Small and Medium-sized Enterprises

Tuesday 23rd October 2012 Lords Chamber

Question

14:46

Asked By

[Lord Cotter]

To ask Her Majesty’s Government what action they are taking to address the issue of late payments to small and medium-sized enterprises.

[Lord Wallace of Saltaire]

My Lords, central government policy is to pay undisputed invoices within five days and to pass 30-day payment terms down supply chains. Moreover, the Crown representative team in the Cabinet Office is encouraging prime contractors to pay more quickly than the 30-day commitment on a voluntary basis. We have tasked departments across Whitehall to manage their contracts to ensure that prime contractors pay their subcontractors within 30 days.

[Lord Cotter]

I thank the Minister for his Answer. Will he and his officials look at the important reports and surveys carried out by the Federation of Small Businesses and the British Chambers of Commerce and note their recommendations? There is a lot of very good information in there. I am glad that the Government have improved their record on payment, but it is still not satisfactory that local councils and other departments are not paying as promptly as they should. I am encouraged by the Minister saying that government departments are going to look at their suppliers. I ask him to ensure that they sign up to the prompt payment code.

[Lord Wallace of Saltaire]

My Lords, I have it in my notes that the Local Government Association, in the form of no less an important person than the noble Baroness, Lady Eaton, has agreed that local authorities will be encouraged similarly to follow best practice in this regard. The Cabinet Office has among other measures introduced a “mystery shopper” service through which small contractors who are dissatisfied with the service they are getting, either from a department or from a prime contractor, can anonymously feed this information through to the Cabinet Office.

[Baroness Sharples]

What is the average time taken by ministries to settle their bills?

[Lord Wallace of Saltaire]

I suspect that the answer is that because there are so many bills that have to be paid it would take a great deal of time, effort and cost to acquire that information.

[Baroness Wall of New Barnet]

My Lords, does the noble Lord take assurance from the fact that, certainly in the health service, we have penalties for not paying small and medium-sized businesses first, before we do anything else, no matter where we are in the budget? I think that that ought to apply perhaps in other places as well. I had intended to save my question for the next debate but I just could not resist saying that.

[Lord Wallace of Saltaire]

Thank you. It is an aspiration of this Government to increase the proportion of government contracts which go to small and medium-sized enterprises. When we entered government, the proportion of government contracts going to SMEs was 6.5%. Our aspiration is to reach 25% by 2015. The latest figures we have are that we are almost at 10.5%, so we have some way to go but are going in the right direction.

[Lord Borrie]

The Minister has confined his answers so far to government or governmental bodies which owe debts to small and medium-sized firms. What about simply the failure of large firms to pay small firms the money they owe them? So far, it is left to the initiative of the SMEs. Since there is a significant Bill going through Parliament at the moment dealing with financial services, I wonder whether one might get more results if the public officials of those bodies that are to take over from the Financial Services Authority under the new Financial Services Bill had a responsibility to ensure that debts were paid.

[Lord Wallace of Saltaire]

My Lords, the Government are not yet convinced that we need to take legislative action, but we are thoroughly in favour of all pressure possible to encourage large corporations to pay their small contractors as fast as possible. There is indeed a new booklet produced by the Association of Chartered Certified Accountants, Experian, the Forum of Private Business and the Institute of Credit Management which is a guide on how to ensure prompt payment and has been produced in co-operation with the Government. I must say that a number of newspapers, including in particular the Telegraph, have been very helpful in exposing the tendency of some large corporations deliberately to delay payment to their subcontractors. We all know that transparency and reputational damage are things which multinational companies are well aware of, supermarkets included.

[Lord Trefgarne]

My Lords, if my noble friend wishes to increase the number of small and medium-sized enterprises which tender for and secure government business, will he have a look at the complexity of government tendering processes which tend to put off smaller companies from competing in those competitions?

[Lord Wallace of Saltaire]

My Lords, we are also well aware of that. My right honourable friend Francis Maude and others have been looking in particular at the complexity of the pre-qualification questionnaires. We are doing our best to get rid of those for all contracts below £100,000 per year and to simplify the pre-qualification questionnaires for all others.

[Baroness Hollis of Heigham]

My Lords, following the last question, I ask the Minister also to look at the contracts offered by the Department for Work and Pensions. In terms of getting people back to work, these contracts are going to very few, very large contractors, and as a result charities and voluntary organisations which in the past have done this work are now being pushed out of the bidding process.

[Lord Wallace of Saltaire]

We are well aware of this problem. We are talking about a culture change within Whitehall. We are conscious that it is often easier when drawing up a large contract to give it to a prime contractor who will then subcontract, rather than having to go through the more onerous processes of distributing it around the country. That is part of the culture that we are trying to change.

[Baroness Brinton]

My Lords, the Minister’s earlier response on the problem with large companies was illuminating. However, if we are going to rely on investigating journalists to uncover such cases, would it not be better for the Government to consider forcing large companies to publish how many days they take to pay people in their annual reports?

[Lord Wallace of Saltaire]

My Lords, I dare say that that is a question which will come up if and when we next move on to a company law reform Bill.

[Lord Mitchell]

My Lords, small companies in particular depend on prompt cash flow—indeed, it is their lifeblood. However, it is still true that many organisations in different areas, but particularly those in the public sector, are notorious for paying late. Despite the assurances that the Minister has given, I ask the Government to issue a firm directive to all organisations in the public sector stating that payments to SMEs are to be made within a short time after the receipt of an invoice.

[Lord Wallace of Saltaire]

My Lords, the Government have done that and are introducing a number of practices to ensure that that is done. The mystery shopper and other efforts are always feeding back to ensure that where it is not yet done, steps are taken to improve matters.