Prompt Payment Code

Lord Henley Excerpts

Thursday 10th May 2018 Lords Chamber

[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.