Late Payments - Statement

Part of the debate – in the House of Lords at 5:56 pm on 19th June 2019.

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Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords) 5:56 pm, 19th June 2019

My Lords, I am grateful to the noble Viscount for repeating the Statement made in another place.

Do the Government have a problem with SMEs? On the one hand, they say:

“Small businesses are the backbone of our economy. Employing 16.3 million, 60% of total UK private sector employment”,

but on the other, they consistently do not provide SMEs with the legislative and regulatory power they need. Earlier this year, in their response to a Select Committee report, they said:

“The Government is undertaking activity across a wide range of policy areas”,

but they offer,

“a Small Business Leadership Programme and supporting local peer-to-peer networks”.

I do not recall any campaign for that rather recherché approach.

The Government also said:

“The Government understands that tackling late payments is a top priority for small and medium-sized enterprises”,

but they offer a voluntary Prompt Payment Code, which is regularly and consistently ignored by virtually all the major companies, and a Small Business Commissioner with no substantive powers to banish bad payment practice or to act on behalf of SMEs against the large companies that rip them off time and again. The Small Business Commissioner is doing a great job and is to be congratulated on what he has achieved, but where in these measures is a policy response to his observation that, since being in the post, he has been,

“struck by the trepidation felt by small businesses when talking about late payment with their large suppliers”?

This is not a new problem. Where are the measures to resolve this long-standing issue? Why do SMEs not escalate the interest on outstanding late payments? The truth is that the SME not being paid cannot risk legal or other action for fear of being blacklisted by the large company it supplies. The Government need to do much more.

It is true that regulations, which we supported, were introduced to ban large companies from preventing their SME suppliers using invoice finance, but this is small beer compared with what SMEs need. Today’s announcement is just more of the same, although the very fact that BEIS has to announce some minor changes to the role of the Small Business Commissioner is a clear admission of failure.

The call for evidence told us that,

“there is more to do to improve the payment landscape”,

so why not do what is clearly required? Give the Small Business Commissioner not only powers to compel the disclosure of information about late payment but significant powers to fine large companies that do not pay their SME suppliers promptly. Why not go further and make the directors and senior staff of large companies that fail to meet the reasonable terms for prompt payment to SMEs personally liable? Make the Prompt Payment Code statutory, not voluntary. Transfer the responsibility for maintaining the Prompt Payment Code to the Small Business Commissioner—we agree with that—but give him the powers he wants to fine flagrant abuses of the code. Restricting this to compliance is small beer; it should already be a statutory offence.

Although we welcome greater transparency in how supply chain finance is reported in company accounts and in ensuring that it is properly audited—although the FRC may not be around to see it—is that not a case of just falling into the same trap? Is this not an issue of whether payments contracted for and due are being withheld wrongly and to the detriment of SMEs? Is it not time that the Government legislated to ensure that in such cases, a trust fund or a project account is set up with its own bank account, which would ensure that the SMEs supplying a supply chain receive the payments timeously?

This is not an ambitious package of measures as it will not level the playing field for the UK’s 5.7 million small businesses. If the department thinks that this will deliver the modern industrial strategy’s ambition to make Britain the best place to start and grow a business, it is clearly deluded. As I think Paul Uppal, the Small Business Commissioner, has hinted, BEIS is attacking the wrong problem. He has said:

“Ending the culture of late payments will pave the way to boost SME productivity, remove barriers to growth and improve cash flow”.

He added:

“I welcome any additional provisions which will strengthen the influence my Office has in tackling poor payment practice and levelling the existing playing field”.

What we should be doing is ending a culture through strong, effective legislation and regulation. It is a pity that he is not getting the support that he and his office clearly require.