Small Business, Enterprise and Employment Bill

Debate between Baroness Harding of Winscombe and Lord Mitchell

Tuesday 3rd March 2015 Lords Chamber

[Baroness Harding of Winscombe (Con)]

My Lords, I rise to speak against these amendments. I must first declare an interest because I run a large public company, TalkTalk, which would clearly be subject to this legislation.

I agree with the Government’s prompt payment proposals, and it is worth us pausing to recognise how robust they are and how tough a reporting requirement this will be. To report quarterly in detail on your payment performance and policies is more detailed than the report I have to make on the financial performance of my company. I have an obligation to report in full on a half-yearly basis. I would not underestimate the power of transparency—of having to report this publicly and clearly. We see this in a whole range of compliance areas in business. Having to explain publicly to your customers as much as to your suppliers what you are doing acts as a strong brake on bad behaviour and is the beginning of the culture change in payment policy that I am sure that all sides of the House want to see.

I am not persuaded, however, by the Opposition’s amendments. There is a real danger that we try to overcomplicate and second-guess how businesses will wish to negotiate with each other. There are also a lot of unintended consequences—I am sure that they are genuinely unintended—in the Opposition’s amendments that will simply lead businesses to avoid the provisions and will create the very problem that they are seeking to avoid, which is the negotiation of much longer payment terms that meet all the requirements of a much more tightly defined code but actually do not enable small businesses to be paid faster.

It is therefore important that we support the Bill and the improvement in publicising and shining a light on poor payment policies and performance. But we in this House must not think that we can create culture change by specifying in ever more precise detail what businesses can and cannot do. That would have the opposite effect on the culture that we are trying to change.

[Lord Mitchell (Lab)]

My Lords, I start by coming back at what the noble Baroness, Lady Harding, has just mentioned. I know that she runs an exceptionally good company; I do not know what TalkTalk’s payment terms are, but I bet that they are good and that it pays on time.

However, there are many people out there, including many large companies, whose behaviour is quite disgusting. We have seen in the past few months egregious examples of big customers stuffing their suppliers. I will give a few examples. Diageo, the owner of Guinness and Johnny Walker, recently informed its suppliers that it would extend 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—I wanted to say from Heinz 57 but it is not quite that—from 45 to 97 days, and the list goes on to include Monsoon, GlaxoSmithKline and Debenhams, to name just a few more. It is a common theme. These companies put the squeeze on their suppliers for two reasons. First, they want to accumulate as much cash as they can. That is understandable as they want to boost their balance sheets. More perniciously, they do it simply because they can. It is bullying.

Many of us have run small businesses and we know all too well the perils of cash flow management. We know what it is like to sweat while waiting for our big customer to make the payment. That is what keeps us up at night and what this amendment aims to rectify. According to the Institute of Directors, two-thirds of its members with fewer than 250 employees suffer from late payments. It is estimated that payments delayed over and above the contractual terms total—well, in my notes I have £40 billion but my noble friend Lord Mendelsohn says £60 billion. Whatever it is, it is a very large number. It is not just the supplier who suffers; it goes to the supplier’s own suppliers and to all the families who work with these companies that are now at risk. It permeates everything.

In this amendment we seek to introduce a radical change. Where a late payment occurs, an automatic interest rate penalty will kick in at the Bank of England base rate plus 8%. I can promise that if there is an outstanding payment with interest rates clicking up at 10% or 11%, it will gain everybody’s attention and will be paid.

I should like to make one more comment. Later this afternoon we are going to be addressing the issue of government schemes to improve finance for small business. I have no doubt that the best way to improve SME finances quickly and effectively would be to improve cash flows.

Small Business, Enterprise and Employment Bill

Debate between Baroness Harding of Winscombe and Lord Mitchell

Wednesday 7th January 2015 Grand Committee

[Lord Mitchell]

My Lords, I think that the whole issue of late payments is to do with the business culture that exists. As the years have gone by, it has become easier and easier for large companies effectively to bully small companies so that they can maximise their cash flow. In these days of low interest, it is not a question of paying less interest but of being able to conserve cash flow at the expense of somebody else. It is a really bad situation. I am glad that the Government have taken the initiative on it, and we have come up with amendments that we think will help them.

I do not know whether this is true but I am prepared to bet that more than any government support for funding that we have discussed or any new initiative to help small businesses, the one thing that would change the situation and help companies would be an improvement in the culture of late payments. I suspect that in this Room today there are many noble Lords and others who have themselves come from small business backgrounds—perhaps family businesses—or have worked in small businesses. We all know what it is like to sweat while waiting for a payment from a big company, knowing that if it does not come you may be forced into a state of bankruptcy. Therefore, I think that anything that can be done to encourage payments and to reverse this culture of companies taking more credit would be great.

At the extreme, I do not understand why there is any credit on payments. After all, if you or I go into a shop to buy a new computer, we do not say, “Well, you know, it’s going to cost £1,000 and I’d like 60 days’ credit before I pay”. We would be laughed out of the shop. So why it is any different with a business? Why cannot payments be absolutely instantaneous? I know that I am portraying a very rosy situation here but I feel that there should be a move towards a greater reduction in the number of days’ credit that companies take. With the ease of making payments today, it should become lower and lower.

I want to make one plug if I may. I have mentioned before that I am the chairman of a small company. We had two particular debtors who were each not paying us £7,000. The young men who ran the company tried everything they could but the money was not forthcoming. In my role as Jack of all trades chairman, I decided to take on the job of chief debt collector as well and got on to these two companies to get in the funding. It was partially successful but they were very elusive. They said that one company had gone out of business—the usual sort of stuff you get. However, I discovered something amazing. To be honest, I never thought that I would be standing here saying how good Her Majesty’s county courts are. If you look up the county courts online, there is a facility there to issue a county court judgment online and quickly. I have to tell your Lordships that in both cases I did it and got the money plus interest within 14 days.

[Baroness Harding of Winscombe (Con)]

My Lords, I agree with an important element of what the noble Lord, Lord Mitchell, has just said but I disagree quite fundamentally with the conclusion that he draws as a result. I believe that basically we are talking about how you effect a culture change and, in that, the noble Lord is absolutely right—it relates to big companies, medium-sized companies and small companies. I must declare an interest as I run quite a large company. However, you do not effect a culture change in business by prescribing in detail in legislation what you should report for ever more. In that sense, “may” is a much more important word to include in this legislation than “shall”.