(6 years, 6 months ago)
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Baroness Burt of Solihull
To ask Her Majesty’s Government what is their assessment of the effectiveness of the Prompt Payment Code.
Baroness Burt of Solihull (LD)
My Lords, I am very grateful for the opportunity to raise this issue, which is arguably the biggest threat to small and larger businesses’ ability to thrive in the UK today: late payment. I thank the SEC Group, the FSB and the AAT for their extremely useful briefings.
Much has been said about the demise of Carillion, but many noble Lords may not be aware that Carillion was signed up to the prompt payment code. The code is a voluntary code of practice run by the Chartered Institute of Credit Management with the backing of the Department for Business, Energy and Industrial Strategy. Members promise to pay their suppliers on time, give clear guidance to suppliers and encourage good practice in their supply chains. These members undertake to pay their suppliers within 60 days and work towards adopting 30 days as the norm. Nevertheless, Carillion, like many other companies, was using money belonging to its suppliers to shore up its own cash flow.
There are plenty of ways in which the big suppliers exploit their supply chain today. Long payment periods are, of course, the obvious one; there are others that I do not have time to include here. During 2017, Carillion’s average payment delay was 43 days, and 5% of its contracts took 120 days to be paid. Its collapse left 30,000 small firms unpaid, with creditors only expected to cover less than 7p of every pound that they spent. Most suppliers to Carillion were not insured against it collapsing, and insurers are expected to pay out only about 3% of the total losses.
Why has the prompt payment code not solved some of these issues? Because it is a voluntary code of practice, it has largely failed to protect supply chains from late payment; it needs to be given more teeth. The AAT comments that the code has been undermined by the fact that the signatories to the code basically fall into two categories: those who already took this issue seriously and those who believe that, as it is voluntary, it does not have to be taken seriously. Carillion falls into the second of those categories.
The situation with public sector contracts, through which suppliers are contractually obliged under the Public Contract Regulations 2015, is quite dire. Under these regulations public bodies have a statutory duty to ensure that all subcontracts and sub-subcontracts contain 30-day payment clauses. Needless to say, Carillion did not have these clauses in its contracts and, as far as I know, no one picked it up on it. Unfortunately there is no effective enforcement mechanism under which to complain, except for the anonymous mystery shopper scheme. Even anonymously, in construction most will not complain because of the climate of fear existing in the industry.
However, there is a ray of hope in the form of payment practice reporting. From this April, large businesses must provide details every six months of their standard payment terms, how they resolve payment disputes and the percentage of payments they make within 30 and 60 days. It is naming and shaming and shines the harsh light of reality on what has been going on below the surface for many years. Of those businesses that reported in December 2017, before the statutory requirement to report came into force, only 52% of invoices were paid within 30 days; and nine of the 10 largest companies that reported their practices paid fewer than 10% of their invoices on time. Reporting is beginning to reveal the scale of the problem but we wait to see whether businesses will change their practices as a result of being shamed.
Tangential to the code, but nevertheless crucial, is the issue of retentions. These can be withheld from construction companies for many years and can often get caught up in insolvencies further up the supply chain. It is estimated that Carillion owed about £800 million in retentions alone. The Government have held a consultation on retentions and we look forward to receiving their conclusions—soon, I hope. Perhaps the Minister could indicate how soon.
A practical and realistic option has been presented in Peter Aldous’s Private Member’s Bill, which receives its Second Reading on 15 June. It seeks that when a cash retention is used it should be ring-fenced within a deposit scheme. This will protect it from insolvencies and incorporate a standard payment process, ensuring no unnecessary delays or time-consuming chasing. The Construction (Retention Deposit Schemes) Bill is supported by 120 cross-party MPs and over 350,000 companies. Could the Minister indicate whether the Government are minded to support it?
I recommend to the Minister a number of options that can deter large companies from paying their subcontractors late and protect small businesses when large contractors fail. First, the Government must be prepared to enforce the Public Contract Regulations so that recipients of major government contracts pay their suppliers within 30 days. I welcome the news last month that the Government will exclude suppliers from major government contracts if they cannot demonstrate fair and effective payment practices with their suppliers. However, we have yet to see the detail and I would appreciate the Minister providing more detail on how this will work, either in his response or in writing.
