[Mr Jim Hood in the Chair] — Late Payments (SMEs)

Part of the debate – in Westminster Hall at 10:11 am on 14th September 2011.

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Photo of Owen Smith Owen Smith Shadow Minister (Wales) 10:11 am, 14th September 2011

It is a great pleasure to serve under your chairmanship, Mr Hood. I congratulate my hon. Friend Debbie Abrahams on securing the debate, which has been extremely interesting so far. We have heard a huge number of positive and constructive ideas from both sides of the Chamber, which is a measure of the interest in SMEs and the recognition that they are, as we heard in the statistics which my hon. Friend has mentioned—I will not repeat them—the backbone of our economy.

I have experience of running an SME. I worked in a television production company, although not for a huge amount of time. I have also worked in quite a few large companies, so I have seen the interaction from both sides of the fence. The obvious lesson that came from that experience was, first, that turnover and cash flow are critical for small companies, especially in the early days. Late payment is therefore central to their viability in not only the long term, but the short term, especially in the early days. Secondly, as several hon. Members have said, large companies have enormous power to make or break small companies through the contracts that they dictate and put in place and through the payment structure that they observe.

In a recession and a downturn in the economy, all those problems are compounded. Small companies’ cash-flow problems become exponentially greater. Larger companies—here we come to where the late-payment culture intersects with a wider culture of irresponsibility in our corporate sector—are instantly tempted to renegotiate contracts, and they are often encouraged to do so by their procurement, supply and legal teams. They are tempted to pass on their problems to the supply chain and to screw down on smaller suppliers by squeezing the maximum amount out of them to insulate themselves. I have seen that; it is a common occurrence, and late payments are part of it. It is no surprise, therefore, that late payments have increased in the recession; indeed, that is inevitable because they are standard practice among large firms. Although they do not happen only in this country, they are a particular problem and cultural issue here.

One interesting aspect of the debate is the number of hon. Members from different parties who have said that the Government have a large role to play, rather than that the best thing for our economy would be for the

Government to get out of the way. In this instance, there is clearly a real interest in the Government intervening and playing a leading role.