Business Transactions: Cash Retentions

Debate between Alan Brown and David Simpson

Wednesday 27th January 2016 Westminster Hall

[David Simpson]

We will deal with that as well—great minds think alike.

The figure that is reported is some £40 million, which is horrendous. Small companies come to the stage where they are forced to write off money they are owed, because the cost of recouping it would be far greater than the sum itself and therefore it is futile for them to try to recoup it.

The Government have been very vocal in leading the business community to look forward and they have encouraged businesses on sustained growth and productivity, which is a good thing. I know that the Minister has done that; she is very pro-business. I have been approached by firms in my constituency, and I know that this is a UK-wide problem. The firms in my constituency say they are on their knees, largely due to the retention of moneys they cannot recover from larger contractors that have already been paid for the job they have done.

A firm in my constituency reported to me only last week that it has had to wait up to four years for retention money when contractual agreements state that 12 months is the limit. They have categorically stated that this situation hinders their plans for growth. In the majority of these cases, the contractor has already been paid but holds on to these moneys to counteract discounts.

A significant employer in Northern Ireland forced a loss of £10 million to a large number of subcontractors and suppliers when it went into insolvency. While that big company faced the headlines, many of the small contractors were simply unable to sustain their business; they simply had to bow down and close their doors, which resulted in significant job losses.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I congratulate the hon. Gentleman on securing this debate; he has made some good points. On that point about cash flow, I am a civil engineer and have worked in the construction industry, so I am well aware of the effects that cash-flow problems can have on small firms.

Is the hon. Gentleman aware that the Scottish Government are currently trialling in the area of public procurement the operation of project bank accounts, which are underpinned by legal trust status? The system allows payments to be made into a project bank account, where the money is legally protected for subcontractors, so they actually get their money quicker. Of course, that system can be used to manage retentions as well, completely eliminating the cash-flow problem. Does he agree that the Minister should perhaps consider that system and speak to the Scottish Government about that trial?

[David Simpson]

I thank the hon. Member for that intervention and his point certainly has validity; it is worth looking at, to see whether something could be done in that field to try to resolve this issue for small companies.

I know that the Government are pro-business; the Democratic Unionist party and other Northern Ireland parties have seen our economy in Northern Ireland grow. It is the role of Government, MPs and other politicians to create the circumstances for businesses to develop. I speak as a businessperson myself—my business interests are set out in the Register of Members’ Financial Interests—and it has taken my company 36 years to get to where it is today. Government have played their part in that, but this issue of cash retentions goes right to the core of small businesses.