Subcontractors need to have the confidence to speak out, so I welcome the Government’s announcement that they will have greater access to buying authorities to report poor payment performance.
My second recommendation is that the Government should either accept Peter Aldous’s Private Member’s Bill or introduce something similar on retentions.
Thirdly—and, for the construction industry, arguably most importantly—project bank accounts should be introduced for all public sector construction projects over, say, £2 million, which is already the case for Northern Ireland, Scotland and Wales. PBAs could be used to ensure that payments are made within 30 days by holding the funds in a central, ring-fenced bank account. Highways England uses them, and third-tier subcontractors are paid within 18 days of the evaluation of the work under the main contract. No more Carillions would then be able to exploit their supply chain, using their money and pushing them over the financial edge into liquidation.
Finally, the Government should consider how to give the prompt payment code more teeth. Perhaps all listed companies, or those with turnover over a certain amount, could be required to sign up to the prompt payment code. It could levy fines for poor compliance, which could be used to fund its administration and support subcontractors in distress.
Getting paid fairly and on time will always be an issue for some companies, but these four measures combined would make a significant impact on poor payment practices, which would provide a legacy of which this Government could be proud.
Lord Cope of Berkeley (Con)
My Lords, I apologise to the House that I am due to speak in a debate which starts at 2 pm in Grand Committee and I will therefore be unable to stay for the winding-up of this debate. Therefore, in accordance with the customs of the House, I shall withdraw from the debate after confirming my strong support for the actions the Government have taken in this matter and for their latest consultation document about public sector contracts.
Lord Mendelsohn (Lab)
My Lords, I thank the noble Baroness, Lady Burt, for her excellent speech and for securing this debate.
There are two questions at the heart of this issue: do the signatories to the Prompt Payment Code perform better on payment practices than non-signatories; and has the overall picture of late payments been shifted in a positive direction since the establishment of the code?
On the first question, it is hard to make an assessment. The code’s website provides no aggregate data and I can find no detailed reported data. On the website, companies are asked to supply data on how to get paid, and most do; their procurement policy, and some do; and their reported payment information, and I found none that did. Some have put in details under “payment terms comments” which are quite unbelievable. From the random—and undoubtedly totally unrepresentative—sample I looked at, 20% of the companies had written in payment terms of 90 days, which is against the code.
I welcome the new duty to report on payment practices but will the Minister give some indication of how both datasets will relate to each other? There is no evidence available to test the direct impact of the code on the companies that are signatories but public confidence is not evident. The last IoD survey from February this year showed that, as a means of addressing late payments, businesses felt that the Prompt Payment Code did not feature and that kitemarks for best practice as sector-specific codes carried the confidence of only 3% each. No doubt this relates to the performance of some individual signatories, and the example of Carillion is perhaps instructive.
Let me make a sobering point in an attempt to draw a conclusion on performance. In a survey on late payment by MarketInvoice, five of the worst offenders were shown to pay an average of 83% of their invoices late. Three of those—John Lewis, Marks & Spencer and Kingfisher—were and remain signatories of the code.
On the question of whether the bigger picture has improved, the evidence, unfortunately, suggests the opposite. The cost of late payments to SMEs is £40 billion to £50 billion and getting higher. However, I draw your Lordships’ attention to an excellent new index developed by Lloyds Bank called the working capital index. This was created to draw attention to the area of financial operational efficiency in the UK and is soon to publish its third report. It is an account of a variety of missed opportunities but reveals some important points about the problems of payment practices and late payments. It reveals that there is a £680 billion opportunity in the UK to release working capital and that, as a result of payment problems, working capital makes up 25% of net company debt.
