Small Businesses

Debbie Abrahams Excerpts

Thursday 28th November 2013 Commons Chamber

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

It is a pleasure to follow the hon. Member for Norwich North (Chloe Smith) and to co-sponsor this debate, and I congratulate the hon. Member for Newton Abbot (Anne Marie Morris) on securing it. I am pleased to speak in this debate, which considers how we can overcome the issues facing small businesses. Small businesses, which in my definition are those with fewer than 50 employees, are the powerhouse of the economy. They contribute 46% of the UK’s income in the private sector—a massive £l,558 billion—and constitute more than 99% of all businesses. Ultimately, a sustained recovery will be built on their backs, as has been said, and that must be recognised.

A whole range of different factors affect the success and even the viability of small businesses, including access to finance, the high costs of business rates and energy bills, but I will focus my remarks specifically on late payments. Hon. Members may know that for the past two and a half years I have run a campaign on late payments. It started as a small, local issue after a haulier came to one of my surgeries and said that he was going to go out of business because of late payments. The average term he was being given was 30 days, but he was often not being paid for 90 days. That is a common story that I wanted to look into in more detail.

I tried to discover the scale of the problem and it was striking that so few businesses would come forward and describe what they were experiencing. That was until one brave local couple, who started a plumbing business 35 years ago, came to me and said that their business was going under—as indeed it did with debts of more than £150,000 due specifically to late payment.

[Mark Pawsey]

Is the hon. Lady confusing late payments with customers who refuse or do not have the means to pay? Those are totally separate issues and if a business wants to avoid the problem of late payment, it can refuse to supply goods to the customer until the account has been paid.

[Debbie Abrahams]

I thank the hon. Gentleman for his intervention, if slightly patronising. I have gone into the issue in quite a bit of detail, and it was a specific point about late payments.

Let me give a bit of background to this case. As I said, the story of Ann and Harry Long is far from unique and is a particular problem for small and micro-businesses that do not have the cash-flow buffers of larger companies. I have a particularly a high level of micro-companies in my constituency—more than 85% of companies have fewer than 10 employees—and a number have gone into administration, primarily as a result of late payments.

Nationally, we know from Bacs that more than £31 billion is owed to small businesses, and more than half—58%—of the country’s 1.7 million SMEs say that large companies choose when they pay. In 2011, only £24 billion was owed, so the problem is increasing. If we compare what is owed in late payments to the amounts being lent by high street banks, which last year was £56 billion, we sense the scale of the problem.

According to Bacs data, the average SME is owed £31,000 at any one time and waits an average of eight working weeks for payment, which is nearly double the contract terms. I am particularly concerned about the gaping north-south divide. Small businesses in the north say that they are owed an average of £39,000, which is almost double the £23,000 owed to the average southern business.

The 2012 small business survey reported that 55% of SMEs, 53% of small businesses and 46% of micro-businesses say that large companies are not paying their bills on time. The most recent Federation of Small Businesses survey suggests an even worse picture. Seventy-three per cent. of businesses say that they were paid late in the past 12 months, and one in five say that half of all invoices are paid late. Interestingly, 70% say that the problem has got worse in the past 12 months and that the private sector is the biggest culprit.

Research by the Forum of Private Business last year indicated that late payment is having a significant impact on businesses development, productivity and growth. Access to, and the cost of, finance, and credit trade insurance, were cited as problems linked to late payment. Late payments have a knock-on effect, leaving many small businesses in a vicious cycle of late payment. The FPB’s economy watch panel indicates that 42% of SMEs believe that late payments were not seen as important.

As we have heard, the impact of late payment can be disastrous. It is estimated that, during the 2008 recession, 4,000 businesses failed as a direct result of late payments. No official data have been collected, but the situation needs to be monitored. There is growing evidence that late payments to SMEs are hurting our economic recovery. Office for National Statistics data show that SMEs make up to 98% of the total number of organisations, providing 59% of all private sector jobs and 45% of all employment, and generating 46% of the UK’s income.

