Small Business, Enterprise and Employment Bill

Baroness Harding of Winscombe Excerpts

Tuesday 3rd March 2015 Lords Chamber

[Lord Lea of Crondall (Lab)]

My Lords, I support this amendment and will take the illustration of the insurance industry. There are special features connected with the insurance industry. Hence, it has its own legislation. However, the Minister dealing with what was then the Insurance Bill, the noble Lord, Lord Newby, indicated that other steps and avenues would be pursued to see that the insurance industry could be brought within the scope of some statutory obligations on late payment.

The history of this, briefly, in the insurance industry is as follows. Lloyds of London has unilaterally been able to veto a strong recommendation from the Law Commission which was accepted by everybody else in the industry, including all the main insurance companies, that there be such a statutory duty in that sector so it could be brought into line.

Evidence from other sectors, including overseas parts of the industry, shows that the present arrangement, whereby London has no such guarantees against late payment, is doing serious reputational damage to that major industry. However, the rubric has it that one actor in that industry, namely Lloyds of London, which represents maybe 25% of the industry, which we all agree is not insignificant, can cast such a veto in its own interests against public policy, government legislation, simply by stating—this is the astonishing point—that it finds such a clause, recommended strongly and unanimously by the Law Commission, “controversial”. In other words, to deem a clause such as that to be controversial means that the Bill would fall.

Therefore, in Committee, some noble Lords who supported the amendment generally did not want to take that risk. However, the Minister in that context, in seeking the withdrawal of the amendment, undertook to pursue the issue on the basis that it was not going to be left there and that other means—other legislation—would be explored and pursued. This amendment is a good exemplar of how that commitment should be honoured.

[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.