The latest data shows that around a third of all invoices are reported as being paid later than agreed terms, and four times as many small firms reported longer payment times from customers compared to larger firms as part of the survey. Why has the code not had the intended impact? Put simply, there is no consequence for non-compliance. Transparency is low, enforcement is piecemeal, accountability is absent and trust in the system has eroded. Checks, investigations, improvements and the role and functioning of the code’s compliance board need to be addressed. Naming and shaming has not worked when you look at any company that has faced such a problem; the example of Debenhams and its terrible performance is instructive.
Companies need to take this seriously. When I first addressed the House on this matter in 2015, when the legislation establishing the Small Business Commissioner was passed, we contacted a number of companies to try to find out how they used the Prompt Payment Code. Not once were we directed to the finance department. Not once when we contacted the finance department did they know that they were members of the code. In every example of the companies we used—also probably unrepresentative—we were directed to either the PR department, the corporate affairs department or the social responsibility department. It was not tied to finance. As a voluntary code, it needs to be tied to the part of the business that pays the bills.
I want to make a few suggestions on how to improve this. First, the code needs to be enhanced operationally. Naming and shaming and expulsion from the code—as the Federation of Small Businesses suggested—should be an absolute minimum for the worst offenders, while we should always find ways to commend the good performers. Secondly, by far the most useful thing would be to link the Government’s initiatives more strategically. The Government should place the code in the office of the excellent Small Business Commissioner, Paul Uppal. He and his brilliant team are doing very well in establishing the right approach and are well placed to make best use of and help with not just the PPC but the payment reporting requirements. I recommend strongly that the Government look into this.
Finally, some strength could be given to the areas where there seems to be a consensus and the Government’s determination to pursue good practice is backed up by a determination to bear down on bad practice. I plan to introduce a Bill on these measures soon and I hope that the Minister can indicate the Government’s willingness to support: in relation to payment practices, outlawing retrospective drops and requiring companies to publicly provide details of charges made to suppliers for storage, marketing or any other deduction or contract term that helps them to change or vary the price of supplied goods; outlawing payment dates of 120 days; dealing with the increasing problem of companies avoiding being taken to account for late payments by reclassifying them as payment disputes, by ensuring that a 30-day limit for resolving payment disputes becomes a part of all relevant sector codes and public sector contracts; and, finally, outlawing the idea that suppliers should be forced to accept giving a company a discount on the agreed price for paying on time.
The current measures employed by the Government are insufficient because there is too strong an economic incentive for cultural change to work. All evidence and economic analysis indicates this. Practices have to change the culture, not the culture change the practices. At the heart of this problem are the asymmetries of power, information, scale and capacity, which work too strongly in favour of late payment, particularly against small businesses. Without a degree of enforcement or compulsion, we can never overcome the legitimate fear for a small business that challenging a larger company will have adverse consequences. If reporting remains a problem, it is unlikely that the Prompt Payment Code will ever be effective.
Lord Aberdare (CB)
My Lords, small businesses play a vital part in our national prosperity and well-being in terms of growth, employment, innovation, entrepreneurship, productivity, exports, apprenticeships and so many of the subjects that concern us in this House, not forgetting Brexit. However, they will not fulfil their potential if they have to spend a large part of their time and energy chasing payments they are owed. According to the Federation of Small Businesses, about a third of payments to SMEs are late and the UK has,
“the worst late payment culture in Europe”.
Having run small businesses myself, I know about the perennial challenge of managing cash flow and the difficulty of coping with late payments and ensuring that salaries get paid; sometimes it requires negotiation of emergency loans or overdrafts, or owners forgoing their salaries or having to make loans. In the worst cases, the business may have to close down, as some 50,000 SMEs do each year.
I congratulate the noble Baroness, Lady Burt, on obtaining this debate and introducing it so powerfully. I also thank the Specialist Engineering Contractors’ Group for the helpful briefing it provided. At the same time, adding some criticism to my congratulations, I apologise to the House for the fact that many of my points have already been made, if not by the noble Baroness then by the noble Lord, Lord Mendelsohn. I will briefly comment on three issues, trying to skate over points that have already been made.
