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

Part of the debate – in Westminster Hall at 10:43 am on 14th September 2011.

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Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills 10:43 am, 14th September 2011

This has been a fantastic debate, Mr Hood, and we all owe a debt of gratitude to Debbie Abrahams for introducing it. In pursuing this issue, she has shown both her knowledge and her determination. I am sure that she will agree with me that all Members here have not only shown knowledge of what is going on in their own constituencies and in the sector but contributed some interesting ideas and a number of questions. I will try to do justice to this debate by explaining what the Government want to do.

I was economic researcher for the Liberal Democrat party during the recession between 1989 and 1992, and late payment was one of the biggest issues on which we pressed the then Conservative Government. It is depressing that this issue has not gone away. In 1998, Labour passed legislation allowing compensation to be paid in cases of late payment. I never thought that measures such as that would be a silver bullet, but I hoped that they would begin to change the culture. I therefore welcomed that legislation and felt that it was the right approach. None the less, legislation can never sort out a problem. It can begin to change attitudes, particularly in an area in which millions of contracts are made between many different companies of all shapes and sizes.

Things are slightly better than they were in the early 1990s. Nevertheless, we have heard from some eloquent speakers that there is still a problem here, so we need to tackle it. Sometimes, however, the debate on late payment becomes a little simplistic and lacks real evidence. That is not to decry today’s contributions, but we must look at the evidence to ensure that we get to the real causes of late payment so that we can identify the best means of tackling it. We need to diagnose the problem properly.

Late payment is not exclusive to any sector or to any style of business. Although I sympathise with those who say that this is big business abusing its power, an awful lot of payment is between small businesses. The majority of contracts that any small business has are with other small businesses. We should not say that it is just a big business problem against small businesses, because the issue is about more than bully-boy tactics. Research shows that of the moneys owed by large businesses, around 40% is overdue compared with 30% for small businesses. The problem therefore affects businesses of all sizes.

I acknowledge that it is important for large businesses to give a lead here, to step up to the plate and set a good example. There is support across the Chamber for the Institute of Credit Management’s prompt-payment code, which is backed by the UK’s leading businesses and finance bodies. The code requires signatories to pay according to agreed terms, and there are now more than 1,000 signatories. People may say that that is not many, but they represent more than 60% of the total UK supply chain.

The Minister of State, Department for Business, Innovation and Skills, my hon. Friend Mr Prisk, who normally speaks on such matters, launched the new “Be Fair, Pay On Time” campaign in June, which backs up the prompt payment code. I agree with Mr Umunna that we should work on a cross-party basis to encourage even more signatories to this code. Certainly, that is the Government’s aim. We very much want actively to encourage new signatories to this important code.

I agree with those Members who argue that the public sector should be an exemplar. Indeed the previous Government played a role in developing that policy. At the time, the Opposition parties argued that they should develop that policy, too.

There is some confusion over how the Government are performing, which is mainly due to the confusion over the pre and post-election targets. The pre-election target from the previous Government was 90% in 10 days. The target that we have been operating is 80% in five days. We felt that a quicker period was important. My own Department is paying 93.6% of our bills within five days, which is significantly faster than the target. Our evidence shows that the performance in this area across Whitehall has been continuously improving. Private business is also saying that local authorities are improving and paying faster than ever. On average, they pay in 18 days.