Small Business, Enterprise and Employment Bill

Gordon Banks Excerpts

Tuesday 18th November 2014 Commons Chamber

[Debbie Abrahams]

This group of amendments is seeking to address the very significant issue of businesses paying their suppliers late. Recent data show that the late payment debt burden for UK businesses is more than £46 billion, with SMEs shouldering most of this. They are owed nearly £40 billion in late payments and 60% of small businesses are affected, with the average small business owed over £38,000 in late payments.

It is getting worse: £36 billion was owed in 2012, so the increase over recent weeks and months can be seen. In other debates we have heard about the implications of late payments for these small businesses, from productivity to access to finance and credit terms—all these are affected. For these businesses, there is not just the inconvenience of spending an extra 158 million hours chasing payment: vital cash flow that is stemmed often affects their very survival, their jobs and their livelihoods. In 2012 it was estimated that 124,000 small businesses were put out of business directly as a result of late payments.

For me, it has been about the personal stories. My interest in late payments started when a constituent came to me and said that their business was going under directly as a result of this issue. This opened a can of worms, not just in my constituency but across the country. The issue of late payments is endemic. When someone describes how their life’s work has been destroyed by what can only be described as corporate bullying—large companies paying their bills late just because they can, because they have the power—it is clear that it is one of the most raw forms of injustice.

From the late payment inquiry held last year, it was clear to us that it is not just a micro-economic issue. With approximately half the work force and half the UK’s income in the private sector coming from small businesses—a massive £1,558 billion—it is inconceivable that late payment is not affecting the wider economy and, of course, a sustainable recovery. I am glad that the Government are tackling the issue; it has been a long time coming. I started my Be Fair—Pay On Time campaign in 2011 and now the Government are finally getting to grips with the issue, but I am afraid that the measures in the Bill do not go far enough. It is regrettable that in Committee the Government failed to support measures that would have seen small businesses automatically compensated for late payment by their suppliers. I hope that the Minister will reconsider and have a look at new clause 1 and the amendments.

New clause 1 seeks to address the issue of retention of moneys in the construction industry. You may be aware, Madam Deputy Speaker, that at any one time over £3 billion is outstanding in the construction industry by way of cash retentions. This is an aggregate sum of moneys provided for by small businesses in the event that they fail to remedy defects. I have several examples, including that of a company that wrote to me to say that £60,000 of retention moneys was withheld—5% of the overall contract—for eight months. There was nothing in the contract about that. They had to go through adjudication and it ended up with them losing £22,000. These are small businesses, and this is their livelihood.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Having worked all my life in the construction industry, I am very much aware of retention issues. My hon. Friend’s final point was valid. When it comes to negotiating retentions, it always comes to a compromise: people will always lose, as they will never come out with the £60,000 that they were owed. That is effectively their money going to somebody else’s pocket.

[Debbie Abrahams]

My hon. Friend speaks from experience. That is certainly the experience of many contractors, and we need to address it.

There is evidence that cash retentions have been used to shore up the working capital of local authorities and tier 1 suppliers. There is a key concern that if tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing their retentions.

I recognise that the Department for Business, Innovation and Skills has said in its construction supply chain payment charter that it wishes to abolish retentions by 2025. My new clause, however, is a stepping-stone towards that by requiring the publication of companies’ policies, practices and performance on retention moneys, reviewing this and subsequently making recommendations about further action to help secure and protect retention of moneys for small businesses—in trusts, for example.

The new clause is timely, with New Zealand considering the requirement for cash retentions to be taken in trusts, and New South Wales in Australia is currently reviewing regulations to that effect. The new clause would enable the Secretary of State to review published information and then issue regulations to ensure that these owed moneys are protected for small businesses.

Moving on to amendment 6, a key issue for small businesses has been the changes made to contract payment terms without negotiation or notice. My amendment recognises that and would require companies to include details of the “circumstances and process” by which payment terms may be amended in the company’s published payment practices and policies. This will prevent ad hoc and unilateral changes from being made to the payment terms, which have again affected the financial viability of so many small businesses.

