Small Businesses: Late Payments

Lord Prior of Brampton Excerpts

Monday 11th September 2017 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government what action they have taken to assist small businesses in accessing finance by tackling the issue of late payment of commercial debt.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)]

My Lords, we know how important tackling late payment is, especially for smaller businesses. We are taking forward a number of measures to improve payment practices across the public and private sector, including establishing the Small Business Commissioner and introducing transparency reporting in both public and private sectors.

[Lord Harrison (Lab)]

My Lords, there is an abject and continuing failure from this Government to outlaw late payment on commercial debt. The Federation of Small Businesses says that we lose 50,000 viable businesses every year, and we lose some £2.5 billion to the Exchequer, because of the failure to act on that effectively. Would the Minister write me a short but elegant essay on the question of how, given tonight’s vote in the other place, we might transport and import European legislation on this issue into UK law?

[Lord Prior of Brampton]

My Lords, of course I understand that late payment is very serious for many small businesses and cash is very important to them, but we have made very significant progress in this area. In central government, for example, 95% of all commercial debt is settled within seven days and 99% is settled within 30 days. It is true that in some parts of the economy—in construction, for example—payment terms are later. We believe that by bringing forward the Small Business Commissioner and bringing greater transparency to this area, it will get better.

[Earl Attlee (Con)]

My Lords, is not this a totally flawed economic system, where large businesses are financed by small businesses, although it is large businesses that can easily raise the finance? What are the disadvantages, if any, of moving to a system where all goods and services are paid for by the end of the month following the month of invoice?

[Lord Prior of Brampton]

Industries are very different from each other—the construction industry is very different from the retail business, for example. Waitrose has a scheme whereby it pays small businesses selling goods worth less than £100,000 a year to Waitrose within seven days. Rolls-Royce has a scheme with a time that is longer than that, and Marks & Spencer has a scheme giving special terms for smaller businesses. Some flexibility in this area is not unwarranted.

[Lord Palmer of Childs Hill (LD)]

My Lords, the consultation on the appointment of a Small Business Commissioner was first mentioned on 26 July 2015, and the end of the consultation was 7 October 2015. If this Government think that supporting small businesses is important, surely they should get their act together in under two years. If a small business had to wait for two years to make such an appointment, it would be bankrupt.

[Lord Prior of Brampton]

The noble Lord will be pleased to know that interviews have taken place for the Small Business Commissioner and an appointment will be made in the near term—“soon” is, I think, the right word. By the end of the year, when further secondary legislation comes through Parliament, the complaints handling system which the commissioner will operate will be in place as well.

[Lord Stevenson of Balmacara (Lab)]

My Lords, the Government have said that big businesses will begin mandatory reporting of their payment performance—a very important part of this new system—under new regulations from October 2017, via an online service. Yet we discovered, in response to a Written Question, that by the end of July only 208 businesses out of 15,000 had even been invited to join the system. That is 1% signed up so far. What is the current figure?

[Lord Prior of Brampton]

My Lords, I do not have that figure. The noble Lord is absolutely right that there is now an obligation on big companies to be transparent in their reporting. That came in in April 2017 and is done on an annual basis, so we will not know until April 2018 how many companies are doing it.

[Lord Hamilton of Epsom (Con)]

My Lords, when the late Lord Weinstock’s GEC took three months to pay my small engineering company, when it should have taken a month, I sued him in the county court and everything changed dramatically. Small companies are reluctant to sue big ones, but they fail to take into account that the accounts departments of these ginormous companies very rarely talk to the sales departments.

[Lord Prior of Brampton]

My Lords, the noble Lord makes a very good point. Small companies are often reticent to take on big ones, in the fear that they will lose business in the future. Making that relationship easier is one of the reasons why we are appointing the Small Business Commissioner. Where public contracts are involved, we have a mystery shopping service, which enables small companies to ask the Government, on their behalf, to verify late payment and understand why it is taking place.

[Lord Campbell-Savours (Lab)]

My Lords, this argument has been going on, under successive Governments, for the last 30 years at least. Where is the real resistance to change and intervention by government coming from? Nothing ever changes.

[Lord Prior of Brampton]

My Lords, there is a natural reluctance for any Government to get in between supplier and customer in commercial relationships. If there is a problem, it is much better if it can be sorted out. As my noble friend Lord Hamilton pointed out, there are ways of getting redress. I am not sure what the figures are, but I imagine that, going back 30 years, you would find that the average number of days outstanding for commercial debts has come down considerably.

[Lord Leigh of Hurley (Con)]

Does the Minister agree that part of the problem is that the SME community is underbanked? Nearly half are permanent non-borrowers and 90% of the SMEs which do borrow do so from the big four banks. Surely the answer to the credit problem is further steps like those that the Government have taken in establishing the British Business Bank and encouraging the growth of alternative finance. I declare my interests to your Lordships’ House.

[Lord Prior of Brampton]

My Lords, the British Business Bank is not a commercial lender in the way that Barclays or NatWest is. Alternative sources of finance, be it equity or quasi-equity, and making smaller companies’ balance sheets stronger are clearly a good way forward.

[Lord Cotter (LD)]

My Lords, have the Government looked into the issue of payments by NGOs, by enterprise agencies and by local councils, many of which get their funds originally from the Government? Will the Minister look into the issue of local payment by local organisations?

[Lord Prior of Brampton]

My Lords, I believe that local authorities are covered by the Public Contract Regulations 2015, so they have to publish their performance annually. They have to report against a 30-day target, so if their length of outstanding indebtedness goes beyond that it will be transparent and open for the public to see.