[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

Yes. Indeed, they should think of introducing it earlier than anticipated. Europe clearly recognises that late payment is an issue. The Government should recognise that it is an issue, as the Opposition do, and they should introduce the directive. I hope the Minister will tell us he is interested in doing that.

The Opposition have long recognised that late payment is an issue. As we have heard, several pieces of legislation were introduced in the late 1990s. Initially, there was legislation allowing small companies to charge interest and seek compensation. Subsequently, the Labour Government sought to set an example by setting targets. They also talked about the need for a greater culture of responsibility on the part of all businesses. They set an example through the targets that they set Departments, although they should have gone further and pushed that right out across the public sector. The current Government would do well to look to that example. They believe in a big society, and they could use a bigger society to bring about that public good.

Late payments also relate to a wider issue: the culture of dog-eat-dog, devil-take -the-hindmost, beggar-thy-neighbour irresponsibility—call it what you want—that is an absolutely common feature of corporate life in this country. Suppliers are vital for all large firms, but they are inevitably and invariably low on the list of priorities for large firms. Some people, including Government Members, might say that that is inevitable in a system predicated on the primacy of shareholder value, but that system should not preclude other objectives, such as social responsibility. The most immediate form of social responsibility that larger firms can show is responsibility towards the welfare and viability of smaller firms. That is a matter not only of late payments, but of the way in which larger firms move their investments.

In my constituency, there is a filters factory called Sogefi. It is now Italian-owned, having been purchased from a British company a number of years ago. It is downscaling because its order book is declining. Two hundred jobs will probably be lost at that firm, which is in the Rhondda—a part of the country where there are all too few well paid and secure jobs. The knock-on effect of that company cutting jobs and potentially eventually moving on is enormous, because 12 or 13 suppliers throughout the area rely on it. One thing that we have failed to impress on the company is that it has a responsibility to those suppliers, because it clearly does not feel that it has. The culture of feeling that a company’s primary job is to look after its own shareholders and that it is for other companies to worry about themselves is precisely what motivates and underpins the culture of late payment in our country.

What do we need to do? Clearly, the Government need to set a better example. Mr Hollobone has mentioned HMRC, and other hon. Members will have had builders in their area tell them that the chaos at HMRC—especially over the construction industry scheme—has resulted in enormous backlogs in the reimbursement of taxes already paid by small construction firms. That is but one example where the Government need to intervene to provide the resources to ensure that small firms—in this case, construction firms—do not go under.

This is also a question of the Government pulling their socks up when it comes to hitting the five-day payment target, because they are falling back right now. My understanding is that in the last quarter of the Labour Government we were hitting about 90% of the target figure for five and 10-day payment, but we are now somewhere south of 80%. That looks like falling back to me, but if my statistics are wrong the Minister can correct me—I would be delighted to learn that the figures are better than I thought.

We should be looking at introducing the European directive early and expanding that payment culture to the whole public sector. However, other aspects of intervention and legislation should not be off the table. It is not fashionable to talk about regulation, but clearly regulation is required in the present context; there seems to be a huge amount of consensus about that. I thought that the idea that we heard a moment ago about changes to accounting standards, and naming and shaming, was excellent. It would not necessarily require changes to legislation. Filing requirements at Companies House should also be looked at. Although Anne Marie Morris has rejected the notion of standard default contracts, the Government should look at the idea of minimum standards in contracts to try to marshal larger firms’ behaviour, so that they do not instantly fall back on screwing people lower down the food chain, which inevitably happens.

The Government have an enormous role to play. It is a myth, as the debate has shown, that the most effective way to get growth and efficiency in the economy is for Government to get out of the way. That myth has been wholly exposed by the recent crisis in capitalism. Late payments are a small but telling example of how the Government have a vital role to play. I hope that the Minister and his party recognise that.