Small and Medium-sized Enterprises: Government Policy

Lord Borrie Excerpts

Thursday 17th June 2010 Lords Chamber

[Lord Borrie]

My Lords, I understand that the speakers list has been changed so that the noble Lord, Lord Razzall, will be the last of the Back-Bench speakers and I am therefore in this slot.

I, too, congratulate my noble friend Lord Sugar on initiating this debate. He has many remarkable gifts, one of which is informing people about significant public issues through entertainment, as shown in his highly successful television programme, “The Apprentice”, and its successor. I wish him continued success in that, not for his own sake or for my enjoyment but because the success of that programme is of benefit to the economy in terms of a greater appreciation among its viewers of the value of training, effort, challenge and hard work.

I also congratulate the noble Baroness, Lady Wilcox, on her ministerial appointment and I look forward to her winding up this debate. She has been chairman of the National Consumer Council and she succeeded me as president of the Trading Standards Institute. Particularly from those vantage points, I think that she will agree that the ultimate purpose of business, whether small or big, is the satisfaction of the customers or consumers, whatever you call them. In order to achieve that, entrepreneurs, particularly those in small and medium-sized enterprises, need fair access to credit facilities, the timely payment of money that is due to them for services rendered and rules regarding a matter that has not specifically been mentioned so far today—ensuring fair trading between small suppliers and supermarkets, which seem to be getting bigger and bigger.

My noble friend Lady Kingsmill, who I do not think is present today, said in the debate on the gracious Speech:

“Since the beginning of the banking crisis, we have lost more than 30,000 small firms, and the drying up of bank credit is largely to blame”.

She said that there are too many,

“businesses with solid credit records being refused loans or offered them on … punitive terms”.—[Official Report, 2/6/10; col. 354.]

A short while ago, the noble Lord, Lord Taylor of Warwick, referred to the fact that sometimes these refusals are given without any reason or explanation.

A related aspect of this problem is that SMEs that are largely or even wholly dependent, as many of them are, on reasonably prompt payment of money that is due to them are too often kept waiting because customers—often, perhaps, with substantial resources, though not necessarily—ignore their contractual commitments to pay debts promptly. As someone once put it, “Money delayed is money denied”, a phrase similar to the one that we lawyers are familiar with from Magna Carta:

“Justice delayed is justice denied”.

The Government have made some efforts to ensure that at any rate their own debts to business should be paid promptly and they have encouraged all sorts of government agencies—quangos, if you like—to do likewise. However, despite the passing of an Act of Parliament whose terribly long name is not terribly well known—the Late Payment of Commercial Debts (Interest) Act 1998—to enable people to sue for statutory interest at 8 per cent above the bank rate on delayed payments, it hardly needs me to explain that creditors, particularly small and medium-sized enterprises, are reluctant to engage a substantial customer in legal proceedings. They do not exactly want to lose that major supermarket as a customer. There are not that many alternative customers.

I have wondered whether it might be desirable to enable public officials to take up the cudgels on behalf of several SMEs. Usually, not just one or two but umpteen of them have the same sort of problem with a particular major customer. Officials could do so on behalf of people who are owed long-standing debts and could take the necessary court action. I mention this particularly because the noble Baroness, Lady Wilcox, has such knowledge of trading standards officials and local authorities and she may sympathise with this approach.

There is also a question about a relatively unknown provision—I seem to be devoting myself to relatively unknown legal provisions today—in the Companies Act, which requires that businesses specify their payment plans in their annual reports to Companies House. Apparently, some 4,000 companies do that, as they are so legally required. Unfortunately, another 6,000 do not. The latter are acting illegally. Who is supposed to be responsible for enforcing the law and why do they not do it?

A concern of small suppliers in the food industry is the other problem that I wanted to mention. Farmers, particularly small farmers, and others are often faced with credit terms that are unilaterally extended for the benefit of powerful supermarkets, which have the clout that can rarely be matched by small suppliers. The last Government accepted in principle the view of the Competition Commission, which had carried out a two-year inquiry into this matter, in 2008. It said that what was needed was a grocery market ombudsman to investigate complaints, anonymous or specified, that supermarkets were being paid unfairly and contrary to the detailed code of practice that exists. The Competition Commission accepted that the grocery market was generally competitive—as ordinary ultimate consumers, we all know that the benefits in variety, quality and price of supplies have come to us. However, there are abuses. One of these is retrospectively imposing charges on suppliers to finance some special offer that the supermarket has decided to give to the consumer. There are elements here of what my noble friend Lord Haskel would undoubtedly call a market failure. It needs some form of redress.

Page 13 of The Coalition: Our Programme for Government says that the Government will introduce,

“an Ombudsman in the Office of Fair Trading”,

to curb abuses of power of the kind that I have just mentioned. The Minister will know that a Private Member’s Bill had a Second Reading in the House of Commons in March, not long before the general election. The Bill proposed that the Office of Fair Trading should create, but not itself act as, an ombudsman. The Office of Fair Trading would create an ombudsman that would be, the Bill emphasised, independent. My question to the Minister is a simple one: can she explain more precisely what the coalition Government intend in following up this matter?