Amendment 7 looks at the issues around public procurement practices. One major issue identified in my late payments inquiry was that late payment is a cultural issue. Large companies pay small companies late because they can, as I mentioned—they have the power and the small companies do not. We need to change these attitudes, and we need to view late payment as being as unethical as tax evasion. Changing public procurement practices, as identified in amendment 7, provides an opportunity to do so, first, by requiring public bodies to determine the “past payment performance” of potential contractors before any contract is entered into; and secondly, by making the contracts of tier 1 suppliers commit them to pay their suppliers promptly. All the way down the supply chain, there should be a commitment that payments will be made on time.

Although my next topic does not relate to my amendments, it relates to public procurement practices. A report came out today from the Walk Free Foundation on the subject of modern slavery. Although the UK is supported for what it is doing to combat modern slavery, it finds that we are not doing as much as Brazil and the US, for example, in addressing Government procurement practices to stop this happening. I know this is highly irregular, Madam Deputy Speaker, but I hope the Minister is listening so that he can respond and make clear how we will deal with this problem in future Government practices.

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[Gordon Banks (Ochil and South Perthshire) (Lab)]

It is a pleasure to follow the hon. Member for Brighton, Pavilion (Caroline Lucas), and I should like to speak to new clauses 3 and 4. Before I so do, I should like to draw the House’s attention to my entry in the Register of Members’ Financial Interests.

New clause 3 is designed to flush out late payers. It seeks to press, or perhaps encourage, FTSE 350 businesses that have not signed up to the prompt payment code to do so. It would also empower the Secretary of State to publish a list of such companies on the Government website, thereby highlighting those that had not committed to the code. I support those ambitions. The new clause sets out to do what the Government said they would do—name and shame large companies that did not commit to prompt payment practices. However, they have now reneged on that promise. New clause 4 proposes that the Government conduct a review into how the payment publishing regime could be adapted to ensure that late payments would be automatically accompanied by a compensation payment, and how the onus of reporting late payment could be moved away from the customer waiting to be paid.

Why are the new clauses so important? Any small business owner will know that a late payment can often mean the difference between continuing to trade and business failure. Insolvency specialists have estimated that one in five business failures are down to bills not being paid on time; they are nothing to do with a failed business model and and purely down to cash being withheld from the business by its customers. The Scottish Building Federation has highlighted the fact that four out of five building firms have reported instances of late payment in the past year. I can assure the House that the overwhelming majority of those businesses will not have considered seeking redress through interest payments.

The problem that the Bill will not solve is that it will still be up to the supplier—usually a smaller business—to pursue its customer for prompt payment. The supplier will either lose the argument, and lose the prompt payment, or win the argument and put at risk its relationship with that larger customer.

[Bill Esterson]

My hon. Friend is absolutely right to make the case for a level playing field when it comes to the payment of smaller suppliers by larger organisations. He has also made the point about the human and social cost of late payments to the people who run and work in small businesses. Does he agree that it is incredibly short-sighted of larger businesses to disrupt their own supply chains by delaying payments in that way? Is not that another reason to deal with this issue once and for all by adopting these important amendments?

[Gordon Banks]

I thank my hon. Friend for making that valid point. The bigger companies have to understand that there is a need for smaller companies in the supply chain. They should view the situation in the round and acknowledge that not every company is big enough to withstand late payments in the same way that they perhaps could. There is a moral argument running through this as well. If I supply goods and services to someone on a Tuesday and they agree to pay me a particular sum by 1 August, for example, why should they not pay me by that date? It is simple: if I keep my part of the bargain, I expect them to keep theirs.

[Mr Brooks Newmark (Braintree) (Con)]

I totally hear what the hon. Gentleman is saying, and I agree that small businesses are the backbone of this country. Does he agree that the banks also have a role to play in loosening up their working capital facilities to help small businesses? That, too, is a challenge that small businesses face.

[Gordon Banks]

I am grateful to the hon. Gentleman for making that valid point. I shall come to that matter later in my speech when I talk about the changes that have happened over recent years, and perhaps decades, and try to illustrate why prompt payment has become so important.

