Businesses: Late Payments

Bill Esterson Excerpts

Wednesday 19th June 2019 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

Unfortunately, I have only just received a copy of the Minister’s statement. I do not know why there was a delay, but it was not particularly helpful in preparing my response. [Interruption.] The Minister has just graciously apologised.

Late payment is believed to be the cause of 50,000 business failures each year, at a cost to the economy of £2.5 billion, along with thousands of jobs. Those are figures from the Federation of Small Businesses. The Minister is right to pay tribute to that organisation for the brilliant work that it does in advocating for small businesses on this issue and on so many others.

In her press statement, the Minister reported a fall in the scale of the problems facing small businesses, but let me caution her on that. She cited the excellent work of the Business, Energy and Industrial Strategy Committee, but it has suggested that it has evidence that payment terms are growing longer to mask some of these problems. Perhaps she can address that through some of the proposals that she has outlined.

We welcome the steps announced today as an important start in tackling the scourge of late payment. I tabled amendments to the Enterprise Bill that would have given the small business commissioner powers to insist on binding arbitration and fines for persistent late payment. The Government rejected those amendments, so we put the proposals in our 2017 manifesto, along with requirements for anyone bidding for a Government contract to pay their suppliers within 30 days. It is good to see the Government catching up with us today in their proposals.

The small business commissioner does great work with the £1.35 million in his revenue budget and, as I understand it, 12 members of staff at his disposal, but there are limits to what he can do. Although the £3.8 million recovered by the commissioner is important to the businesses affected, it is a fraction of the money withheld by late payers, which is in the tens of billions of pounds on any of the estimates available to us. What extra budget will the commissioner be given to discharge the additional responsibilities that the Minister is proposing, and what is the timescale for the consultation?

Accountability of company boards is a step in the right direction, but it will be important to compare the experience of the supplier with the reported practice in company accounts. How will the Minister ensure that what is reported is the time from the date of supply of goods and services rather than the date of recording the invoice, which any accountant knows can be significantly different and is often subject to delay when invoices are mysteriously lost or queried by accounts departments? How will this add to the existing duty to report? When will the consultation on giving the powers on the duty to report to the small business commissioner take place?

As the Minister told us, a number of companies that are members of the prompt payment code have been found not to comply with the code. The scandal of Carillion is an example of abuse of that code; we saw payment times of 120 to 180 days becoming the norm. Giving the policing of that code to the small business commissioner is a sensible idea, so will the Minister say what additional resources for these powers will be given to him?

The use of project bank accounts would have prevented the £2 billion loss to 38,000 suppliers in the Carillion fiasco. What consideration are the Government giving to extending the use of project bank accounts? I also note that the Government are pledging from 1 September to force bidders for Government contracts of more than £5 million to pay 95% of their invoices within 60 days. That is in line with the prompt payment code, but only with the lower end of its requirements. Why not make it a 30-day requirement?

One complaint of businesses is that the public sector is the source of some of the worst practice. The Minister mentioned the public sector in her statement. Another complaint is that smaller firms are often at fault in delaying payments. When does she expect action to be taken on public sector and other small business delays?

The problems of late payment need significant changes in practice. Today’s statement announces a series of measures which, if properly resourced, could make a significant difference. Businesses deserve a change of culture. The economy and the country need a change in practice. In broadly welcoming these measures, I hope that the Government’s delivery matches the rhetoric.

[Kelly Tolhurst]

I apologise to the hon. Gentleman for the fact that he did not receive a copy of my statement in sufficient time. That was not my intention at all. I hope that he will understand, following the many debates that he and I have had in the House, that that is not how I tend to work with him. I thank him for recognising that this statement should have an impact on the late-payment problems of many small businesses. One thing that has been made absolutely clear to me since I became a Minister—and actually prior to being elected, when I was a small business owner myself—is that late payment is always raised by companies that deal with large organisations. I am very pleased to be able to move forward on this matter.

The amount of money owed in late payments has halved. I wish to recognise the work that has been done by the small business commissioner since he took up his role one and a half years ago. He has collected more than £3.5 million in late payments. The hon. Gentleman is right to question his role and when the consultation will take place. We want that consultation to happen quite quickly. One of the key things that came out of the call for evidence was that people wanted more powers to be given to the small business commissioner. They saw his role as, in effect, an umbrella role encompassing a number of enforcement abilities for him to act on behalf of small businesses.

The consultation will happen soon, and I would like it to take place with speed. I reiterate that, as we seek views on whether we should allow the small business commissioner to apply sanctions such as binding payment plans and financial penalties, that would be a massive step change and step forward. The small business commissioner has been very vocal in requesting more powers to enable him to represent and help the small businesses that come to him.

We will also be seeking views on whether the small business Minister should have the ability to refer topics to the small business commissioner for investigation. The small business commissioner will currently investigate only once a complaint has come from a small business, so we are looking at other ways in which investigations could be carried out. Obviously, I am giving hon. Members just a sample of what will be included in the consultation.

The hon. Gentleman is quite right on the matter of boards. On the back of the Chancellor’s announcements in the spring, we are pleased to give audit committees the power to review payment practices and for that to be included in the annual report. We are working with the Financial Reporting Council and the frameworks department at BEIS to work out the best way for that to happen. The new strategic reporting requirement was introduced in January. We are asking the FRC how the payment reporting duty is covered by that new duty, if at all. I assure the hon. Gentleman that we will legislate to make that happen if necessary.

The Chartered Institute of Credit Management has worked hard on this issue over recent months, especially on the strengthening of the voluntary prompt payment code in October. We are pleased that cross-examining the data gathered under the payment reporting duty has helped with compliance with the voluntary code. We and the CICM believe that the best place for that duty is with the small business commissioner, so that the commissioner is, in effect, a one-stop shop and an easily identifiable pathway for small businesses.

The hon. Gentleman is right to talk about project bank accounts. Some hon. Members present, including my hon. Friend the Member for Bury St Edmunds (Jo Churchill), have lobbied me in the past on the matter of retentions. We have told the industry that we expect it to come to a consensus on a way forward, and we will take action if it does not.

As the hon. Gentleman knows, we have announced that from 1 September any company bidding for Government contracts over £5 million will be expected to pay 95% of their invoices within 60 days. If they do not achieve that target, they will not necessarily be able to bid for further contracts. In April 2019, we announced our new ambition that 90% of undisputed invoices should be paid to small businesses within five days.