New Clause 11 - Director's Report (Statement of Payment Practice)

Companies (Audit, Investigations and Community Enterprise) Bill [Lords] – in a Public Bill Committee at 11:00 am on 16th September 2004.

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'In Part VI of Schedule 7 to the Companies Act 1985 leave out paragraph 12(3) and insert—

''The report shall also state the company's payment performance record, in line with a standard format that shall be specified by the Secretary of State in regulation.''.'.—[Brian Cotter.]

Brought up, and read the First time.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Minister (Trade & Industry), Trade & Industry, Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

I beg to move, That the clause be read a Second time.

I appreciate the fact that new clause 11 has been selected for debate. To me, it covers one of the most important issues to be raised under the Bill. As a result of legislation passed in 1998 to address late payment, the business community finds itself in a situation in which one in four businesses are failing from a lack of cash flow, mostly because large firms in particular are not paying their bills on time.

I very much regret that this important new clause has come up at such a late stage, because I had quite a lot to say about it. I shall make only a few remarks, however, and I look to the Minister for a response. Indeed, I hope that she will cave in, as she should,

given the concern about late payment. If she does not, however, I shall return to the issue with great force on Report.

The Late Payment of Commercial Debts (Interest) Act 1998 made it clear that businesses needed clearly to include records of payment in their annual reports. However, as I said on Second Reading, and as the Minister will know, that is not being done. I have asked several parliamentary questions about the matter and pursued it with Companies House, but even Companies House was not immediately able to produce evidence of what reporting has been done as regards the payment of bills, and it took a month or more to find information that should be readily available to small businesses.

The late payment of debts is becoming an increasing problem for small businesses, which are being driven out of business as a result. It is increasingly difficult for them to make judgments, because they do not have clear information, in a standard format, about larger companies' payment records as companies have not been able to list the information themselves.

I have a lot of questions, and I hope the Minister accepts that there are issues to address. Although I hope she will give me some reassurance, I shall refer to the issue again on Report.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

I have considerable sympathy with the hon. Gentleman's point that late payment can cause small businesses severe difficulties. That, of course, is why the Government have introduced a package of measures to assist small businesses, including the 1998 Act, which gave suppliers the right to claim interest for late payment and set a credit period of 30 days where no other credit period has been agreed. We strengthened the Act through the Late Payment of Commercial Debts Regulations 2002, which enable every business to claim a fixed sum of compensation for the cost of chasing bad payers, as well as giving them the right to claim interest.

In addition, we established the better payment practice group in conjunction with the small business community, including the Federation of Small Businesses, to promote the commercial and ethical benefits of paying promptly and to make credit management tools and techniques freely available.

Those Government actions have helped to improve the situation. In 1997, published data from the Grant Thornton European business survey showed that the average time taken in the UK to settle accounts was 49 days. By 2002, that had fallen to 41 days, compared with a European average of 50. So, we are doing better on this than our European competitors.

On Second Reading, the hon. Gentleman mentioned the performance league table of the Federation of Small Businesses. This Government's commitment to tackle late payment encouraged the federation to compile and publish a league table to show the average payment times of Britain's plcs and their larger private subsidiaries. As set out in schedule 7 to the Companies Act, directors are required to disclosed the average time taken to pay trade creditors. That information is then collected by the Federation of Small Businesses and published annually in a league

table. I welcome those tables; they are an important measure. They contribute to the change in payment practice by showing small businesses how quickly they can expect to be paid when dealing with large customers.

Although I am sympathetic to the problems of collating the data in a meaningful way, as set out by the hon. Gentleman, I am not convinced that the solution is to introduce further regulation and increase the burden on companies, not least because the power that new clause 11 would give the Secretary of State is effectively already available under section 257 of the Companies Act 1985.

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

Order. I am sorry to interrupt the Minister . I am of the opinion that the Committee is concluding its consideration not only of the clause but of the Bill. I have power under Standing Orders to extend the sitting for a short time. Although it may inconvenience some hon. Members, I intend to do so as that will enable the Committee to conclude its business now, rather than having to come back this afternoon. I ask the right hon. Lady to conclude her remarks.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

Section 257 of the 1985 Act enables the Secretary of State to amend part VII of that Act. The Government have not yet thought it necessary to use that power to introduce a standard reporting format along the lines proposed by new clause 11 because there is no evidence that doing so would improve the quality and usefulness of the information given.

The record shows that our actions are bearing fruit. The new clause is therefore not necessary or desirable. However, we will continue to keep the situation under review, listen to the concerns of small businesses and hon. Members, and continue to make progress in tackling the problem of late payment.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Minister (Trade & Industry), Trade & Industry, Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

I would strongly rebut almost every point made by the Minister, regarding in particular any improvement and the new clause not being necessary. I am very disappointed indeed, especially at the fact that we are discussing this measure so late in the Session. I do not believe in regulation, but a format for reporting information is required. I would wish to say more, but the Liberal Democrats have questions tabled for Trade and Industry Question Time in the House, which is due to begin in a moment. I shall

conclude, but I will rehearse the argument at the next opportunity. I beg to ask leave to withdraw the motion.

Motion, and clause, by leave withdrawn.