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 Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip) 5:56 pm, 19th June 2019

I thank the noble Lord, Lord Stevenson, and the noble Baroness, Lady Harris, for their questions. I am not sure whether there is broad approval, but I think the answer is that the response is rather mixed. I shall try to answer the questions that have been raised. One of the central points was the question of whether or not to legislate. Perhaps I may answer both noble Lords directly by saying that legislation is not always the answer. The French legislated for maximum payment terms and the unintended consequence of that was that the number of disputed invoices went up. They have also had to amend the legislation subsequently to accommodate the payment practices and complex supply chains of different sectors. It is therefore clear that a one-size-fits-all approach is not necessarily the answer, and sometimes legislating can create perverse incentives in the system. Moreover, legislating in the way noble Lords have suggested could create an incentive which dissuades large companies from contracting with SMEs. If the Government were to set a standard length of time for payment terms—for example, 30 days—companies that pay in seven or 14 days may well extend their payment terms to 30 days.

I turn to the question that was raised about the Prompt Payment Code being mandatory. Again, we believe that more legislation is not the answer here and could lead to unintended consequences in complex supply chains as well as creating perverse incentives. The whole idea is that the Prompt Payment Code is a voluntary code which is administered by the CICM on behalf of BEIS. Signatories to the code sign up to pay 95% of invoices within 60 days. Actually, there is light at the end of the tunnel. In quarter 1 in 2014, according to evidence provided by BACS, the amount of late payment outstanding was £46 billion. That has been reduced through a voluntary process to £13 billion.

Finally, the whole point of these measures is to look to increase the powers of the commissioner and consider the possibility that he could support larger business compliance and better practice in the payment culture, as well as develop greater confidence within the SME community in the Government’s commitment to support small businesses in addressing late payments. Going back to what the noble Lord, Lord Stevenson, said at the beginning of his remarks, we do not have a problem with SMEs at all. That is exactly why we want to get behind the commissioner and look at the possibility of giving him more powers, although not draconian powers, to support a very important part of our economy.