First, the Prompt Payment Code is a laudable attempt to improve SMEs’ chances of being paid within a reasonable timescale, but it does not seem to be working, as we have heard. In 2017, the Government announced that 32 of their biggest suppliers had voluntarily committed to pay 95% of invoices within 60 days and work towards adopting 30 days as the norm. That fact that one of those companies was Carillion, which issued its first profit warning four days later and had payment periods always well over 60 days, rather undermines that commitment. Carillion is by no means the only example of a larger company using funds that in effect belong to its smaller suppliers to meet its own cash needs. Last year, the Government set up the Small Business Commissioner to tackle the problem of late payments. He has made a promising start, but has so far received only 42 complaints, relating to 14 companies, and has commenced full consideration of only two. The message is that a voluntary code will not work, as we have heard. Given the understandable reluctance of SMEs to complain about the larger clients on which they depend, will the Minister consider ways to enable the commissioner to be more proactive in seeking out poor practice and giving him more teeth to enforce his findings—for example, through fines, which I believe the Minister has indicated he would welcome?
Secondly, public sector bodies are covered by the Public Contracts Regulations 2015, under which they have a statutory duty to ensure that all sub-contracts contain 30-day payment clauses. Again, there is no effective enforcement mechanism and most suppliers will not use the mystery shopper scheme. Therefore, these regulations also need beefing up, by requiring monitoring of compliance, mandating the use of project bank accounts—as suggested by the noble Baroness, Lady Burt—or instituting rewards and penalties based on performance in payment practice.
My final issue relates specifically to small firms in the construction sector, which suffer the additional burden of retentions: cash held back from the sums due to them on completing a contract, ostensibly so that the client can ensure that the work has been done properly. There are no codes or regulations that stipulate time limits for the release of these retention moneys; the average time they are held is thought to be about two years but it can be much longer. If the client becomes insolvent, the SME supplier loses the money owed to it completely. Some £700 million of funds has been lost like this over the past three years and the collapse of Carillion alone may have resulted in a similar scale of losses. Because of the uncertainty about when or whether the funds will be paid, the business to which they rightfully belong cannot borrow against them or use them to fund new investment, training or extra employment, thereby contributing to the economy.
This is not just unfair but plain wrong. The Government seem to recognise this but their response so far has been shockingly slow, going back many years. The latest study of the issue, commissioned in 2015, eventually reported last year. A consultation process ended in January and last month’s deadline for a government response has now passed. I echo the noble Baroness’s request for the Minister to indicate when that response will come. Apparently, the Government are seeking an approach with broad support and wish to avoid any potential negative economic consequences, but there is never likely to be much consensus between businesses whose funds are being withheld and those that are withholding them. The actual negative consequences for businesses deprived of funds that they have earned are plain to see.
The long-term solution may be a complete ban on retentions, but that will involve a major change of long-standing culture and behaviour in the construction sector and will take time. Something much more immediate is needed to ensure that funds owed to small businesses are properly protected, and soon. There is no shortage of possible approaches. We have heard about the tenancy deposit scheme in the rental housing sector. Others include the insurance-backed scheme in the lift industry—which has worked well for 17 years—or a guarantee-based scheme. Potential providers have indicated their willingness to offer or run such schemes. I also echo the support for the Private Member’s Bill introduced in the other place, the Construction (Retention Deposit Schemes) Bill, which has its Second Reading next month. That would require all cash retentions to be ring-fenced. The Minister made mildly encouraging noises about possible government support for this when he answered an Oral Question from me about retentions in February.
I end, therefore, by asking the Minister some further questions. What plans does he have to protect from loss retention money owed to small firms? How soon does he aim to have this protection in place, given the urgency of the need? Finally, will the Minister consider using the Aldous Bill as a vehicle to bring about the changes needed in the timescale needed?
Denying small firms funds that they have earned is not just unfair: it is a disgrace that is damaging to the positive impact they can make for the UK. The Government seem to recognise the problem. Other countries have already tackled it. It is high time that we did the same.
