Small Business, Enterprise and Employment Bill

Debate between Lord Mendelsohn and Lord Cotter

Wednesday 14th January 2015 Grand Committee

[Lord Mendelsohn (Lab)]

I thank the Minister for her comments at the beginning of the Committee. I think we will have a very constructive debate, as we have done so far, on these issues; there is a great deal of common ground. I feel somewhat optimistic that some of our helpful suggestions might even find a receptive ear. I hope that the Government see this amendment as a useful and timely addition to the Bill. I say “timely” advisedly. Last week, we had the benefit of the National Audit Office report Paying Government Suppliers on Time, which made the case for this amendment.

First, let me acknowledge that this is an area in which the Government can rightly take some credit. The Cabinet Office Minister, Francis Maude, has set out an objective and some initiatives and policies to address the weakness of the position of small businesses in procurement and in how they are treated by larger suppliers. I also acknowledge the very impressive work of the noble Lord, Lord Young, and congratulate him on his recent award in the New Year Honours List.

However, as we can see from the report, it is implementation that is the problem. The Government’s desire to pay promptly has not benefited small businesses sufficiently. The National Audit Office concluded that the attempt to pay increasing numbers of undisputed invoices early was boosting the working capital of only the main contractors and not benefiting small businesses down the chain in the way the policy intended. We therefore want to be very supportive of the Government and suggest that a bit of steel be put into the Bill.

The amendment aims to make sure that the payment performance of potential contractors is known before contracts are entered into, and that contracts entered into require companies providing goods and services to public sector contracting authorities to pay their own suppliers promptly. We would like contracting authorities to score the suitability of contractors based on how they pay suppliers in general and to know that not operating in keeping with the contract objectives of government support for small businesses when it provides its cash will affect their ability to contract with the public sector in the future. I would welcome the Minister’s assurance that the Government are doing what they can to address this problem, and that Ministers and their departments will now act swiftly by writing to their main contractors to seek assurances, today and in the short term, that they are adhering to the prompt payment commitment.

The National Audit Office report was disappointing reading for another reason—again, not for the want of willing. The report uncovered continuing and deep problems in the public sector over late payment. A third of small businesses were not paid on time. I do not want to draw a comprehensive conclusion, but what should one draw from the finding in the report that even the most basic and elementary accounting function of logging the date on which a paper invoice is received was not a common standard across the departments reviewed?

We did not feel it appropriate to add an amendment on this at this stage, but I give notice that it is something we intend to do when we return to late payments on Report. In the mean time, I would be grateful if the Minister could at least reassure us by providing some details on the further thoughts her department and the Cabinet Office have on the measurement and reporting of prompt payment performance. What measures and management processes will be put in place to ensure that accounting departments are both trained to deal with this and held to account for their performance? Can the Government provide stronger incentives, even now, to encourage the use of e-invoicing?

I would be happy if the Minister wanted to reply in more detail in writing, but it would be helpful to receive an understanding of the Government’s determination to take further measures to get their intentions, policies and decisions implemented. I beg to move.

[Lord Cotter (LD)]

My Lords, I strongly support the amendment. As the noble Lord, Lord Mendelsohn, said, implementation is vital to put steel into this requirement. We know from our many contacts in the construction industry that many areas of business have a real concern to ensure that people given contracts are monitored. I hope that the Minister will at least take this away to consider it and respond promptly in due course. In particular, I have in my mind a lot of evidence that has come forward from the construction industry to say that people implementing the main contract do not always—frequently do not—pay the small business sector promptly.

I will say no more, because the noble Lord has made these points, but—to be brief and to the point— we must ensure implementation. I hope that the Minister will take this away and assure us that this implementation point will be considered, because I have heard this issue raised time and again over the years, as have many colleagues, particularly giving a contract to a main contractor and finding that suppliers to that main contractor do not get payment. Those suppliers are often small businesses, so I welcome the amendment.

[Baroness Neville-Rolfe]

I thank the noble Lord for this amendment. As we discussed on previous days in Committee, prompt payment is an extremely important agenda and we wish to encourage both contracting authorities and businesses to pay their suppliers on time, so I shall say a little more, as noble Lords requested, about what we are planning to do in this area.

The Government are committed to leading by example on prompt payment. When we consulted on proposals to tackle prompt payment in autumn 2013, there was widespread support across industry and with procurers. This resulted, rightly, in a commitment to legislate. The new public contract regulations, which the Government plan to bring into force shortly, will place a duty on contracting authorities to pay their immediate suppliers in 30 days, and include terms in their contracts to pass these 30-day payment terms all the way down the public sector supply chain.

The regulations were consulted on last autumn and we intend to bring these into force early this year. That should provide reassurance to smaller businesses further down the supply chain that they will be paid expeditiously, and will address some of the findings of the National Audit Office report published last week, to which the noble Lord referred. I was about to cite the same figure that he cited: in a third of cases, public sector clients have taken more than 30 days to settle payment. That is completely unacceptable and that report helps to make the case for these regulations, which I hope will attract cross-party support. Our determination in this area cannot be doubted.

As part of these same public contract regulations, contracting authorities would also be required to publish the number of invoices paid late to their first-tier suppliers on an annual basis to show how they have performed in this area. The Government are committed to developing guidance to ensure that the reporting on late payment is understood and aids transparency.

Our mystery shopper service is strangely named, but it enables SMEs and other suppliers to raise concerns about public sector procurement with the Government and have it investigated. It is a Cabinet Office service and assists in ensuring that the contracting authorities comply with these new measures and will name and shame poor payers through the fortnightly publication of mystery shopper cases on GOV.UK. In future, the service will be able to ensure proactively that the 30-day payment policy is being embedded by carrying out spot checks on contracting authorities.

The noble Lord, Lord Mendelsohn, asked whether the Minister could commit to write to the main suppliers to ensure prompt payment. Yes, we would be happy for the Government to arrange for an appropriate Minister to write to the strategic suppliers about this before the end of the Parliament. We are talking about 100 or so suppliers. Those are the strategic suppliers to whom the noble Lord referred.

On monitoring and implementation, in view of the time I agree to write to the noble Lord to set out the arrangements. However, we believe that these reforms are the right way to address the prompt payment of suppliers in the public sector supply chain. I know that the position is a little curious—we have met the same issue in other legislation that the noble Lord, Lord Stevenson, and I have debated—to have one set of regulations coming in under EU powers and then a domestic Act, but I am afraid that sometimes that has to be the way that we bring things forward, not least to make them happen in time. I hope that, if the noble Lord takes the two together, he will feel that we are approaching this in a sensible way and feel able to withdraw this amendment.