Business Transactions: Cash Retentions

Jim Shannon Excerpts

Wednesday 27th January 2016 Westminster Hall

[David Simpson (Upper Bann) (DUP)]

I beg to move,

That this House has considered cash retentions in business transactions.

As I lead off in this debate, I will say first that I know that some of my own party colleagues and others have indicated that they want to make some form of intervention. Time is limited, so I will try to keep my points to a minimum to allow as many people in as possible, Mr Crausby, if that is okay with you. If it is not possible, I hope that anyone who does not manage to get in will please accept my apologies.

Let me start with this point: cash retentions, specifically in the construction industry, are currently responsible for £30 million of moneys being held back from small firms. Normal guidelines state that cash retentions are calculated at around 5% of the amount certified as due to the contractor. I must add that this 5% is very often the firm’s profit margin.

By and large, the lead contractor will get paid in instalments throughout the term of a contract, as very often there is a large turnover on specific jobs. This has been normal practice for many years. However, we then must turn our focus to the issue of subcontractors and fair payment practices.

[Jim Shannon (Strangford) (DUP)]

This is a massive issue and it is good to see the Minister for Small Business, Industry and Enterprise in her place; I hope that she will give a very positive response to the debate. Just today, the news back home in Northern Ireland is that the Groceries Code Adjudicator has found Tesco guilty of holding back moneys and of delaying invoice processing as well. At long last, we have an adjudicator that has teeth. It is just a pity that the legislative power to impose fines was not used, because the inquiry into this case started before it existed. Does my hon. Friend agree that at long last the adjudicator can make companies pay?

[David Simpson]

Yes, I agree entirely with my hon. Friend. We have raised this issue of the Groceries Code Adjudicator in the Environment, Food and Rural Affairs Committee as well. It is good to see some power coming into this area, so that the larger companies can pay this money.

I mentioned subcontractors and fair payment practices. This area is where we begin to see major difficulties and cash-flow problems for companies. I can report in this debate today that £40 million worth of cash retentions were lost by small firms in 2015.

--- Later in debate ---

[David Simpson]

I think the hon. Lady has seen my speech.

[Jim Shannon]

She wrote it. [Laughter.]

[David Simpson]

We will deal with that as well—great minds think alike.

The figure that is reported is some £40 million, which is horrendous. Small companies come to the stage where they are forced to write off money they are owed, because the cost of recouping it would be far greater than the sum itself and therefore it is futile for them to try to recoup it.

The Government have been very vocal in leading the business community to look forward and they have encouraged businesses on sustained growth and productivity, which is a good thing. I know that the Minister has done that; she is very pro-business. I have been approached by firms in my constituency, and I know that this is a UK-wide problem. The firms in my constituency say they are on their knees, largely due to the retention of moneys they cannot recover from larger contractors that have already been paid for the job they have done.

A firm in my constituency reported to me only last week that it has had to wait up to four years for retention money when contractual agreements state that 12 months is the limit. They have categorically stated that this situation hinders their plans for growth. In the majority of these cases, the contractor has already been paid but holds on to these moneys to counteract discounts.

A significant employer in Northern Ireland forced a loss of £10 million to a large number of subcontractors and suppliers when it went into insolvency. While that big company faced the headlines, many of the small contractors were simply unable to sustain their business; they simply had to bow down and close their doors, which resulted in significant job losses.

[David Simpson]

I thank the hon. Member for that intervention and his point certainly has validity; it is worth looking at, to see whether something could be done in that field to try to resolve this issue for small companies.

I know that the Government are pro-business; the Democratic Unionist party and other Northern Ireland parties have seen our economy in Northern Ireland grow. It is the role of Government, MPs and other politicians to create the circumstances for businesses to develop. I speak as a businessperson myself—my business interests are set out in the Register of Members’ Financial Interests—and it has taken my company 36 years to get to where it is today. Government have played their part in that, but this issue of cash retentions goes right to the core of small businesses.

[Jim Shannon]

I thank my hon. Friend for giving way again. I know that he and the hon. Member for South Down (Ms Ritchie) have been involved in the Patton Group issue. When the Patton Group became insolvent, almost £10 million in cash retention was lost. Does he agree that the reintroduction of the aggregates levy scheme and the exemptions within that scheme would enable and help cash flow?

[David Simpson]

I think so, yes. I will touch on that later. My hon. Friend mentioned a company that I referred to earlier, although not by name. It was a major blow for subcontractors in Northern Ireland. In 2012, poor payment practices were discussed in the Northern Ireland Assembly, and my hon. Friend the Member for East Antrim (Sammy Wilson), who was the then Minister of Finance and Personnel, was questioned on why Government should intervene. His answer was:

“The reason that it is so important is that the businesses at the receiving end of this unacceptable practice are, more often than not, small and medium-sized enterprises…on which we are depending to help rebuild our economy.”

That is not just the economy of Northern Ireland, but the economy of the whole United Kingdom.

--- Later in debate ---

[Anna Soubry]

It could never be said that this Government would prevaricate in any way or seek to knock things into the long grass.

[Jim Shannon]

The Minister would never do that.

[Anna Soubry]

Never. I can absolutely assure the hon. Lady that I take the issue very seriously and know that we need to make progress. There are reasons why we would want some sort of retention, but not in a way that is onerous, particularly for small businesses. As I said earlier, Simon Bingham came to see me and gave me real-life examples of how some of the bigger companies effectively use retentions for their cash flow. The money can sit with them for year after year, and the small business takes a serious hit.