Prompt Payment Code

Lord Stevenson of Balmacara Excerpts

Thursday 10th May 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I was never in the boy scouts so I lost that last metaphor, but I understand where it comes from. We owe a great debt of thanks to the noble Baroness, Lady Burt, for raising this issue again—it has been discussed before—and doing so in contemporary terms by bringing us up to date with some of the issues of recent years. We have had some very good speeches. We have lost the noble Lord, Lord Cope: in that respect we have lost the little group of aficionados that was here for the Enterprise Bill in 2016 and covered this and related topics a number of times. It was very good to hear some of those tropes repeated today.

The general theme of those noble Lords who have spoken today is that while there have been welcome improvements in what the Government have been doing to help the problem of late payments, the current approach is not going to work. The central thrust is to change the culture and to believe that that will lead to a significant and speedy change in what has become current business practice. Using a code is not really the way forward—it is not even statutory and is not operated by the Government but through a franchise by a non-statutory body.

We supported the measures in the Enterprise Act 2016 that required large unlisted companies to publish information about payment performance and practices—strengthening the Prompt Payment Code in that respect—but we do not think that the situation today is satisfactory and we want big changes. The model that we had in mind for the Small Business Commissioner was the system used in Australia, where that post can operate in a way that causes things to happen, including fines. We do not understand why the Government do not want to take that forward.

Is funding a major problem? We have heard from many speakers that there are significant problems. I am not sure of the figures but we reckon that between £50 billion and £60 billion is tied up by the way companies have to deal with late payments.

On top of that there are two problems. The code itself is pretty good in terms of what it says, but the behaviour by companies, whether or not they are signed up to the code, has been egregious. We have had examples in recent debates about Diageo, the owner of Guinness and Johnnie Walker, which simply informed its suppliers that it was extending its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms from 45 to 97 days. The list goes on: it includes Monsoon, GlaxoSmithKline and Debenhams, to name just a few. It is a common theme. It is of course a perfectly logical response to difficulties within the marketplace. These companies put a squeeze on their suppliers to accumulate as much cash as they can. They also do it because they can and, in some sense, that is bullying.

All this comes out in the wash when we look at Carillion. The Carillion crisis has exposed how absolutely toothless the Prompt Payment Code really is. Despite being a signatory to the PPC since 2013 Carillion, as we have heard, was notorious for being a late payer. According to the FSB, it regularly required its suppliers to wait 120 days to be paid. I do not think there is any doubt that there is a problem.

The question is: is the code robust enough in itself? First, it is not very extensively used. We may get warm words about the numbers of signatories—I think it is nearly 2,000, which sounds a lot—but we are talking about a totality of companies and organisations vastly in excess of that: 32,000 mid-sized companies and 200,000 smaller companies. If we add micro-businesses, which are also eligible to come under the code, we are probably talking about 5 million or 6 million companies. Out of that number—perhaps 6 million or 7 million companies—we have 1,700 signatures. The code is not a successful or effective way of trying to change the culture. Secondly, the objective of the code is to ensure that there is a gold standard for how people should behave but if it is just a gold standard to aspire to, it obviously means that others will not meet that standard and therefore be excluded, so the culture will not be transformed in the way we are talking about.

We do not have what is required in the marketplace, so what are the proposals? I would like to add a couple to those we have heard of today. First, the Prompt Payment Code should be put on a statutory basis and it should not be franchised out but operated by the department concerned. Secondly, we need to look again at the link between the Prompt Payment Code and the Public Contracts Regulations, which have been mentioned by other speakers, and make sure that it actually works. Since the regulations are quite appropriate in requiring payment within 30 days and enforcing that throughout the value chain of the contracts concerned, there are real penalties which follow from non-conformance with it. It should not be possible for people to be reappointed to government contracts if they are clearly not fulfilling the requirements under the Public Contracts Regulations.

Thirdly, the retention scheme has been mentioned. The noble Baroness, Lady Burt, suggested a model for setting up escrow accounts or public bank accounts to prevent the problem that happened with Carillion; money which should have been passed over ages ago to small contractors and others involved gets lost in a bankruptcy. This is already happening in Scotland, Wales and Northern Ireland—it is England that is behind. Surely the Government must now take action on this matter. We have heard about the consultation and the reporting cycle has now finished. Where is the action that will follow from that?

Fourthly, the sorts of powers we are thinking about for the Prompt Payment Code are already to be found in other areas of government activity. For instance, the groceries code gives powers to the Groceries Code Adjudicator to fine companies which are in breach of that code 1% of their turnover. Why is that power not given to the Small Business Commissioner, who I am sure would jump at the chance to level what he finds on the ground from the information flowing to him with the action that he needs to take? If we are not getting progress there, why are we not outlawing discounts by companies which attempt to take a cut when they make a payment within the normal rules? If there is a continuing problem, why does an automatic interest rate penalty not kick in at the Bank of England rate plus, say, 10%? I am sure that for any financier who is involved in trying to work out how to pay their bills, the prospect of having that bill increased by 10% if it is not paid within a certain time would focus their attention.