Let me return to what I was saying about people trying to get their payment on time, and whether they win the argument and risk losing the customer in the process. There does not seem to be much incentive for small businesses to utilise their right against late payers, because just 10% of businesses have even considered doing so. I have been in private business all my working life, having set up my own business in 1986. I can tell this House that late payments are the biggest curse small businesses face: people striving, working hard and going out to sell their wares but then struggling to get paid. As I said, that part of the bargain is not being upheld.

[Andrew Gwynne (Denton and Reddish) (Lab)]

My hon. Friend hits the nail on the head, because this is not a small problem for small businesses—it is a big problem. Is he aware of research by BACS showing that 60% of British small businesses have said that late payment is a problem for them?

[Gordon Banks]

Yes, I am aware of that research, and late payment is a major problem. It is not just a transient major problem, but a constant one, week to week. I have lain in bed at night worrying whether the cheque was going to come in so that I could pay the wages of my staff. That is not a position that any business should be put in, and certainly not because of late payments.

A small business, perhaps a new one trying to establish itself, often finds a degree of comfort in dealing with a larger, perhaps household, name in its business sphere. The saying in my sector is, “You know your money is safe with so and so.” It may be safe but it may also be in their bank all the time and not yours.

We also need to consider the credibility that comes from working with such a customer and the possible opportunities, arising from volume increases, for small business suppliers to be able to renegotiate rates from their suppliers. In my experience, those will more often than not be larger companies. So the small business can find itself sandwiched between a large business customer and a large business supplier, perhaps a multinational company, and being strung out at one end and wrung out at the other. These multinational companies, understandably, have strict credit limits and they will be very quick to stop supply if they are not being paid within 30 days. Within a limited period of time they will remove the small business’s credit facilities, so damaging its credit rating, and reducing its access to key products and, in effect, its ability to pay the bill for which the multinational is awaiting payment.

As we know, the reason for late payment in these cases is often that a large customer fails to keep its side of the deal. I wish to draw the House’s attention to an experience I have encountered a number of times, where large multinationals have been pressing for payment within 30 days for a commodity sold by them to my business and yet that commodity has been sold to another division of the same company and it has no intention of paying within 30 days. Even within the same organisation we may have the supplier pressing for payment within 30 days, the product having been sold to another division in the same company as the supplier and yet it not upholding its part of the bargain and being prepared to pay in 30 days—it just strings you out. So the company wants its money in but does not want to pay the money out. That is just not good enough. The current system of being able to charge interest, at the supplier’s instigation, or being able to apply a debt recovery cost is not adequate and we have to improve these experiences.

[Toby Perkins]

My hon. Friend is making an excellent speech on this important subject. He will probably be aware that in Committee we tabled a worked-through amendment that would have moved the onus from small businesses having to pressure their large business customers for repayment on to the large businesses. Does he agree that the fundamental change we need is for small businesses not always to have the onus on them to pursue their large business customers?

[Gordon Banks]

I absolutely agree with my hon. Friend. It is not morally or structurally fair for a small business to be trying to squeeze a few hundred or a few thousand pounds—perhaps even tens of thousands of pounds—out of a large multinational company. That onus must be shifted away from the small company. After all, the company is only endeavouring to get what it is owed. If the larger customer is made to pay its bills on time, it will take the onus away from the small supplier.

[Bill Esterson]

One reason why a fair system for recovering payment is needed is that small businesses do not have the people, time or money to chase late payment. Large businesses do, and they can defend themselves against smaller businesses. This is really about making it fair and equitable, and ensuring that small businesses can compete on equal terms with large ones.

[Gordon Banks]

My hon. Friend makes a valid point. I have seen larger businesses behave in a way that smaller businesses would never ever dream of doing. They might say, “We only take purchase ledger calls on Tuesdays and Friday mornings.” If a firm cannot get through on a Tuesday to ask about a cheque or an invoice, no one will take its call until Friday. The other issue about resources is valid too. I have worked in business since 1986, and have found that cash monitoring and cash control can almost become the things that the company was set up to do. As a by-product, it happens to sell stuff, but the real purpose of its existence is to get in the money for the goods that it has sold. That should not be the case. The real benefit should be the freedom to sell materials, and the expectation that one can get payment for the goods and services in a negotiated and agreed contractual period. Small businesses are not asking for anything more than that, but they should not be prepared to accept anything less than that.

