of business”. From some this is a compliment while from others it is less so. Certainly, when we are portrayed as the party of only big business, it is the latter. But I say that we support businesses of all and any size that have a contribution to make to the UK economy. We encourage and support disruptors, entrepreneurs, start-ups, scale-ups and high-growth innovators. What we really support is a functioning market, competition and a sense of fairness for all. That is why we must do everything we can to support our small and medium-sized enterprises. They have the ideas and the growth potential, and they can create more jobs by succeeding.

What further action can be taken? First, I commend the appointment of Mr Paul Uppal as Small Business Commissioner. Late payments remain a scourge on the business landscape, with too many larger businesses in the supply chain exploiting their position not to pay promptly. The Federation of Small Businesses has said that 30% of all payments to small businesses are late. This is unacceptable. But now those on the receiving end have somewhere to go to seek redress. I wish Mr Uppal every success as commissioner.

I also commend the Government on the appointment of Andrew Griffiths as the Minister for Small Business. With his background in working for his family business he will understand well the concerns of stakeholders. These appointments give ongoing confidence to entrepreneurs that the UK is the best place to start a new business. I also commend the continuing success of Small Business Saturday. Having now completed its fifth year, it remains an invaluable campaign for showcasing successful small businesses, as well as encouraging consumers to shop more at local businesses.

What more can be done? I will focus briefly on the two great challenges facing small and medium-sized businesses, especially high-growth ones: access to finance, as noble Baroness, Lady Maddock, mentioned, and access to talent. On the first, we should not underestimate the commitments made in the Budget—a plan to drive over £20 billion in investment in innovative and high-potential businesses over the next 10 years. This includes a £2.5 billion investment fund, run by the British Business Bank, which will unlock a further £7.5 billion in private sector investment to help businesses gain the access to capital that they need to scale up. There will also be a further £1 billion for the enterprise capital funds programme, encouraging and backing Britain’s leading venture capitalists to operate in parts of the market where smaller businesses are not able to access the capital they so desperately need. I am also encouraged by the focus on looking at ways to tackle the barriers faced by female-led businesses in accessing venture capital.

Making sure that finance reaches smaller businesses in every corner of the UK is vital to deliver growth. On talent, though, we have further to go. I am encouraged that the domestic skills pipeline is improving. The Government have already recognised that more needs to be done, particularly for digital skills, which are essential for technology businesses. I welcome the announcement in the industrial strategy that an additional £406 million will be invested in maths, digital and technical education. As a member of the Select Committee on Artificial Intelligence, I know that we have heard much about the importance of investment in these skills.

However, on visas for the talent we need to supplement our domestic skills there is more that can be done. In a 250-page document representing a comprehensive plan for the future of our economy, visas are mentioned only twice. This is not encouraging. Perhaps the Minister can persuade me that this is not indicative of how the Government take the issue. Much of the feedback that I hear is that the regime remains too cumbersome and many businesses simply rely on applicants who already have the “right to work”, rather than engage with the visa process. This is a great shame. We need much clearer communication that highly skilled, digital and technically skilled migrants will continue to be welcome in Britain and that more will be done to reduce the cost of recruiting them, particularly for smaller businesses, which do not have the time or the resource to dedicate to it.

Everyone is in favour of supporting small and medium-sized businesses. That is the easy part. The question is what we actually do to support them. The Small Business Commissioner is a great start. I urge the Government to supplement his work with a focus on talent and capital to ensure that our high-growth businesses, which can contribute the most to our economy, have nothing standing in their way.

Photo of Lord Popat Lord Popat Conservative 9:00 pm, 22nd January 2018

My Lords, I, too, thank the noble Lord, Lord Mendelsohn, for initiating this important and timely debate. Small businesses have always been the backbone of our economy. As we prepare for life after Brexit, they will be key to our economic success. More than 99% of businesses are small to medium-sized. That is much more than just a statistic; it is the future.

Having spent 30 years in SMEs, I want to talk generally about what support the Government can give to help SMEs in the UK. Since 2010, progress has been made in making life easier for them, including the appointment of a Small Business Commissioner. It was somehow three years late, but better now than never. In the past seven years, a large number of reforms have taken place, including initiatives such as the new enterprise allowance, which will help unemployed people start their own business. There has been a reduction in the rate of corporation tax and a number of other good initiatives taken by the Government. My noble friend Lady Rock described them so well, so I shall not repeat them.