Lord Palmer of Childs Hill (LD)
My Lords, forgive me for my hoarse voice. I thank the noble Baroness, Lady Burt, for introducing this debate and—I do not have to thank too many people—the noble Lords, Lord Mendelsohn and Lord Aberdare, for their incredibly detailed contributions. As the noble Lord, Lord Aberdare, rightly said, it is very difficult not to repeat, to some degree, what has already been said.
My noble friend Lady Burt quite rightly pointed to Carillion. The effectiveness of the Prompt Payment Code is clearly seen in its collapse. Carillion was an early signatory to the code but prior to collapse had been exposed as making creditors wait 120 days to be paid. It is often small businesses that suffer most. The Government should mandate that all FTSE 350 companies sign up to a stronger code with a new “three strikes and you’re out” rule—something that many bodies have mentioned. This would target repeat offenders. At least the penalty would strip them of the right to be awarded government contracts, and it could be even harsher than that. Will the Minister detail how the Government feel that the “three strikes and you’re out” rule could be implemented, and what the penalties and the enforcement procedure would be?
During my preparations for this debate, many helpful points have been made from within the industry. I am sure that these points have also been made to other speakers. Late means late—that is, paying after a previously agreed date between two or more parties. It does not mean extended—extended payment is also late. Bills ought to be settled promptly, in full, to agreed terms and free of unnecessary charges. Small firms cannot be expected to lend interest-free to big companies.
Many firms view the Prompt Payment Code as toothless. It cannot be right that firms whose default position is 60-plus days can sign the code. It is the Prompt Payment Code, not the extended payment code. There is no obligation on signatories to pass on favourable terms they receive to sub-contractors or merchants.
Moreover, too many invoices are disputed or overlooked: “Oh, we never received your invoice. I’m sorry but you’ll have to wait for the next round for it to be seen”. An invoice can be disputed because it has a typing error: “I’m afraid it has to go back to the end of the pile. And by the way, we only settle our bills on the 7th of the month. You’ll have to wait for the next 7th of the month”. This is normal practice, and completely wrong according to the code. The date of the invoice ought to start the clock, not the date received. What, furthermore, is a “disputed” invoice? Something has to be put into legislation to describe what would be a disputed invoice that could delay payment.
One-sided changes in payment terms and conditions, or the length of time taken to settle invoices, are often a sign of cash-flow or other financial problems. Delays by big companies can cause SMEs cash-flow problems and take too much time and effort on the part of the creditor to chase debtors.
Previous attempts to eradicate bad practice by voluntary approaches have floundered. The scourge of late or non-payment is a long-standing issue that cannot be tolerated. The trend by some businesses to move to 120 days as a default position has to be confronted. Until settlement of bills becomes elevated to a board-level responsibility, late payment will persist. Those noble Lords who have been in business, or, as I was, practising as a chartered accountant, know what happens in reality. The very large client, which you treasure, has built up a debt to you of many thousands of pounds—I talk from bitter experience. At a certain date in the month that valued client will make a payment on account—a round sum. “Here’s £1,000, £2,000, £10,000” or whatever it is, they will say, at the same time as initiating new work—and the debt to you goes up. This is the bullying practice of the large client towards the companies that service it.
The Small Business Commissioner should focus on poor payment practice issues, including the more subtle forms of bullying such as the one I have just described. The commissioner’s “name and shame” powers—they have briefly been referred to—should be used more obviously. If they are to be named and shamed, let us broadcast the fact and say that you should not be dealing with Carillion, or whichever firm it is, because they do not treat you properly. The powers should focus on serious instances of supply chain bullying. If you supply goods or services to a large organisation you do not want to risk losing the work, so the practice continues.
The word used in the heading of this debate is “code”—the Prompt Payment Code. I am afraid that codes are obeyed by ladies, gentlemen and boy scouts. They are not obeyed by anybody else. We must put some teeth into this legislation.
Lord Stevenson of Balmacara (Lab)
My Lords, I was never in the boy scouts so I lost that last metaphor, but I understand where it comes from. We owe a great debt of thanks to the noble Baroness, Lady Burt, for raising this issue again—it has been discussed before—and doing so in contemporary terms by bringing us up to date with some of the issues of recent years. We have had some very good speeches. We have lost the noble Lord, Lord Cope: in that respect we have lost the little group of aficionados that was here for the Enterprise Bill in 2016 and covered this and related topics a number of times. It was very good to hear some of those tropes repeated today.
