Reporting on Payment Practices and Performance (Amendment) Regulations 2024

Lord Johnson of Lainston Excerpts

Monday 26th February 2024 Grand Committee

Moved by

[Lord Johnson of Lainston]

That the Grand Committee do consider the Reporting on Payment Practices and Performance (Amendment) Regulations 2024.

Relevant document: 10th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, as we all agree, small businesses are the backbone of our economy. They make up 99.9% of UK businesses, employ millions of people and enrich our daily lives. That is why the Government have declared 2024 to be the year of the small business. So far, we have strengthened our “Help to Grow” campaign, established the Small Business Council and are extending the payment performance reporting regulations which we are here to debate today.

However, small businesses are being let down by late and long payments, which contribute to an estimated 50,000 UK business closures each year. In addition, 56 million hours are wasted each year by businesses chasing late payments. I will outline the key elements of this statutory instrument and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) 2017.

The first objective of this instrument is to extend the reporting requirements beyond the expiry of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) 2017 on 6 April this year until 6 April 2031—a very clear extension. Since the 2017 regulations and the Small Business Commissioner were introduced, instances of late payment by large businesses have fallen across the UK. If the 2017 regulations were to sunset without extension, we would remove payment time transparency entirely. I hope that noble Lords agree with me on that. We would also be removing the healthy dose of competition that drives large businesses to improve their payment time. Without the reporting requirements, businesses would not have to worry about being the outcasts of their peers due to poor payment practices.

My colleague Kevin Hollinrake MP, the Minister for Small Business, launched a consultation early last year which asked the public for their opinion on the regulations and our proposals for improving them. Trade associations and businesses across a wide range of sectors provided us with overwhelming support for the extension of the regulations and for the new reporting requirements which we will be introducing.

The second objective of this instrument requires large companies and limited liability partnerships in scope of the 2017 regulations to disclose additional information and report two new payment performance metrics. We will make it a requirement for businesses to provide the value of the invoices paid during the reporting period. Small businesses told us that this would provide them with even more clarity over how large businesses behave. We will also be introducing a requirement for businesses to report on the percentage of invoices that they dispute. Small businesses told us that they are concerned that some of their customers use frivolous disputes to avoid making timely payments. We listened to them and have taken action to address this.

The third objective of this instrument is to clarify the reporting requirements when supply chain finance is used by large businesses. This amendment will ensure that the impact of the use of supply chain finance is more accurately reflected in the reporting data, providing small businesses with a clearer picture of a business’s payment practices.

Like their predecessor, these regulations will require a review in April 2029, before their statutory expiration on 6 April 2031. It is critical that this legislation remains in place and is further improved to provide small businesses with the transparency that they need. By increasing the level of transparency, we will be arming small businesses with more information to help them make informed decisions about who they work with, while applying additional pressure to large businesses to improve their behaviour. We are incredibly grateful to the 137 respondents to the consultation on these regulations. They included small and large businesses as well as a range of representative trade bodies. There was overwhelming support for the extension of the regulations and for the new metrics that we will be introducing. I sincerely hope that my colleagues here with me today can see the benefits that these regulations provide and can agree with the introduction of this affirmative statutory instrument. I beg to move.

--- Later in debate ---

I look forward to the Minister responding to the question from the noble Lord, Lord Aberdare, on retention payments, especially in the construction sector. This is a bone of contention among many construction companies, whereby companies are holding back retention payments to benefit their cash flow. I look forward to the Minister’s response.

[Lord Johnson of Lainston (Con)]

I greatly thank noble Lords for their passionate inputs into this debate. This is a serious issue. I should say that, although I do not believe I have any personal conflict, I would recommend that all noble Lords inspect my register of interests because, clearly, I have interests in businesses. Indeed, the noble Lords, Lord Leong and Lord Fox, and I have all had experience of working in small businesses, and late payment is a significant issue. We have these dry statistics, but the reality is that it has an effect on people’s lives, induces stress and wastes time, with an impact on the economy. It is something that we have to take very seriously. We are all in agreement that extending these rules until 2031 makes absolute sense. I am grateful to my colleagues for supporting us in this cross-party and cross-Committee view.

Some relevant questions were asked, and I will try to cover them briefly, but I would be absolutely delighted to have a further conversation. I know that my colleague, Kevin Hollinrake, is certainly available to hear further input from noble Lords, if that would be useful.

The noble Lord, Lord Aberdare, made a point about the Small Business Commissioner. Let me say something; it may help to cover some of the other points made by noble Lords. The Payment and Cash Flow Review Report issued by Minister Hollinrake at the end of last year—I thought that it was a clear and excellent report—covers nearly all of the questions asked by noble Lords today, in particular the point about the Small Business Commissioner. The intention, to which we are absolutely committed, is to introduce broader responsibilities, which will allow said commissioner to undertake better investigations and publish reports; this will help significantly, I think.