The issue of resources, which enables small businesses to manage purchase and sales ledgers, is a really important point to make, as the bigger companies are always able to work things more to their favour. That goes back to the point that I made earlier, which is just how hard will I, as a company, push for that cash within 30 or 35 days if it means that that is the last cheque that I will get from that business, and I might lose 10%, 20% or even 40% of my turnover? A company will understand when a certain thing is in a vice, and how far they can go. That is another example of what is not fair.

Anyone in business will understand the experience of agreeing credit accounts, which are often paid in excess of the terms—but not by enough to kick up a fuss. So, we could have a 30-day account being paid in 35, 36 or 37 days, or a 60-day account being paid in 66 or 70 days. For that four or five days, that week, or that 10 days, when the small business is out of pocket, they are not just a supplier to that customer, but a banker.

What about delayed payments? I am talking about when invoices issued perhaps a month or six weeks earlier are queried, or when the cheque comes in and the payment for those invoices is missing. Some of these queries might be accurate, and in those cases the supplier has the responsibility and the right to rectify the error and, of course, get things right for the future. However, these are often simple ploys that are timed to delay payments and that result in even more work and cost for the supplier. If someone has issued their invoice and a statement to the company concerned, it is unacceptable for them to be told 30, 40 or 50 days later that there is a query about that invoice, or a problem with it, and that it cannot be paid.

Those actions are deplorable, but they go on every single day. Every small business in Britain will have encountered them. I want the Government—I would like the Minister to listen to this point, if he would—to consider setting a legal limit on the length of time that it can take to query an invoice. Although I appreciate that there might be some challenges to that, will the Minister consider the question before he makes his closing remarks and comment on it? It cannot be right for a small business to chase money for 30 or 60 days only to be told, “We need proof of delivery—proof that we received the materials,” when the proof of delivery has already been supplied but has become separated from the paperwork. I want the Minister to consider setting a legal limit on the period in which the content of an invoice can be queried.

[Sir Greg Knight (East Yorkshire) (Con)]

Is there not a problem with the hon. Gentleman’s idea? As I understand it, it is unlawful for any agreement to seek to exclude the jurisdiction of the British courts, and if, as he suggests, a provision was introduced to ensure that one could not query an invoice after a certain date, could that not be construed as not allowing the matter to be adjudicated on by the courts at a later stage?

[Gordon Banks]

I take the right hon. Gentleman’s point. I have asked the Minister to give the issue some thought before he sums up, and I have also said that I do not necessarily think that there will be a simple solution, but I am convinced that there is a way in which this can be developed so that small businesses—in fact, all businesses—can rest assured that 30, 35 or 40 days after they have submitted their invoice, that invoice will not be challenged. Is not 40 days long enough?

[Toby Perkins]

In Committee, we proposed an amendment similar to my hon. Friend’s new clauses. We suggested that there be a period of up to 30 days for someone to register a complaint; after that point, they would be deemed to have accepted the invoice, so that there could not be this constant adding to the payment period.

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[Gordon Banks]

I am grateful to my hon. Friend for clarifying that point. I am prompted by a sedentary comment to say that my argument is not so much about an invoice being queried as about a customer saying that they have not received the invoice, or that it is lost, 30 days after they have had a statement listing all the invoices they should have received. Basic accounting practices are either not being carried out within the business, or they are being carried out but no regard is being paid to them, and the process is being used as a payment delaying mechanism.

I understand that some might see new clause 4 as another piece of red tape, but it is a piece of red tape that can be easily discarded and thrown in the bin if companies do not make late payments, so it does not have to be onerous at all. That brings me back to the point that my hon. Friend made: the new clause takes the onus off the small business. It is up to the larger paying business—the debtor—to ensure that the bill is paid on time, and if it is not, an automatic compensation payment is made on behalf of the company making a payment to the company receiving it. New clause 4 need not be particularly onerous in action at all. It will cause no problem to a good, organised, thoughtful company.

