Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024
(8 months, 1 week ago)
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The Minister for Industry and Economic Security (Ms Nusrat Ghani)
I beg to move,
That the Committee has considered the draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024.
It is a pleasure to serve under your chairmanship, Mr Stringer.
The draft regulations were laid before the House on 10 January. The Government have declared 2024 to be the year of small businesses. Small and medium-sized enterprises are the backbone of our economy, making up to 99.9% of UK businesses, employing millions of people and enriching our everyday lives. So far this year, we have further improved our Help to Grow campaign and established a Small Business Council, and today we are here to extend the Reporting on Payment Practices and Performance Regulations 2017.
Tackling late payment is critical to the UK economy’s growth and productivity; 56 million hours are wasted each year by businesses chasing late payments, and small businesses are being let down. Late and long payments contribute to an estimated 50,000 UK business closures each year. The Reporting on Payment Practices and Performance Regulations and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were introduced to bring transparency to the payment practices of large businesses. The regulations require businesses above a certain size threshold to publish information twice yearly on their average payment times, how frequently they pay suppliers late, and their standard payment terms. Those regulations and the transparency they have brought mean that payment times across the UK have gone down. That is good news. We want to continue that trend by extending the requirement to report and to improve transparency through the introduction of new metrics.
Last year, my colleague the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is the Minister for small business, launched a consultation seeking views from the public about the existing regulations and how we can improve them. Trade associations and businesses across the economy endorsed our proposals to extend the regulations and to introduce new reporting requirements. I will now briefly outline the draft statutory instrument.
The first objective of this draft instrument is to extend the 2017 regulations beyond the expiry date of 6 April this year until 6 April 2031. The extended 2017 regulations will be subject to a further statutory review in April 2029, before their new expiry date. In 2017, the regulations were to sunset without extension, which would remove payment time transparency entirely. Without these reporting requirements, we would deprive small businesses of crucial information that helps them to decide who to enter into business with, and arms them in renegotiation of payment terms that suit.
The second objective of the draft regulations is to require large companies and limited liability partnerships in the scope of the 2017 regulations to disclose additional information and report to new payment performance metrics. One of the new metrics is that businesses are to be asked to state the value of the invoices paid during the reporting period. Small businesses told us that they wanted even more clarity about how large businesses act. The other new metric is a requirement for businesses to report on the percentage of invoices that they dispute. Small businesses are concerned that the practice of raising frivolous disputes to avoid making payments on time is becoming more common, so we are taking action to address that.
The third objective of the draft regulations is to clarify the reporting requirements when supply chain finance is used by large businesses. This amendment will change reporting to make sure that the use of supply chain finance by businesses is more accurately reflected in the reporting data.
I thank the 137 respondents to last year’s consultation on the draft regulations. They included small and large businesses, as well as representatives of trade bodies, who provided us with the support that we need to extend and improve the reporting requirements. I hope that the Committee can see the benefits that the regulations will provide.
Nigel Mills (Amber Valley) (Con)
I support the idea of disclosure of invoices that are disputed. Businesses in Amber Valley commonly tell me about that pretty naughty trick to avoid paying—people just pay late because they dispute the bill. What will the data published show? Will it literally show, for example, that this person disputed 10% of their invoices? Will it show how many of the disputes were resolved with full payment being made, showing it was a scam? Or will it just show that straight percentage, which might be quite meaningless?
Ms Ghani
My hon. Friend makes a very good point, which reflects the strain that can be put on small businesses when payments are delayed, although the issue of scams may be a little bit outside the scope of the draft instrument. This is fundamentally about ensuring that we have the right framework in place, are encouraging good practice, and doing what we can to bring down payment times. Already, payment times have been brought down to, I believe, 35.6 days. This affirmative instrument will drive that good effect even further. I commend the draft regulations to the Committee.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer.
Late payments are a scourge on small businesses. At any time, UK small businesses are waiting for over £20 billion worth of overdue invoices. As the Minister has pointed out, that is a huge challenge. Research by Smart Data Foundry using Sage accounting data found that in 2021 a typical small business was owed approximately £22,000 in late payments. Larger firms failing to pay on time denies businesses in their supply chains the valuable cash that they need to pay staff, buy materials and deliver on future orders. As the Minister said, 50,000 businesses go under every year in the UK because of hold-ups in their cash flow.
