Small Businesses: Late Payment

Baroness Neville-Rolfe Excerpts

Thursday 11th June 2015 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government what plans they have to deal with the late payment of debt to small businesses.

[The Parliamentary Under-Secretary of State, Departments for Business, Innovation and Skills and for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)]

My Lords, this is a serious problem in some areas and the Government are taking action. We have already legislated to require payment within 30 days through our public sector supply chains. We will be requiring the UK’s larger companies to report on their payment practices. This will be centrally collated so that performance can be compared. We are going further, too: through the enterprise Bill we will create a small business conciliation service to help small businesses resolve disputes.

[Lord Harrison (Lab)]

But does the Minister understand that the Prompt Payment Code is itself being abused by bigger firms, as the Federation of Small Businesses revealed? Some one in four of its members find that their payment periods are changed adversely and peremptorily, and one in three FSB members now experience cash-flow problems as a result of being paid late. Will the Government undertake not only to monitor but to enforce existing legislation to help hard-working families who run small businesses in this country? Will the Minister respond to the National Audit Office’s own report that government departments are still paying late?

[Baroness Neville-Rolfe]

My Lords, there are a lot of questions there. I have already outlined three important measures, but we have also strengthened the voluntary Prompt Payment Code to promote 30-day payment terms as the norm, and will enforce a maximum 60-day payment term for all its 16,000 signatories. We will also consult this summer on how to give representative bodies—such as the Federation of Small Businesses—wider powers to challenge grossly unfair payment practices. The recent changes to the code, led by my right honourable friend in the other place Matt Hancock, set new expectations on signatories to treat suppliers fairly and make payments in a reasonable amount of time. Alongside the other measures that we are taking, we are on the way to taking the first steps in changing the culture in this key area.

[Baroness Sharples (Con)]

Can my noble friend confirm that all government departments pay their small suppliers on time?

[Baroness Neville-Rolfe]

My Lords, in the public sector there are clear rules. Payment has to be made within 30 days, so in the BIS department, which I can speak for, 99.5% of invoices are paid within 30 days, and 80% within five days. We have been trying to move to a five-day practice across government. In addition, interest is payable on late payments and administrative costs. It would probably be difficult to confirm that every small business is always paid on time, but we do what we can, the direction of travel is clear and we are leading from the front in the public sector.

[Lord Palmer of Childs Hill (LD)]

My Lords, while I welcome the actions of the noble Baroness and the Government, the mistreatment of small firms goes much wider than late payment. As an example, there is a new practice in some large firms requiring small firms to pay an upfront, flat fee to be considered for further contracts, which puts great stress on small firms. Can the Government include that in their deliberations?

[Baroness Neville-Rolfe]

My Lords, we can. The small business conciliation service is designed to help small businesses resolve business-to-business disputes while avoiding expensive legal costs. We will consult shortly on what exactly should be done to make sure that the new service has a real impact on the ground.

[Lord O'Neill of Clackmannan (Lab)]

I ask the House to take account of my interest in this subject; I am president of the Specialist Engineering Contractors’ Group, which represents medium-sized, second-tier firms in the construction industry. It is all very well to say that government departments are behaving better. However, a number of public agencies such as health boards, education authorities and the like are still woefully inadequate in accepting their responsibilities as good payers to businesses, some 95% of which in the case of construction employ fewer than 10 people. So these are very vulnerable businesses; they need treatment, and very often they are frightened to complain, because if they do they are told quietly that they will never get any work from the main contractor again.

[Baroness Neville-Rolfe]

My Lords, the noble Lord is right to refer to both construction and local authorities. As he will know, we have special regulations on construction. As regards local authorities, we have brought in a law that will require them to publish data on their performance from next year—the power of transparency. Again, that will help a lot to change the climate. Moreover, the construction example shows that where we have to take steps, we do. We have done that in the grocery and construction sectors; where there is clear evidence of abuse we are ready to act, because we want things to change.

[Lord Skelmersdale (Con)]

My Lords, so far the discussion has been on the exchange of money between businesses. However, in my experience as the director of a minuscule company, charities can be just as bad. Can my noble friend say what pressure should be put on charities?

[Baroness Neville-Rolfe]

My noble friend raises an excellent and new point for me, which I will take away and discuss with him.