Banks are much less willing to provide business support than they were in 1986, and that is often a nightmare for small and medium-sized businesses, especially in the construction industry. The banks will say that they do not particularly want to be involved in the construction sector, which I find depressing and extremely strange. Every business that needs to expand requires the construction sector. Every Government project for infra- structure, housing, schools, roads, telecommunications or railways—anything of that nature—needs the construction sector. That sector is the most likely to lift us out of our current economic position and deliver an improvement to our infrastructure that is long overdue and long needed. It is a particular challenge to have a good business in the construction industry that is adequately financed and resourced in this day and age, and that is short-sighted and a crying shame. It is not helped by the failure of Project Merlin and the funding for lending scheme. General financing is relevant to new clauses 3 and 4, as it is because working capital is tighter these days that prompt payment has become a real issue.

[Debbie Abrahams]

Is it not also the case that late payment and issues around cash flow affect a business’s ability to access finance and the terms on which finance is made available?

[Gordon Banks]

Of course they do. Every £1,000 not received has an impact on whether a business can prove to a possible financial investor, whether that is a bank or anything else, that it is a responsible company with the processes and the people in place to take the business forward. It may well have the people and processes in place, but it may be being stymied by the Tuesday and Friday phone calls to try to get the money that is long overdue.

New clauses 3 and 4 are a step along the way to moving the responsibility to where it should lie, ensuring greater financial impact on those who make late payments, and naming and shaming those who are not signed up to prompt payment practices. I was looking at the prompt payment code website last night. I represent a Scottish constituency, so I did a search on Scotland and I found that 43 businesses there have signed up to the prompt payment code. That level of commitment is extremely questionable. There are hundreds of thousands of businesses in Scotland.

[Toby Perkins]

I agree with my hon. Friend entirely on that. Does he agree that if a prompt payment code allows a business to pay on 90-day terms and if, so long as it meets those terms and conditions, it is deemed compliant with the code, that calls into question the use of the word “prompt”?

[Gordon Banks]

It most definitely does. Prompt payment in my business experience is 30 days. That is fair and prompt payment. In my book, 90 days is not and should not be considered prompt payment. It is a massively overdue payment allowing one business to make its way in the world at another’s expense.

I fear that we have a long way to go, unless the Government listen tonight. I do not think that the Bill really gets us to where we need to be. It does not, in its current form, lift the onerous responsibility from the shoulders of small businesses; it actually empowers the larger businesses in their relationships with small businesses. However, it could be improved if the Government listen and support new clauses 3 and 4.

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[Ben Gummer]

I remember thinking it was illegal the first time it happened to me. It involved a business based on a trading estate in the east midlands, not far from where I was based. I went there one day to try to get some money out of someone who had bought something from me, and was refused the cash. When I went back two days later, everything was exactly the same apart from the name plate over the trader’s shop window and the fact that the filing cabinets had been thrown away because they contained all the creditors’ records. There was a brand-new sign but it was an old business.

The provision on the late payment of commercial debts is part of a package of measures that will transform the ability of small businesses to carry out their business.

[Gordon Banks]

The hon. Gentleman says that this Bill will transform the experience of small businesses. Surely he has to admit, coming from a small business background, as I have, that the only way the late payments situation can be transformed is by forcing people to make payments on time, and that can happen only with financial detriment to the payer.

[Ben Gummer]

I disagree with the hon. Gentleman, although I understand his point. In the end, having thought about this at considerable length, because it is something that has taxed me, I came down on the side of the Minister, because transparency is the best way of ensuring exactly what he intends to achieve. If we start mandating people on payment terms, we end up with perverse consequences as regards the payment terms themselves, and a race to the bottom as regards their length. One supermarket famously gave terms of a minimum of 90 days. We cannot change that by legislation, because, in the nature of things, payment terms must sometimes be short and sometimes be long. Mandating would force, or encourage, companies to extend their payment terms. That is the first problem.