The general theme of those noble Lords who have spoken today is that while there have been welcome improvements in what the Government have been doing to help the problem of late payments, the current approach is not going to work. The central thrust is to change the culture and to believe that that will lead to a significant and speedy change in what has become current business practice. Using a code is not really the way forward—it is not even statutory and is not operated by the Government but through a franchise by a non-statutory body.
We supported the measures in the Enterprise Act 2016 that required large unlisted companies to publish information about payment performance and practices—strengthening the Prompt Payment Code in that respect—but we do not think that the situation today is satisfactory and we want big changes. The model that we had in mind for the Small Business Commissioner was the system used in Australia, where that post can operate in a way that causes things to happen, including fines. We do not understand why the Government do not want to take that forward.
Is funding a major problem? We have heard from many speakers that there are significant problems. I am not sure of the figures but we reckon that between £50 billion and £60 billion is tied up by the way companies have to deal with late payments.
On top of that there are two problems. The code itself is pretty good in terms of what it says, but the behaviour by companies, whether or not they are signed up to the code, has been egregious. We have had examples in recent debates about Diageo, the owner of Guinness and Johnnie Walker, which simply informed its suppliers that it was extending its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms from 45 to 97 days. The list goes on: it includes Monsoon, GlaxoSmithKline and Debenhams, to name just a few. It is a common theme. It is of course a perfectly logical response to difficulties within the marketplace. These companies put a squeeze on their suppliers to accumulate as much cash as they can. They also do it because they can and, in some sense, that is bullying.
All this comes out in the wash when we look at Carillion. The Carillion crisis has exposed how absolutely toothless the Prompt Payment Code really is. Despite being a signatory to the PPC since 2013 Carillion, as we have heard, was notorious for being a late payer. According to the FSB, it regularly required its suppliers to wait 120 days to be paid. I do not think there is any doubt that there is a problem.
The question is: is the code robust enough in itself? First, it is not very extensively used. We may get warm words about the numbers of signatories—I think it is nearly 2,000, which sounds a lot—but we are talking about a totality of companies and organisations vastly in excess of that: 32,000 mid-sized companies and 200,000 smaller companies. If we add micro-businesses, which are also eligible to come under the code, we are probably talking about 5 million or 6 million companies. Out of that number—perhaps 6 million or 7 million companies—we have 1,700 signatures. The code is not a successful or effective way of trying to change the culture. Secondly, the objective of the code is to ensure that there is a gold standard for how people should behave but if it is just a gold standard to aspire to, it obviously means that others will not meet that standard and therefore be excluded, so the culture will not be transformed in the way we are talking about.
We do not have what is required in the marketplace, so what are the proposals? I would like to add a couple to those we have heard of today. First, the Prompt Payment Code should be put on a statutory basis and it should not be franchised out but operated by the department concerned. Secondly, we need to look again at the link between the Prompt Payment Code and the Public Contracts Regulations, which have been mentioned by other speakers, and make sure that it actually works. Since the regulations are quite appropriate in requiring payment within 30 days and enforcing that throughout the value chain of the contracts concerned, there are real penalties which follow from non-conformance with it. It should not be possible for people to be reappointed to government contracts if they are clearly not fulfilling the requirements under the Public Contracts Regulations.
Thirdly, the retention scheme has been mentioned. The noble Baroness, Lady Burt, suggested a model for setting up escrow accounts or public bank accounts to prevent the problem that happened with Carillion; money which should have been passed over ages ago to small contractors and others involved gets lost in a bankruptcy. This is already happening in Scotland, Wales and Northern Ireland—it is England that is behind. Surely the Government must now take action on this matter. We have heard about the consultation and the reporting cycle has now finished. Where is the action that will follow from that?