For my part, in 2012 I initiated the House of Lords Select Committee on Small and Medium Sized Enterprises, chaired by my noble friend Lord Cope, to see what the Government could do to help SMEs export more. The committee published an extensive report. Since then, there have been two debates in the House, but the Government have not updated us on their progress since 2014. I ask the Minister whether the committee’s recommendations are still being monitored.

As I said, there has been progress. The number of SMEs has doubled to 5.7 million and we are recognising more and more that if we want businesses to thrive we need to cultivate a climate that is favourable for them to succeed. However, I am going to be frank: we have not gone far enough; we have not been creative enough; and we have not been outward-looking enough. Businesses continue to face a number of obstacles with which we are all familiar. They suffer from late payment and banking support is limited, especially when it comes to opening a bank account, which can take as long as two months. Essentially, underwriting a loan application is also time consuming. Our planning system is simply appalling. We are too heavily regulated. The previous Chancellor, George Osborne, had a one-in, two-out policy on regulations. Is this still in place?

There are other problems too. For the past four decades, we have run a trade deficit because, quite simply, we do not have enough exports to pay for our imports. As I have said in this Chamber many times, our export base is too weak, particularly within SMEs. Our economy’s reliance on services is too strong, and our manufacturing sector is weak and leaves a lot to be desired. While the Government have spoken of rectifying the imbalance, the statistics do not make happy reading. Only 5% of our companies manufacture, compared to the service industry which accounts for 74% of businesses. Only 10% of our SMEs export, compared to a country such as Germany which exports in excess of 30%. Productivity is poor—it takes us five days to produce what Germany can do in just four. Against this backdrop, it is no surprise that exports account for 28% of the UK GDP compared to 46% for Germany. This is not good enough. If we do not produce, we cannot export. If we cannot export, how can we expect to place Britain at the heart of the global economy, as we have repeatedly professed to want to do? Ambitious words are not enough; we need bold actions.

In about one year, we are leaving the European Union. We will be entering uncharted territory. In order to foster the global exporting culture that will be so vital for our future economic stability and strength, businesses must be able to forge new partnerships, make new links and gain access to new and diverse markets in untapped parts of the world, not least in Africa. This is where the UK falls desperately short, not because we lack the connections or the abilities but because our world views are not keeping up with the pace of change. I admit that, like many of my colleagues and friends, I was trapped in a Eurocentric bubble for the longest time, but since Brexit and since I started my work as the Prime Minister’s trade envoy to Uganda and Rwanda, that bubble has burst. My eyes have opened to the tremendous opportunities that are out there.

Of course, being Ugandan-born, Africa holds a special place in my heart, but I am also a businessman. I know a good opportunity when I see it. I recently took an oil and gas delegation to Uganda to explore $15 billion-worth of opportunities. Two of those British companies, Fluor and CB&I, have been shortlisted to build an oil refinery to the value of $2 billion. Another British company, Colas UK Ltd, has secured a deal to build a new international airport in Uganda with the largest UK Export Finance loan to Africa. Africa is a continent brimming with potential. In fact, I believe Africa is the emerging continent. Six out of 10 of the world’s fastest growing economies are African. The continent is rich in natural resources, innovative cities and, importantly, a fast-growing, young, educated population. It is more democratic, more self-sufficient and more prosperous than ever before.

However, instead of refocusing our energies in Africa, the UK is sitting idly by, allowing countries such as China to have the upper hand. Worse still, not only has trade deteriorated from 25% only a few decades ago to less than 4% today, but we have seen an exodus of British brands, such as British Airways and Barclays, from some parts of Africa. What kind of message are we sending out? The irony is that we should be first in line. We have an historic advantage, given our deeply rooted bonds with the continent. Furthermore, we have fantastic soft power in Africa, but what good is that soft power if we have no hard cash coming in?

First, we need to change the story we tell about Africa to our SMEs and large corporations. Historically, we have focused too much on aid and not on trade. Until we see it as a continent of promise rather than poverty, we will not stimulate the interest and investment that is needed.