The second problem, as the hon. Gentleman knows perfectly well, having been in business, is that there are many times when someone’s invoice is disputed. The problems in the construction industry caused by the winding-up orders and appeals to the commercial courts—the county courts—that are often used as an excuse to try to avoid payment would be compounded all the more by the mandating of payments. We would end up in an unholy mess that would not be good for small businesses, for honest large businesses, or for customers who did not want to pay a bill but felt forced to do so because of terms such as he proposes.

[Gordon Banks]

I think the hon. Gentleman misunderstands the objective, which is not to get the extra forced payment, but to make sure that the original payment is made on time so that the debtor does not have to pay that forced payment.

[Ben Gummer]

I understand what the hon. Gentleman is driving at, but much as I would love there to be a mandatory payment term in a theoretical world, I just do not think that it would work in practice. As I have tried to indicate, I think it would result in perverse consequences that would be worse for small business than if we go down the Minister’s route of transparency and openness with regard to the terms offered by businesses.

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[Bill Esterson]

Like the hon. Member for Ipswich (Ben Gummer), I have run a small business—for 15 years, in my case. The reason new clause 4 is so important is that the status quo just is not working: small businesses are not in a position to chase late payments. In Committee —the Minister will probably repeat what he said then —members on both sides came up with examples of why action is needed, but I am afraid that what is being suggested just is not adequate. That is why we need measures such as new clause 4, which goes so much further.

As my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) has said, small businesses account for half of our economy. They are a crucial part of the economy and of prosperity and future prosperity. Very many small businesses are struggling at the moment and late payment is one of the main reasons for that. They are used by suppliers for working capital—in fact, they are used as a bank. We have heard about how accounts departments are available only on Tuesday at 5 o’clock or Friday at 3 o’clock, and if people cannot get hold of them at those times, they have had it. When I was in business, there was only one payment run a month, and if people missed that, they had had it for a month. The following month’s invoice would then be queried and sent back to them, so they would miss two payment runs and two months’ worth of pay. I am afraid that that sort of practice goes on all the time, which is why action is needed to go further than the Government’s proposal.

A total of £39.4 billion is overdue in payments to small businesses. On average, small businesses are owed £38,000 in overdue payments. One in four companies spends 10 hours or more a week chasing late payments.

[Gordon Banks]

Given the time in the calendar that we are now approaching—November, December, January, February—does my hon. Friend share my experiences of and concerns about what happens to cash flow and cash collection over these months, when for a number of reasons, or rather excuses, cash collection during the winter months, when in some ways it is needed more, is greatly reduced?

[Bill Esterson]

That is absolutely true. It is certainly my experience that the delays at this time of year are an additional burden on small businesses. They of course have a knock-on effect not just on the businesses themselves, but on the staff, who potentially lose out in the run-up to Christmas, when families need support more than at almost any other time of the year.

The proposal is about unlocking the potential of small business to do so much more for our economy and our future prosperity. As I said at the start, the status quo is not working, and we need something to change.

As we have heard from other Members, 10% of small businesses have considered using late payment legislation, but they have not actually done so. At the same time, 22% of them have ended a relationship because of late payment. That is a demonstration not that the system is working, but that it is not working.

Small businesses cannot and will not challenge their larger customers for fear of losing them. As I said in an intervention, there are moral reasons, community reasons and other good reasons for ensuring that payments are made on time, including to support the supply chain and the bigger business, as well as to benefit the wider economy and individuals in our country.

The issue is crucial, and we must make sure that the right solutions are brought forward to support small businesses and everybody who owns them or works in them. The system is not working at the moment, which is why the concept of automatically having to pay an 8% penalty on late payments is so important. Such behaviour will not change on its own. My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) made that point very well by saying just how few businesses in Scotland have signed up to the prompt payment code. It is a derisory number: is it 43?

[Gordon Banks]

indicated assent.