Fourthly, the sorts of powers we are thinking about for the Prompt Payment Code are already to be found in other areas of government activity. For instance, the groceries code gives powers to the Groceries Code Adjudicator to fine companies which are in breach of that code 1% of their turnover. Why is that power not given to the Small Business Commissioner, who I am sure would jump at the chance to level what he finds on the ground from the information flowing to him with the action that he needs to take? If we are not getting progress there, why are we not outlawing discounts by companies which attempt to take a cut when they make a payment within the normal rules? If there is a continuing problem, why does an automatic interest rate penalty not kick in at the Bank of England rate plus, say, 10%? I am sure that for any financier who is involved in trying to work out how to pay their bills, the prospect of having that bill increased by 10% if it is not paid within a certain time would focus their attention.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, I am grateful to the noble Baroness, Lady Burt, for securing this debate and for all the expertise and advice that has come from all other noble Lords who have spoken in it. I think particularly of the noble Lord, Lord Palmer of Childs Hill, and his account of some of the bullying practices used by some of the larger clients. I heard his desire that we should be not just naming and shaming but actively broadcasting the behaviour of some payers. These matters can certainly all be taken into account in the various consultations and decisions that we have to make in the future. As I said, I am grateful to all noble Lords for speaking, but I am sorry that we have lost my noble friend Lord Cope, who felt that he must be dragged away for another debate. I well understand that it was right that he should not speak if he was speaking in another debate.
As I hope to set out, we are actively taking steps to make the United Kingdom’s payment culture fairer while simultaneously providing a base of support for all our small and medium-sized businesses, which are the backbone of our economy. It is right that I should start with remarks about the Prompt Payment Code, the voluntary attempt by which the Government started the process of trying to ensure that companies should lead by example in paying their suppliers promptly and fairly. I am a great believer, as the Government are, in always trying a voluntary approach as a first step. We should not make a point of rushing into legislation but there are occasions, and enough examples have been given to me by all noble Lords in this debate, where the behaviour of certain companies—that of Carillion has been highlighted—leads us to a view that further action possibly needs to be taken. That will be considered and I hope I can set out just how we are going to consider all that.
However, I certainly take on board, for example, everything that the noble Lord, Lord Mendelsohn, said about these matters and what we ought to do in this field. I will certainly look at his Bill when he introduces it in due course; I cannot comment on it in advance of that, just as I would not want to comment in advance on what our attitude is to my honourable friend Mr Peter Aldous’s Bill. But any measure that is introduced to address the unjustified late payment or non-payment of retentions needs to be simple, consistent and transparent. It is premature to commit on those things but we will consider them in due course, as we will consider all the points that noble Lords have made.
I am grateful to the noble Baroness, Lady Burt, for highlighting the fact that there was Carillion. I rather expected that she would raise it and that if she did not, the next speaker would—and if not the next, then another. In fact, I think that nearly every speaker raised it.
Baroness Burt of Solihull
I am conscious of the fact that I talked quite a lot about Carillion. I restrained myself from naming and shaming any companies that are currently working still but there are plenty more that could have come under the aegis of this debate.
Lord Henley
The noble Baroness knows that she has considerable freedoms in what she can say in this House because of the various protections that she has. Perhaps she ought to take advice from her noble friend Lord Palmer of Childs Hill about not necessarily naming and shaming but broadcasting these points. I merely make that offer to her. My point was that I was pretty sure that Carillion would be mentioned because when one has a code of this sort, it is rather embarrassing that a large company which the Government have made use of, even if it no longer exists, quite obviously signed up to that code without—I will be polite—thinking about the consequences of what it had signed up to.
The fact is that we have a code and it performs a function. We should think about that function and not necessarily completely dismiss it as it is. We know that signatories to that code must pay 95% of invoices within 60 days, in all but exceptional circumstances, and work towards 30-day payment terms as the norm.