Secondly, trade and export needs to be at the heart of the Government’s strategy. This will require a joined-up approach across many policy areas, from trade to transport. It is essential to have the right infrastructure in place. We could start by overhauling our aviation policy, which is decades behind where we need to be. Everywhere I look, countries around the world are building airports; we cannot even build an extra runway at Heathrow or Gatwick—ideally, we should do both. In an age of global connectivity we are projecting insularity and inefficiency. There used to be a bridge between the UK and Africa; now we can barely catch a direct flight to a capital city. How are SMEs supposed to pursue links in Africa if they cannot travel with ease? Although I have helped secure one direct route to Kigali, one swallow does not make a summer. We need more routes, more landing slots and greater aviation capacity to allow our SMEs to take off.

The challenges facing the SME sector are very different from those in the larger corporations, but the rewards are potentially much greater. As my right honourable friend Dr Liam Fox has pointed out, businesses that start exporting will grow on average by a third in two years.

As we shift our gaze from Europe to our Commonwealth family and indeed the rest of the world, our strategies must shift too. I hope the upcoming CHOGM will help us kick-start the overdue process of re-engaging the business community—and in particular the SMEs—with our Commonwealth partners. With vision, audacity and openness, we can do it. There is no time to waste.

Photo of Baroness Burt of Solihull Baroness Burt of Solihull Liberal Democrat 9:10 pm, 22nd January 2018

My Lords, we have had a good and knowledgeable debate. I, too, congratulate the noble Lord, Lord Mendelsohn, on securing the debate tonight.

Our Small Business Commissioner starts at a difficult time. This debate takes place on the day when Jaguar Land Rover has announced that it will reduce some of its production at Halewood, blaming, among other things, the increasing uncertainty we face with Brexit. A number of noble Lords talked about Carillion, to which the Government gave contracts despite its terrible reputation. I know that Paul Uppal, the ex-MP for Wolverhampton, would know Carillion well, because it operates in that area. Unfortunately, this fact bolstered confidence among small businesses to trade, and, sadly, they suffered arguably the most.

The noble Lord, Lord Cope, mentioned that Carillion eased its cash flow on the backs of small business, and the Federation of Small Businesses has reminded us that a third of payments to small businesses are late. According to the federation, this has been unchanged since 2011.

We see poor payment practices such as supply-chain bullying, retrospectively changing payment times without notice, querying payment on the very last day, so that the payer has another full period before they need to pay up, and long pay periods. Today I heard a new one: when a supplier queried non-payment, the company said, “It’s 90 working days, not calendar days”.

My noble friend Lady Maddock talked about the plight of small builders. I very much appreciated her constructive—if your Lordships will pardon the pun—suggestions, such as, for example, breaking contracts down, and other useful ideas. She also talked about the importance of small businesses being at the very heart of our communities. What would they be without small businesses?

The noble Lord, Lord Rock—or is it the noble Baroness, Lady Rock?

Photo of Baroness Burt of Solihull Baroness Burt of Solihull Liberal Democrat

I am so sorry. My sincere apologies—I am blushing. The noble Baroness talked about finance and other initiatives, and about female-led businesses. I would add the importance of diverse businesses generally, which look like the communities they serve. I totally agree with her on the importance of getting talent and the assiduous use of the visa system to ensure that where we do not have the talent to hand in this country, we do not cut off our noses to spite our faces by not importing it.

The noble Lord, Lord Popat, talked about the obstacles and how poorly our performance compares with other countries in the EU. He told us all about Africa and some of the opportunities that exist for us outside Brexit. He is absolutely right; we must get out there and use the talent that we have. The Government are clearly already employing diverse talent, in the form of the noble Lord himself, to go out there and talk to African companies. He also talked about regulation and the one-in, two-out mantra. Let me say to him: be careful what you wish for because one in, two out is more difficult than it looks. The vast majority of regulation is put there for a purpose and, very often, it is for the protection of business.

It is not all gloom and doom. I would like to mention the late payment Act, as another noble Lord did, and the ability to charge interest on late payments. However, so many small businesses are too reticent to do that because of the potential loss of good will and future business. The Prompt Payment Code was mentioned, which is very good as far as it goes, but because it is voluntary it tends to be only the more conscientious companies signing up to it. However, the new duty to report introduced in October 2017 on payment practices and performance will make a difference. One big construction company that I spoke to today said that it had caused that company to look carefully at its payment practices, a lot of which were down to systems and not to a deliberate desire to delay. The company is fundamentally changing the way it conducts its payment systems.