The eye-watering increases in rent, energy bills and suppliers’ costs make the need to take strong action on late payments more urgent than ever. Late payments are crippling businesses and therefore limiting crucial growth in our economy. They impact on businesses of all sizes, but particularly on small businesses and microbusinesses; such businesses are especially exposed to liquidity problems when they do not receive payments on time, which then limits their ability to invest in future growth. Research from Barclays shows that businesses in the UK are more concerned about the impact of late payments on their business growth than businesses in any other economy in Europe. Two in every five SME owners say that their mental wellbeing has suffered as a result of late payments, and over a third have had sleepless nights.
I welcome these amendments to the 2017 regulations, as they are a positive step in the right direction. We will not stand in the way of measures that will help businesses to grow, scale up and invest. However, it has taken a very long time for the Government to tackle this deep-seated problem, so I hope this is the beginning of the rapid action that is needed to ensure that we prevent small and medium-sized businesses from suffering from the scourge of late payment.
There are stark power imbalances between small and big businesses. These reforms and the increased transparency will go some way to tackling that gap, but as the impact assessment shows, the risk remains that power imbalances will continue to limit suppliers’ capacity to negotiate fairer terms. Transparency is only one element of the negotiation, and wider issues will remain in certain sectors. I would be grateful if the Minister clarified what steps will be taken to protect and empower small businesses in the negotiation of fairer terms with big businesses. I know that the Minister for small business is looking into those issues.
Ministers are still waiting for the outcome of the ongoing Financial Reporting Council review on non-financial reporting to see if payment performance data should be a requirement in businesses’ annual reports. I urge the Government to ensure that that requirement is included to increase transparency in the business community, to ensure that businesses prioritise prompt payments and consistently focus on good performance, and to achieve a culture change in the business community to tackle late payment. I would be grateful if the Minister clarified the timeline for that report and when we can expect an announcement on the requirement to include payment performance data in annual reports.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairship this afternoon, Mr Stringer. I will be brief.
Cash flow is quite clearly the lifeblood of any business, but especially of small and medium-sized enterprises, which tend to be more vulnerable to late payment. The requirement to report in this manner is clearly proportionate, seems to be having the desired effect, and is popular. It also helps to tilt the balance of power back towards those SMEs and away from companies that, through their scale and importance, are in a position to delay payment unduly for their own advantage and at the expense of other smaller players in the marketplace. These regulations will help to make the economy more creative and competitive, by giving everybody a better chance of being treated fairly when they engage in it. On that basis, we are also happy to give our support to this instrument.
Ms Ghani
I am grateful for the contributions made by colleagues across the Committee, and of course for their support. We are all incredibly keen to do everything we can to support small and medium-sized enterprises. Some very good questions have been raised.
Both I and my hon. Friend the Minister for small business consistently champion small businesses, and we believe that this legislation is critical in applying pressure and encouraging large businesses to improve their payment culture. Likewise, the draft regulations will arm small businesses with even more information than before about the behaviours of their customers, thereby equipping them to decide who they do business with and helping them to negotiate better terms with their customers.
I will quickly address some of the questions raised by the Opposition spokesperson, the hon. Member for Bethnal Green and Bow, and my hon. Friend the Member for Amber Valley. On giving small businesses more authority, we have established a Small Business Commissioner, and in our prompt payment and cash flow review we have committed to giving them increased powers to tackle businesses that persistently pay late; however, that will require primary legislation and depends on the legislative timetable. We have chosen to prioritise the extension of the existing reporting requirements to ensure that they do not expire, but we remain committed to fulfilling the actions to improve payment practices across the UK that we set out as part of our review.
Another point was raised about providing more authority, especially how we empower small businesses beyond the regulations. Of course, we have the prompt payment code, and this instrument will increase its effectiveness and provide more information for small businesses that will help them better manage their cash flow and negotiate payment terms; it also strengthens the powers of the Small Business Commissioner and equips them better to deal with businesses that pay late.
This instrument is really good news. The 2017 regulations would have sunsetted without this extension, and that is why we are here today. It is our aim to end the practice of late and long payments. We want to make the UK the best place in the world for both large and small businesses to operate. I commend the regulations to the Committee.
Question put and agreed to.