[Bill Esterson]

I do not know how many businesses there are in Scotland, but there are 5 million in the UK as a whole, and it is not too hard, by scaling that up, to calculate that the number signing up to the prompt payment code overall is not very big.

There is support for new clause 4 from across the business community. Phil Orford from the Forum of Private Business has said that it would be

“a welcome addition to the proposals outlined in the Small Business, Enterprise and Employment Bill and would go a long way to reducing the time and cost small firms spend on chasing late payments and allow them to concentrate on growing their businesses and creating jobs.”

Government Members must accept that it is supported across the business community. As my hon. Friends have said, the only way to support small businesses is to make the proposal mandatory to ensure that big businesses pay on time. New clause 4 does just that, and I hope that the House will support it.

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Insolvency specialists have estimated that one in five business failures is down to bills being paid late rather than a failed business model. During the recession, it is estimated that 4,000 businesses failed as a direct result of late payments. Often businesses get paid late, pass on late payments to their suppliers because they are waiting for money, and someone down the line who was in no way the cause of the problem goes bust. It is right constantly to consider how to address that issue. My message to the hon. Gentleman and the Government is that we should not say that nothing can be done. We must not give up; we must ensure that we act on behalf of those small businesses.

[Gordon Banks]

Does my hon. Friend share my ambition that new clause 4 does not have to be onerous or deliver any financial problem to the debtor? All the debtor has to do is pay on time, and there is no penalty. It is simple; it puts money back into the economy and oils its wheels. It ensures that small businesses do not totter on a knife edge of survival at the behest of a larger company. There need be no financial detriment to the large company in the new clause.

[Toby Perkins]

My hon. Friend is right. The proposals brought forward in Committee were detailed, and new clause 4 is investigating those ideas. Small businesses have the right to expect to be paid on time, and we should be taking serious steps to support that.

Current provisions in the law are not adequate to deal with the extent of the problem, and the Late Payment of Commercial Debts (Interest) Act 1998 was an important step. The EU late payment directive that the Government introduced in 2012 was broadly built on the same principles. They are valuable as far as they go—the prompt payment code is valuable as far as it goes—but they are clearly not adequate. The idea that more transparency, welcome though it may be, will be a silver bullet or even a significant step towards a resolution, is entirely wrong.

The Bill includes some provisions on interest charging. For reasons that other Members have highlighted, many small businesses feel that they are not able to charge interest because of the impact it would have on their relationship. This was a real opportunity for the Government to take hold of the issue and tackle the problem once and for all. Our amendments in Committee should have won the support of the Committee and the Government, because they had potential and I look forward to promoting them as part of a Labour party business manifesto in 2015. Small businesses will recognise that the measures we proposed were a step forward and that the measures in the Bill are a much smaller step.

The Government have dragged their feet on this issue over the past four years: the EU late payment directive was introduced at the last possible moment and the steps proposed at this juncture are small. We were disappointed after the very successful Back-Bench debate on late payments secured by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) and the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe). In the run-up to that debate the previous Minister, the right hon. Member for Sevenoaks (Michael Fallon)—he was great; he used to attend debates and everything—said that he would write to the FTSE 350 and warn businesses that they would be named and shamed if they did not sign up to the prompt payment code. Unfortunately, because that had not happened by May 2014—almost two years on—I tabled a series of written parliamentary questions to find out if companies were due to be named and shamed. We were told that it was no longer Government policy. It ceased to be the policy of the Government before it had ever actually become the policy of the Government. The Government’s record on this is not strong and to describe it in the terms that the Minister did was generous in the extreme.

New clause 3 would take this issue out of any Minister’s hands by ensuring that the very biggest businesses would know that they would all be named and shamed publicly if they did not comply. It would also provide an opportunity for Ministers to name and praise businesses that paid on time and complied. That carrot-and-stick approach is valuable as it would ensure that businesses that played by the rules and ensured that their customers were paid on time would not be tarnished with the same brush as those that gamed the system. It would ensure that the Government had a focus on signing up businesses to the prompt payment code. There was some talk previously about the number of people signed up to the prompt payment code. In the last two years of the Labour Government 978 businesses signed up to the code, whereas in the first two years of this Government just 204 did—a real difference in the number signing up. Our proposed changes will ensure that companies comply with the spirit of prompt payment, not just the letter of the code. I hope Members will give the new clause the support it deserves.