In recent years we have strengthened that code and all the Government’s strategic suppliers have signed up to it, as well as some of the UK’s largest businesses. That represents the 2,000 signatories that the noble Lord mentioned; as I understand it, that includes most of those that the Government deal with. This is an important step in moving towards a gold standard across the largest businesses in the United Kingdom, and I hope it will assist us in getting into the position that the noble Lord, Lord Aberdare, talked about, in being in a better state than other countries. If a business believes a signatory is not complying with the code it can challenge its status, and the compliance board will take that into account. I think that I have dealt with the point that the noble Baroness made about Carillion.
The Chartered Institute of Credit Management, which administers the code on behalf of the department, works with all the signatories and challengers to recover payment debt and educate businesses of all sizes on the importance of good credit management and a positive payment culture. The principles of the code are effective only if taken seriously both by signatories and by the suppliers of signatories, which is why we are now exploring how the code can be strengthened and enforced. The noble Lord, Lord Stevenson, and others were looking for more teeth. That is why we will be inviting views on this, as well as on wider payment matters, within the forthcoming call for evidence on unfair payment practices. The code is an important tool for setting best practice, but it is just one of the measures that the Government are using to promote fair payment.
In April last year we introduced a statutory duty for the UK’s largest businesses to report on their payment practices, policies and performance so as to increase transparency and provide small business suppliers with better information about those they intend to trade with. So far some 1,500 reports have been submitted on GOV.UK, and can be accessed easily by the public. Small business suppliers, journalists, academics and others can use that data to compare and contrast, and to hold large businesses to account for their payment practices.
As the noble Baroness and the noble Lord, Lord Aberdare, will be aware, we launched the Small Business Commissioner in December last year, following the appointment of Paul Uppal in October. I realise that the noble Lord, Lord Mendelsohn, had a debate on this subject in January, and I think I am right in saying that he has visited Paul Uppal and discussed these matters. Mr Uppal has an important role in supporting small businesses to resolve payment disputes with larger businesses, providing advice, and helping to bring about a culture change in payment practices and how businesses deal with each other.
The commissioner considers complaints by small businesses against their larger clients, but we also encourage businesses to report poor payment practice and cases of late payment in public sector contracts, including late payment through the supply chain, to the Cabinet Office’s mystery shopper service to investigate. I think that it was the noble Lord, Lord Aberdare, who referred to that. That service provides a further route for suppliers to raise concerns about public sector procurement issues, including payments. It works closely with all public sector contracting authorities to broker a resolution to cases, and makes recommendations to improve procurement. I can assure the noble Lord that the mystery shopper service has handled some 1,300 cases since it was established in 2011, and is widely used by small businesses.
The Government are alert to the specific difficulties, particularly in certain sectors: construction has been named. In October last year my department published two consultations on payment practices within the construction sector. We are actively considering the responses and options for future policy. We are also consulting on how we should exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors. The consultation, to which I believe the noble Baroness, Lady Burt, referred, will close early next month, on 5 June. The noble Baroness asked in her usual optimistic manner when we would respond to it, and I will give the usual response: we will respond shortly. I want to make it clear that we will consider the responses very carefully, and will respond in due course.
We believe that the voluntary approach is a good one, but sometimes it does not work as it should. The recent collapse of Carillion has shown there is still more that needs to be done to protect small businesses. It is with this in mind that a call for evidence is being launched by my department on how we can eliminate the continuing problem of unfair payment. The call for evidence will build on the Government’s existing late payment policies to drive an end to all the unfair payment practices that the noble Lord, Lord Palmer, highlighted when he talked about invoices and cheques being “in the post”, or getting lost in the post, or whatever.
All the steps I am announcing amount to a package of measures that will ultimately strengthen, as we need to, support for small and medium-sized enterprises. It is important, as we all agree, to do what we can to enable them to grow and create jobs by providing an environment in which they can flourish. I am grateful, as are the Government, for all the suggestions from those who have taken part in this short debate. Those suggestions too will be fed into the process. I hope that I have answered all the questions—or at least, I cannot answer them all, because these are matters that need to be considered. What I can say is that we accept that the voluntary approach is the right one to pursue, but it does not always get quite as far as it might, and there may be occasions when we have to look into taking things further in the future. I hope that that deals with all the points that have been made, so I will end my speech.