Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024
(Limited Text - Ministerial Extracts only)
Read Full debate
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.
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.