Prompt Payment Code

Lord Willetts Excerpts

Thursday 8th November 2012 Commons Chamber

[The Minister for Universities and Science (Mr David Willetts)]

On behalf of what I guess we must now call the one nation coalition Government, I welcome this excellent Back-Bench debate, which has raised a very important issue of great concern to businesses, especially small businesses. I particularly congratulate my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) on his opening speech, in which he set out some important policy challenges, which I would like to touch on in my remarks. He spoke with passion and was right to do so, because when we talk about finance for business we must understand that despite our endless ingenious schemes to encourage bank lending and access to finance from the City, one of the best forms of financing for businesses is for them to win contracts and get paid for them. That is an extremely effective form of financing for small businesses and we strongly support it.

There was a slight theme in today’s debate about confusion of identity. It is good to know that the person who has tweeted in my hon. Friend’s name is not him—I hope the Chief Whip knows that, too. We then heard from the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), who is no longer in her place—perhaps she has gone off to tweet. She spoke very well and correctly made the point that although the intention of this debate was to discuss the public sector, we should not forget the importance of improving the performance of the private sector. There is a lot to do in that sector and we are committed to doing it.

We then heard an excellent speech by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), which included some powerful examples of the kind of problems that small businesses face. I thought, to be honest, that her examples, from Q Technologies and its experiences of dealing with the NHS to experiences of being paid for legal aid, were, quite simply, shocking and indefensible. I do not think that any Minister with responsibility for this sector would wish to defend that. It is very important that the message goes out loud and clear from the debate today that public agencies are expected to pay bills promptly. It is minimum good practice, which we expect across the public sector.

The hon. Member for Stockton North (Alex Cunningham) also drew attention, rightly, to the importance of the performance of the private sector. We heard from the hon. Member for Caerphilly (Wayne David) and I hope, if time permits, to touch on the EU directive and what we are doing about it. Finally, we heard from the Opposition spokesman, the hon. Member for Chesterfield (Toby Perkins), whose recollections of his experiences with Gladys and Sheila brought the House to life.

Let me make it clear where the Government stand on this important issue. We understand that we are committed to supporting small business by ensuring that businesses get prompt payment. Small and medium-sized businesses are responsible for almost half of the £900 billion private sector output of this economy and 60% of private sector jobs. Cash flow is critical for them. That is why, as the British Chambers of Commerce recently set out in their prompt payment report, there are two main challenges, which we are determined to address—first, payment terms which are too long, and secondly, payment terms which are not adhered to. The estimate from the BCC is that UK SMEs are owed almost £36.4 billion in overdue payments, mainly by large companies. This is unacceptable and it needs to improve.

Opening the debate, my hon. Friend the Member for South Basildon and East Thurrock said that the position was deteriorating. There are different ways in which it could be measured. The latest late payment index from Experian shows that UK businesses paid their bills approximately 1.3 days earlier in the third quarter of 2012, compared with the same period last year, but we are not complacent. We know that we still have to do a lot better.

We already have in the UK legislation that gives businesses a statutory right to claim interest from other businesses for the late payment of commercial debt, and we would encourage companies experiencing late payment to use those legal powers that exist. Part of the problem is that many businesses fail to agree payment and invoicing terms before entering into a transaction. That is an area where business practice can improve. But businesses overwhelmingly tell us that they do not want new legislation. We heard that in many of the contributions from hon. Members in all parts of the House this afternoon, so the challenge for the Government, which we accept, is to take positive action, leading by example as a payment exemplar and working to educate businesses and change the culture of late payment.

We entirely accept that the Government must set a good example. Central Government Departments now aim to pay 80% of undisputed invoices within five days. Indeed, in September this year my Department, BIS, paid more than 90% of invoices within this deadline.

[Andrea Leadsom]

It suddenly occurred to me that I would never be forgiven if I did not mention at this point that my district council, South Northamptonshire, is among the top 10 best payers in the country.

