Late Payments (SMEs)

Debate between Anne Marie Morris and Chuka Umunna

Wednesday 14th September 2011 Westminster Hall

[Anne Marie Morris]

I think that it is very difficult to imply a contract, because contracts are inevitably quite complex and varied and depend very much on the nature of the business. However, the 1998 Act gives protection. I suspect that in terms of legislative moves, that is probably as far as it is sensible to go.

May I now consider the current solutions? Credit insurance was mentioned. Clearly, that is expensive for the smallest businesses. I spoke yesterday to one of the agencies, which told me that the average cost is 45p for each £100 of turnover. That makes it almost a luxury for the smallest businesses. The other challenge is that those schemes have to some extent been discredited, as they have been withdrawn, sometimes in a rather prompt manner, leaving some of the smallest businesses with particular problems.

However, the schemes do have a place. I am pleased to say that in my own constituency, Westaway Sausages has taken out credit insurance, which has made a huge difference to that business. It suffered a bad debt of £22,000 and now annually pays £10,000 to ensure that the business is protected. It has also considered the trade terms that it enters into and is very diligent in what it does.

With regard to current solutions, we have talked briefly about the prompt payment code. I certainly agree with the comments that we need more corporates to sign up to that. The challenge, of course, is whether they comply when they sign up and, if they do not comply, whether the small businesses that suffer act as whistleblowers. As has been well evidenced in the Chamber, the challenge, given the imbalance of power, is the extent to which those small businesses are willing to do that. Therefore, I am not sure that the answer is necessarily a greater number of people signing up to the code, although I would like that to be encouraged, because I think that it is morally the right thing to do.

The Companies Act 1985, which has been referred to, requires public companies at least to submit payment term details to Companies House and to list on the register their average payback time to SMEs. The problem is that getting all that information into Companies House is a mammoth task, requiring substantially more resource than is currently available. It might be desirable, but I have a suspicion that it might be unaffordable. In a minute, I will make a suggestion that might be equally effective but not as expensive.

Questions have been asked about whether the best way forward is through compulsion or through an additional voluntary code of practice or steps to impress on companies the fact that there is a better way to behave. Compulsion has been tried in California with the public sector, but the experience in Australia and the European Union is that it has not really worked. I suspect that that is partly because of the cost of litigation.

So what about voluntary solutions? What could we do in that respect? Clearly, we could consider a league of shame, which I think was one of the things suggested by the FSB, but at the end of the day, we have to come up with something that will put pressure on and change the attitude of the customers of the offending companies, rather than the suppliers. That is really the challenge.

I have three suggestions. First, I think that local enterprise partnerships have a role. We have asked them, on a region-by-region basis, to consider how they can support private sector growth. I believe that they have a role in providing advice and training for SMEs and that they could well collect information about bad payers. That information could then be shared among SMEs.

[Mr Chuka Umunna (Streatham) (Lab)]

I am grateful to the hon. Lady for giving way during a very useful contribution. How does she envisage LEPs doing what she has described, given the sheer lack of resource that they have to fulfil all the other responsibilities with which they have been charged?