The noble Lord, Lord Cope, reminded us that this provision applies only to the private sector. Yes, I think the Small Business Commissioner probably has enough to cope with in the private sector, without having to try to take on what happens in the public sector, which aspires to have commendable payment periods but falls down in some departments.

I very much welcome Paul Uppal to the role of the Small Business Commissioner. I knew him when I was a Member of Parliament in the other place but he needs a great deal of support. One really good aspect is the fact that he will not divulge the name of a complainant, except with the specific permission of the complainer. That will very much strengthen his hand. In our debate last year the noble Lord, Lord Mendelsohn, talked about the commissioner’s operating costs being only £1.4 million. He queried how far that would go in terms of the commissioner’s ability and efficiency in the face of tackling a huge problem. Will the commissioner have enough leverage to make a difference?

The Small Business Commissioner’s job seems a little restricted, a point I think the noble Lord, Lord Mendelsohn, made. Yes, he is handling complaints but he is potentially in quite a powerful position. I hope he will use that position to promote changes and recommendations to government policy—and make a big noise, because small business in this country has never needed a Small Business Commissioner more than it does today.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 9:20 pm, 22nd January 2018

My Lords, the noble Baroness, Lady Maddock, accused me of having been giving optimistic answers at the Dispatch Box for the past 20 years. I assure her that it has been for only the past eight years; before that, I was a natural pessimist along with the best of them. I suppose that at least I can be grateful that the noble Baroness got my sex right, unlike my poor noble friend Lady Rock, who became Lord Rock briefly, but I am sure she understands that mistakes can be made.

Like other noble Lords, I thank the noble Lord, Lord Mendelsohn, for introducing this debate. It has been very useful, even if, as my noble friend Lord Cope made clear, it is somewhat early days yet to judge how effective the Small Business Commissioner is likely to be. The noble Lord, Lord Mendelsohn, made three points: first, that we should remain committed to dealing with the problem of late payments for small businesses; secondly, that we should consider additional opportunities; and thirdly, that we be sympathetic to what the Small Business Commissioner learns and be ready to act. I hope I have got the noble Lord right on that. Those will certainly be, in effect, our guiding principles in these matters.

The noble Lord mentioned earlier legislation. He mentioned 8% plus the base rate and the prompt payment code and asked whether we had any data, particularly on how effective that earlier legislation was, and whether we want to learn from the Australian experience. Australia is another country, but there will certainly be lessons to learn from its experience, and it would be arrogant in the extreme to say that we are not going to learn them. We will certainly want to look at them. Whether I can provide him with any further data on how the earlier legislation worked is another matter, but I will have a look at it, see what there is and what we can make available.

The noble Lord also mentioned, as did other noble Lords, what we have learned about Carillion’s payment practices. It is too early for me to comment on it, but 120 days seems excessive, and we understand that other companies are operating the same system, although the noble Baroness, Lady Maddock, said that she has already noticed signs that there is some improvement in that sector. There are things that we want to learn on that.

I ought to add a little about the Government’s performance in this sector because it is very important. We all understand that the Small Businesses Commissioner will not be dealing with public sector payments, but we have regulations to make it clear that the public sector must abide by fairly strict rules. The Public Contract Regulations 2015 introduced a requirement for public sector buyers to publish data annually on their performance against paying undisputed invoices in 30 days. As most noble Lords will know, central government has gone further. In March 2015, we restated the long-standing policy of paying 80% of undisputed valid invoices within five days and the remainder within 30 days, and I assure noble Lords that the Government are reaching that target. In the 2016-17 financial year, my department, BEIS, paid 99.4% of undisputed invoices within 30 days. I do not know what happened to the 0.6%, but if the noble Lord would like me to make further inquiries I will be more than happy to do so.

Although the debate is specifically about the Small Business Commissioner and his role, which I will get on to in the small amount of time that I have available, I want to make it clear that removing all barriers to growth is a key part of creating the dynamic market economy which is at the heart of the Government’s ambitious, modern industrial strategy, which we debated in this House only a couple a weeks ago. Our industrial strategy aims to make Britain the best place to start and grow a business, and sets out our long-term plan to boost the productivity and earning power of people throughout the United Kingdom. I can assure my noble friend Lady Rock and all other noble Lords that small and medium-sized businesses have a key role to play in this. As we all know, they account for 99.9% of all private sector businesses and 60% of all private sector employment in the United Kingdom. I want to give that assurance to the House, particularly to the noble Baroness, Lady Maddock, who talked about the problems of access to finance as well as late payment. We wish to see them supported and I refer her to the speech by my noble friend Lady Rock, in particular my noble friend’s comments on various matters in the Budget designed to help those small businesses.