What is being done to tackle the problem of late payments? The previous Government introduced the Late Payment of Commercial Debts (Interest) Act 1998, but it was not used, because companies feared being blacklisted. The prompt payment code, a tool introduced by the Institute of Credit Management, committed signatories to pay suppliers on time under the terms agreed without attempting to change payment terms retrospectively, enabling every level of the supply chain to meet the terms. However, the code has had mixed effects. First, there is a very poor take-up by FTSE 100 companies.

[Mr Bain]

My hon. Friend makes a powerful argument. What does she make of the National Audit Office recommendation that Government Departments need to work more closely together, and that the Department for Business, Innovation and Skills and the Treasury need to work harder to support small businesses in the way she indicates?

[Debbie Abrahams]

My hon. Friend makes a good point. We need to encourage that.

People are abusing the prompt payment code. They are either signing up and changing their terms, or changing their terms prior to signing. Most recently, the EU late payment directive stipulated that public authority-to-business invoices must be paid in 30 days, and that business-to-business invoices should be paid in 60 days. However, there have been problems with the transposition into UK law. Section 7 of the directive has not been taken up and independent organisations will be unable to use it to help small businesses.

Another development last year was the introduction of the small chain finance scheme. That is another difficult problem.

--- Later in debate ---

[Toby Perkins (Chesterfield) (Lab)]

It is a tremendous pleasure to speak in what has been an excellent debate. I congratulate the hon. Member for Newton Abbot (Anne Marie Morris) on securing it. She speaks about small businesses with passion, dedication, enthusiasm and considerable vim, which I can inform the House, having been at the National Association of Commercial Finance Brokers dinner with her on Tuesday, is also the way she dances.

We have heard a tremendous amount about the importance of small businesses. As the challengers of tired orthodoxies and the drivers of social mobility, small businesses share one nation Labour’s values completely. It is a path that several of us have followed, as reflected in the debate. I worked in the private sector for my entire life and was running a small business when I became a Member of Parliament. From my perspective and, clearly, that of hon. Members across the House, there are few more important questions for us to consider than how we support small firms, which we all know are the engines of growth, the biggest employers of the long-term unemployed, and key drivers of economic recovery.

It is important that we listen to what the voices of business are saying. On Monday, I was in Harlow in Essex with the local chamber of commerce, meeting small businesses there and listening to their priorities. Another organisation right at the forefront of the fight to support small firms is the Federation of Small Businesses, which does a tremendous job. A report in the Leicester Mercury this week highlighted how a delegation from the east midlands, led by David Nicholls, chairman of the Leicestershire branch of the FSB, got the chance to lobby the Chancellor on the issues that he should address in his forthcoming autumn statement. What did the delegation choose to highlight? Interestingly, the Leicester Mercury tells us that they demanded action on energy prices, a reduction in businesses rates, and the Government taking responsibility for setting up a business bank—very wise indeed.

I pay tribute to the hon. Lady for securing the debate, but think she may have done so with a slightly heavy heart, because when it comes to the main issues being raised by small businesses, it is Labour that is leading the way. I want to reflect on some of the contributions to this balanced debate that have demonstrated that.

In her excellent speech, the hon. Lady talked about the need for a culture change that recognises the importance of small business across Government. We could not agree more. My right hon. Friend the Member for Doncaster North (Edward Miliband) made making Labour the party of small business a priority in his first conference speech and he has talked about it many times since. There are some good Government schemes out there but, as the hon. Lady said, many businesses do not know about them. The signposting is weak, and she was right to say that.

My hon. Friend the Member for Glasgow North East (Mr Bain) discussed the lessons we can learn from the Sparkassen in Germany. He was right to say that, under the German system and at the height of the banking crisis, they lent more to small businesses, not fewer, as happened here. He was also right to focus on the important issue of the number of businesses claiming that access to finance is still their No. 1 priority, a theme that the right hon. Member for Hazel Grove (Sir Andrew Stunell) returned to a few moments ago.