[Mr Willetts]

Excellent. I join my hon. Friend in congratulating her council on that excellent performance.

We need to go further. This is a point that was made in several interventions. Let me make it clear. To ensure that the benefits of prompt payment are felt throughout the supply chain and reach small businesses, all Departments have included a clause in their contracts that requires main contractors in turn to pay their suppliers within 30 days. That is a major step forward, but they now have to deliver on it.

To ensure that is delivered, on 9 March this year the Minister for the Cabinet Office and Paymaster General, my right hon. Friend the Member for Horsham (Mr Maude) announced that the Government’s mystery shopper service would be extended to include issues relating to unfair practices in the supply chain. Suppliers can use the service anonymously to escalate concerns about problems in Government supply chains to the Cabinet Office.

My hon. Friend the Member for South Basildon and East Thurrock asked what the Government could do and whether we should identify individual officials and their Departments. We think that the mystery shopper service, which has a direct e-mail connection to the Cabinet Office, where concerns can be pursued, is an effective way we can hold individual Departments, their suppliers and linked public service organisations to account.

In addition, we are committed to ensuring that the prompt payment code is adopted by as many organisations as possible. Signatories to the code commit to paying suppliers within agreed and clearly defined terms and to ensuring that there is a proper process for dealing with any issues that arise.

We are coming up to the fourth anniversary of the code and continue to work with industry bodies to encourage their members to sign up. Only this week, the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), who has responsibility for business and enterprise, wrote to the FTSE 350 chief executives to encourage those that have not yet signed up to do so. I commend his excellent letter to the House. If it has not already been placed in the Library, I will ensure that it is. It contains a real sting in the tail because it says that there is significant public interest in the issue of late payment, and that in order to recognise companies’ efforts, he intends to publicise the names of all FTSE 300 companies that have signed up to the code, and to acknowledge those that have not, early in the new year. That is an important step forward.

[Debbie Abrahams]

I welcome what the Government are doing, but will the Minister explain why they have taken so long to respond in that way?

[Mr Willetts]

Frankly, I do not know the exact history, but I can say that we are taking this action now. We have already taken other actions, such as the intervention by my right hon. Friend the Minister for the Cabinet Office and a steady increase in payments in line with the prompt payment code. As I was so generous to the hon. Lady, in her admittedly brief absence from the Chamber, I hope that she will not be too grudging about the actions we are now taking.

Let me refer briefly—I think it is important to allow my hon. Friend the Member for South Basildon and East Thurrock time to speak at the end—to the EU late payment directive, which a few hon. Members have mentioned. We support the revision of the directive because it seeks to introduce a number of improvements to the original. That will save business money and help create a level playing field for UK suppliers trading across the single market. We believe that the recast directive essentially recognises current UK legislation and practice as an exemplar and mirrors existing UK provisions. Indeed, we have introduced across the public sector targets that are in many ways more onerous than those set out in the directive.

[Toby Perkins]

The Minister is basically saying that the directive will make relatively little difference because the Government are already doing that, broadly speaking, so I am confused about why there has been such resistance to implementing it and why they will not do so until March 2013.

[Mr Willetts]

Let me explain that point. Our intention is to transpose the directive by 16 March 2013. That is a commitment I can give the House. However, it is a long-standing commitment of this Government not to gold-plate EU legislation. We do not implement early or rush to implement EU legislation. We comply with the legal requirements. We have confirmed many times our intention to transpose the 2011 EU late payment directive by 16 March. However, our approach, learning from the process in many other countries, is that we do not feel obliged to rush to implement any EU directive before the deadline by which it has to come into force. We in BIS try consistently to apply that approach, which I commend to the House.

I congratulate hon. Members on leading this debate. We recognise that changing the culture of late payment is a challenge that requires both Government and business to play their part. We expect business to do so, and we expect Government and all public sector bodies to do so too.