New clause 4 was tabled because the Government’s draft legislation fails to grasp the central problem behind the late payment crisis. Ultimately, despite the extent of the crisis, small businesses are often reluctant to report late payment as they rely on the custom of businesses for their very existence. Just 10% of businesses have considered using late payment legislation, despite 22% of businesses ending a relationship with a customer because they could not be paid on time.

Previous policy initiatives have focused on increasing prompt payment from public sector bodies to contractors. In the March 2010 Budget, the last Government took significant steps to tighten the rules on late payment by the public sector, and this Government are looking to take further steps in that direction, which we welcome. However, the FSB is clear that late payment by private sector businesses is the major problem, and although it is right that government should put their own house in order first, the challenge for policy makers is to shift the burden away from small businesses going out on a limb to ask for interest payments to their being paid as a matter of routine. Ministers are wrong to say that transparency, welcome as it is, will solve the problem. Yes, businesses might know they are dealing with a company that often pays late, but none the less, because of how their businesses are constituted, they might be utterly dependent on that relationship and be unable to do anything about it.

We are clear about the changes we think should be made to alter the balance of power in the late-payment relationship, and our proposed review would be an opportunity to investigate the matter in more detail, away from the cut and thrust of a Committee stage, where Governments, for whatever reason, are often reluctant to take forward ideas simply because they come from the Opposition. Our review would be an opportunity to explore an idea that we think has real merit. Our proposed quarterly statement would list all payments made late to suppliers without a formal query having to be made. It would also confirm whether interest has been paid to compensate the supplier and set out a payment plan to ensure it is paid promptly where it has not. As a package, those measures would be a significant step forward, with greater potential than any other to change the relationship between small businesses and their suppliers in the context of late payments.

My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) spoke to her new clause and amendment. Amendment 6 would require companies to include details of the circumstances and process by which payment times can be amended and details of whose permission is required, which would prevent individual directors from making rash, unilateral or ad hoc changes to companies’ payment policies. Her new clause 1 addresses the issue of retention money in the construction industry, where it is common for firms to withhold payments to protect against problems with work and/or materials. We think that these proposals are worthy of consideration, and we look forward to hearing what the Government have to say. Many jurisdictions abroad have legislation in place for protecting retention money. It has worked well elsewhere and certainly deserves significant scrutiny.

The hon. Member for Brighton, Pavilion (Caroline Lucas) proposed a couple of amendments, including one on exports. Like the rest of us, she will know that the Government have failed spectacularly to secure the export-led growth they promised us back in 2010. We have the largest 2014 trade gap of any major industrial country, which is a significant issue, particularly in relation to goods, and we believe that the Government should pull their weight in supporting our exporters and that a case can be made for examining the overall role of UK Export Finance.

--- Later in debate ---

[Matthew Hancock]

First, the fact that everybody will now know, because they will read the Hansard, that that company pays in 180 days will have an impact, but the transparency measures in this Bill will take that information in Hansard and make it much more widely public. We have also made a change to the prompt payment code. Big companies could stay within that even if they made their payment practices worse, and we have seen a couple of examples of that recently, so we have convened a new prompt payment advisory board to strengthen the code. That code will only work if it has teeth, so people in the code who have poor prompt payment practices, or who make their prompt payment practices worse, need to be removed from the code, and that must be made to happen in a very public way to demonstrate that the code has teeth; otherwise, it does not have any teeth at all.

[Gordon Banks]

The Minister will recall that I mentioned that in Scotland there are 43 businesses on the prompt payment code register. What will he do to increase that number? If there are 43 businesses on the register, the system is not working.

[Matthew Hancock]

There are 1,700 businesses on the register from across the country as a whole. Of course, this is targeted at the biggest companies because they are typically the ones at the top of the supply chains, but I would be very happy to work with the hon. Gentleman to increase the number in Scotland.