The hon. Members for Norwich North (Chloe Smith) and for High Peak (Andrew Bingham) were right to focus on the difficulty faced by small and medium-sized enterprises in getting on to Government procurement lists. It has been an issue for many years and clearly there is a long way to go.

My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) also spoke.

[Debbie Abrahams]

My hon. Friend is making a powerful speech. He will be aware that earlier this year I chaired an all-party inquiry into late payments. The key finding was that late payment is a cultural issue that needs to be seen as just as toxic as tax evasion. Does he agree that we need to push the Government to make progress towards ensuring there is a cultural change so that late payment is unacceptable?

[Toby Perkins]

I certainly do. I was in the process of paying tribute to the work my hon. Friend has done on that issue. She is absolutely right.

The hon. Member for Rugby (Mark Pawsey), whom I usually regard as a sound voice on the issue of small business, said that if someone is paid late they should refuse to supply the company, but that does not recognise the difference in the relationship between a powerful customer and a struggling supplier. Every year, 2,000 businesses go under simply because they are not paid money that is owed to them, so I think he was wrong about that. My hon. Friend is right to say that we need the Government to be at the forefront of not just encouraging people to pay on time, but ensuring that that culture change passes right down the public sector procurement chain to second and third-tier suppliers.

My hon. Friend the Member for Rochdale (Simon Danczuk) made a lengthy advertisement—I sense it was somewhat to his embarrassment—for Danczuk’s deli. Numerous Members wanted to know about the excellent wares he will be providing. He has been in business before and it is great that he and his wife are opening a delicatessen in the centre of Rochdale and that he is putting his money where his mouth is.

The hon. Member for Brentford and Isleworth (Mary Macleod), my hon. Friend the Member for Rochdale and the hon. Member for Colchester (Sir Bob Russell) spoke, among many others, about the tremendous difficulties caused by the increase in business rates, which I shall return to.

My hon. Friend the Member for Ogmore (Huw Irranca-Davies) promoted the value of local innovative firms and also focused on access to finance. The hon. Member for Rossendale and Darwen (Jake Berry) is not in his place. [Interruption.] I see that he has moved—I do not know how I managed to miss that moustache. He encapsulated the bravery and pioneering spirit required to set up a business and he was right to say that it doesn’t half set the pulses racing. At such moments, people realise what colour adrenaline is.

My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) was entirely right to say that small businesses are undergoing a cost of living crisis, which I will reflect on in a moment.

The hon. Member for North Swindon (Justin Tomlinson) said that Labour always liked to increase corporation tax. If he was still here, he would be surprised to discover that corporation tax was actually 3% less after 13 years of Labour Government. Perhaps he should talk to the former Prime Minister about that.

--- Later in debate ---

[Matthew Hancock]

The Department is of course doing what it can to mitigate the impact of that decision. The hon. Gentleman is quite right, as is my hon. Friend the Member for Carlisle (John Stevenson), who spoke passionately about the impact of small businesses, which are embedded in their local communities through jobs and their contributions to local and national life, as well as the role of local authorities in planning, property and procurement.

There have been some fantastic contributions to the debate. My hon. Friend the Member for Brentford and Isleworth (Mary Macleod), as well as recounting the various questions that she has asked at Prime Minister’s questions in the recent past, spoke about drilling enterprise through our education system, which I strongly support. My hon. Friend the Member for North Swindon (Justin Tomlinson) also made that argument. Every time I speak to him, he seems to have another idea about how we can get more content about enterprise into the education system.

Many Members raised the issue of red tape, not least my hon. Friend the Member for Reading West (Alok Sharma), who spoke about the impact of EU red tape. Members across this House must recognise that problem. It is wrongly dismissed by some, but it is an important issue that we need to address. We are doing so through the Prime Minister’s challenge to the EU. The taskforce of six business leaders who are looking at reforming EU regulations is putting the voice of business at the heart of the debate. It has made 30 recommendations on how to remove or improve the most burdensome EU rules. We are working with business to encourage the EU to take up those recommendations over the next year.