We recognise the importance of providing SMEs, which are the backbone of our economy, with an environment in which they can thrive, thus enabling them to grow and create jobs. Tackling the late-payment culture and driving a change in payment practices are vital for this to happen. Whatever the size of the late-payment debt that is facing small and medium-sized businesses—we have seen figures quoted from £14 billion up to £44 billion—it is completely unacceptable. That is why we have taken the steps we have to tackle this, in both the public and private sector, and why we will want to learn further from what happens and how the Small Business Commissioner gets on.

I start by giving a short update on the work that the Small Business Commissioner has completed in his office in the month or so since it was set up. Since last month’s debate on the Small Business Commissioner (Scope and Scheme) Regulations 2017, which I think the noble Lord, Lord Mendelsohn, remembers from just before Christmas, significant progress has been made. The House will be aware that we launched the Small Business Commissioner on 20 December, upholding a commitment to launch the service by the end of 2017. That followed the appointment of Paul Uppal to the role in October last year—again, I am very grateful for the fact that that appointment was welcomed by the noble Lord, Lord Mendelsohn, as echoed by other noble Lords in the course of the debate today and repeated by the noble Lord himself. Mr Uppal will play an important role in supporting small businesses to resolve their payment disputes with larger businesses, providing advice and helping to bring about a culture change in payment practices and how businesses deal with each other.

The commissioner has begun an extensive programme of stakeholder engagement. He has met a number of interested parties to discuss the role of the office in the future, including the Federation of Small Businesses, the Association of Independent Professionals and the Self-Employed, and the Forum of Private Business, to name but a few. Mr Uppal has also met the former Minister for Small Business, my honourable friend Margot James, who since the reshuffle has moved on to other things, and plans are being made for him to meet with her successor, my colleague Mr Andrew Griffiths. As the noble Lord, Lord Mendelsohn, said, he met Mr Uppal last November, and I believe he plans to go again to Birmingham in the near future.

The commissioner has been talking to individual small businesses about their difficulties in working with larger partners, building up evidence of poor practice and making sure that small businesses understand the role of the commissioner. His office is undertaking communications and marketing activities to ensure that small businesses are aware of its service. This includes several interviews and briefings with trade bodies, sector specialist publications and the national press.

The commissioner also provides general advice and information to business through a website, signposting businesses to existing support and dispute-resolution services. The website has been specifically developed so that it is fit for purpose, and it provides an information service that small businesses told us they need. I am told that the website has already attracted something in the region of 1,200 hits since its launch in mid-December. The commissioner also handles complaints about payment issues between small business suppliers and their larger customers.

The Small Business Commissioner is just one of the steps being taken by the Government to tackle late payment. The noble Lord, Lord Mendelsohn, mentioned the Prompt Payment Code, which provides the gold standard of payment practices and continues to play a role in turning round the culture of late payment. We will continue to promote and support it. In April last year we introduced a statutory duty on the UK’s largest businesses to report on their payment practices, policies and performance to increase transparency and provide small business suppliers with better information about those that they intend to trade with. To date, over 300 reports have been received.

Looking wider, we want to do all that we can to support SMEs where we can. My noble friend Lord Popat asked about earlier debates and asked what has happened since then. I can give him the assurance that we have published our White Paper on the industrial strategy, in which we set out how the Government will support small businesses in gaining access to international markets. He mentioned driving up exports and taking advantage of the opportunities of Brexit as part of our industrial strategy.

In the time available, I cannot deal with all the other questions that noble Lords have asked, but I hope I will be able to write to them and deal with the more detailed questions. In particular, I shall see if there are answers to some of the detailed questions from the noble Lord, Lord Mendelsohn. However, I can give an assurance that we remain committed to supporting all SMEs in continuing to grow and thrive, and to taking action to tackle the issue of late payments.

House adjourned at 9.32 pm.