The noble Lord, Lord Leong, asked who currently enforces the payments process. It is the Department for Business and Trade. We publish that data—it is on the Government’s website—and we also have a team tasked specifically with ensuring that we monitor late payment. That information is published.

I am sensitive to the point made by the noble Lord, Lord Fox, about the competitive case. As someone running a small business, one is—I was, and we were—obliged to take whatever business one can get. That is not irrelevant when it comes to the publishing of businesses’ competitive positions among each other; it is important. Similarly, the work that we have done on Companies House, with input from many noble Lords opposite, allows us to have better data around companies’ behaviour, which will have a significant impact. As I understand it, at least anecdotally, there is a concept in the consultation of competition between companies in terms of wanting to be a better payer is something that is not to be taken lightly.

I refer noble Lords to the report, looking at concepts such as late payments to be embedded in environmental, social and corporate governance standards, and so on. This will all have ultimately important impacts.

I have two other points, before I conclude, about the construction sector. Again, we have been very clear that we are looking to severely control the principles around retention payments, how they can be levied and how that operates in the information that we publish on that. We have been working very closely with an organisation called Build UK, which now publishes league tables on payment performance within the construction industry. This is a very clear flagged issue and something we are certainly working on. I am happy to write to noble Lords with further information if that is useful.

Lastly, the noble Lord, Lord Fox, raised a very important point about government procurement: how can we ensure that the Procurement Act is used more effectively to ensure that, through the supply chain, government procurement, which accounted for however significant a percentage of all procurement in the UK, is used to drive payment terms from its suppliers? That is a core element of this and it is worth saying that, since legislation was brought in in 2017, average payment times have reduced from 81 days to 36 days, which is a significant reduction. That is a single statistic, and I am very aware that it does not represent the value of the deals or go into a huge amount of detail, but that is the information that I have been given and I think it is very encouraging. Clearly, there are outliers and industries where there are still issues over payments. The Government take this point extremely seriously. It is a cornerstone part of our policy agenda to help small businesses, and indeed help the economy, to function properly. I am very grateful to all noble Lords for their input.

[Lord Leong (Lab)]

The Minister mentioned the drop in procurement payment from 81 days to 36 days. That is obviously very encouraging, but do the Government have figures for how long it takes the main contractor to pay its subcontractors?

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord, Lord Leong, for that point. We will have this data. I am looking, and average payment times between businesses peaked in December 2020 at 30 days and is now down to 35.6. I do not have the data in front of me for what it was before these regulations came in, but there is a very clear downward trend that can be seen in a chart in the report. I am happy to show noble Lords and to write with more specific information. The whole point about this exercise is to have the information to demonstrate what the trends are and who is not following the right courses of action.

[Lord Aberdare (CB)]

Before the noble Lord sits down, if that is the right phraseology, I have no doubt about the Government’s commitment to some of these further developments in reporting on retentions, for example. My question was very much about how and when that is going to happen, and why it does not happen. Here we have regulations which seem to me to be ideal for that quite simple reporting of retentions. It does not go nearly far enough, in my view, towards actually scrapping retentions, but it does at least produce the sort of transparency that the Minister is talking about.

[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Aberdare, for those points. The timeline is genuinely as soon as possible. We felt it was more important, given the timing of the cliff edge and the sunset around this legislation, to make sure that we extended that to 2031. I am aware, without speaking on behalf of my ministerial colleagues, that retention payments and issues around construction are absolutely on top of the priority hopper, so I hope the noble Lord will be satisfied with that.

[Lord Fox (LD)]

My Lords, finally—I am not to be outdone—the Minister sets a lot of store on the public embarrassment issue. I come back to the balance of jeopardy: the Minister is a businessman of the world and he knows that, if you have a publicly listed company, it can make sure it reaches its numbers by the end of the year by extending its outgoings into the following year—it happens all the time. Which is more embarrassing to the board, not meeting its financial projections to the Stock Exchange or having a rather dirty note in its annual report 12 months later?

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for the direction of his question. I do not necessarily think that I can answer it specifically. It would be unfair to deviate away from the main thrust of what we have been discussing today: a very sound extension of the right type of legislation for gathering information and including new areas within which to gather information, such as on value, to ensure that the supply chain funding and the data from companies using that system are not distorted. This is sensible, frankly, and has the support of everyone here.

However, the Committee is absolutely right to put pressure on the Government regarding potential payments around the construction industry and, importantly, the Small Business Commissioner. The plan is that the commissioner will be given significantly more powers—and not simply to publish the league tables, which I agree with the noble Lord is soft power. As I understand it, we are looking at opportunities to give the Small Business Commissioner, or whatever office it evolves into, real teeth when it comes to ensuring that companies are fulfilling their obligations.

There is more work to be done. This is a quite a new concept for the UK economy. We are looking at legislation that is just under 10 years old whereas, previously, we did not have any such legislative structures.

Motion agreed.