My hon. Friends the Members for Rugby (Mark Pawsey) and for Daventry (Chris Heaton-Harris) raised the issue of regulations on employers, especially with regard to micro-businesses. We have made progress by ensuring that employees cannot go to a tribunal until they have been employed for two years and by introducing fees for tribunals. We need to keep this area under constant review because, fundamentally, what we must do is make it easier to employ people and create jobs. That is what growing small businesses is all about.

It is a great pleasure to see you take the Chair, Madam Deputy Speaker. This is the first time that I have been in a debate that you have chaired.

My hon. Friend the Member for Norwich North (Chloe Smith) was here earlier, but apologised that she had an engagement with some small businesses. I pay tribute to the work that she did to open up procurement to small businesses. However, as my hon. Friend the Member for Daventry said, what we are doing in that area is not complete. There is much more to do to improve the formal rules and to ensure that they are seen, exercised and stuck to not only across central Government, but throughout the public sector, including in local authorities. The Department for Business, Innovation and Skills has just reached the target of sending 25% of its invoices to small businesses. That target applies to the whole of central Government and all other Departments are working towards it.

Many hon. Members raised the issues of access to finance and late payment, not least the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). The Government pay more than 85% of undisputed invoices within five days. That is a big change and an impressive feat.

[Debbie Abrahams]

Will the Minister confirm whether that includes suppliers in all tiers? I think that he is referring just to tier 1 suppliers.

[Matthew Hancock]

I was coming on to exactly that point. That figure refers to tier 1 and there is much more to do to drill prompt payments through the supply chain. We must spread that culture across the private sector as well. I will reflect on the hon. Lady’s point that we should make late payment just as culturally negative as tax avoidance and evasion. We will be launching a consultation on late payment shortly.

The right hon. Member for Hazel Grove (Sir Andrew Stunell) raised the issue of the banking appeals system. I do not want to pre-empt what my right hon. Friend the Chancellor will say in the autumn statement in a week’s time, so I recommend that the right hon. Gentleman attends the House on that day.

Opposition Members raised various issues and spoke from different perspectives. The important issue of GRG and the treatment of small companies that have got into difficulties with the banks was raised. The Financial Conduct Authority is looking into the report that was published this week and RBS has appointed Clifford Chance to go through the cases that were raised in detail.

The hon. Member for Glasgow North East (Mr Bain), in typically ebullient fashion, called for firm action and better communication of what we are doing. I certainly agree with him about firm action. That is what I hope to achieve.

On better communication, we have launched the Business is Great campaign, which Members may see on billboards and social media across the country, and the Great Business website brings together in one place the different things the Government and private sector are doing to support small businesses. It is a single portal—greatbusiness.gov.uk—and worth exploring.

The hon. Member for Ogmore (Huw Irranca-Davies) mentioned access to finance, and particularly green measures. Although the Government have reduced the subsidy from energy bill payers and taxpayers to sponsor solar, by ensuring that the scheme was proportionate but still affordable, more than 1 million people are now living with solar panels on their roofs. The hon. Member for Rochdale (Simon Danczuk) spoke passionately about starting his own business with his wife. I hope he gets the chance to have a word with the Leader of the Opposition, who says he wants to ban Members from engaging in any outside employment, including a small business. I strongly hope that the idea that someone can run a small business and be an MP at the same time will continue because of the wealth of insight it brings to people in this place.

There were good speeches from Opposition Members, and it was a pity there were so few of them, given that support from the Government Benches was very powerful. The hon. Member for Colchester (Sir Bob Russell) and my hon. Friend the Member for Rossendale and Darwen (Jake Berry) raised the important issue of business rates. I am glad that one of the first things this Government did was stop the extension of business rates proposed by the previous Government because that would have been a great mistake. In fact, we have extended business rate relief every year, but I have no doubt that had the previous Government remained in office, they would have put up and extended business rates because that is what they were planning.