Draft Small Business Commissioner (Scope and Scheme) regulations 2017

Margot James Excerpts

Tuesday 21st November 2017 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Margot James)]

I beg to move,

That the Committee has considered the Small Business Commissioner (Scope and Scheme) Regulations 2017.

It is a pleasure to serve under your chairmanship, Mr Sharma. The regulations set out further detail on which small businesses qualify for the Small Business Commissioner’s services, including the complaints scheme. Late payment remains a significant issue; according to Bacs Direct Credit figures, the overall debt owed to small and medium-sized businesses in July 2017 as a result of late payments was £14.2 billion. We all rely on the UK’s 5.5 million small and medium-sized businesses for jobs, goods and services. An unfair payment culture that hurts them has no place in a well-functioning economy, so the Government are taking several steps to tackle late payments. As well as the regulations before the Committee, these steps include the prompt payment code—an industry-led code of conduct that sets out best payment practice—and the payment practices reporting requirement, a statutory transparency measure for large companies.

The Enterprise Act 2016 established the Small Business Commissioner, whose role will be to support small businesses to resolve payment disputes and avoid future issues by encouraging a culture change in the way businesses deal with one another. The commissioner will provide general information and advice; direct small businesses to existing services; consider complaints from small business suppliers about payment issues with their larger business clients; and make relevant recommendations. The Act provides that he can consider only complaints that concern matters that occurred after his appointed start date. We set that date at 6 April 2017 to enable him to accept complaints relating to matters that occurred between 6 April and the formal launch of the complaints service, which will broaden access to the complaints service and help him to build momentum as soon as his office is formally opened. The complaints service will launch as soon as possible after Parliament’s approval of the regulations.

[Mr Mark Prisk (Hertford and Stortford) (Con)]

One challenge relating to late payments that I often see—as do other hon. Members, I suspect—is large companies disputing a payment so that it is put to one side. The dispute is often over a minor matter, but it allows those companies to get away with avoiding payment within 30 or 60 days. Will such abuse on the margins be part of the commissioner’s remit?

[Margot James]

I thank my hon. Friend for that observation; he has considerable experience in these matters, and I would not be a bit surprised if what he says were the case. I will ask the commissioner to consider that practice and other known dodges—for want of a better word—in the course of his work.

The 2016 Act sets out the broad framework for the Small Business Commissioner. The regulations define “small business” for the purpose of qualification for the commissioner’s services, including the complaints scheme; they also provide further detail about the scheme.

[Toby Perkins (Chesterfield) (Lab)]

Further to the point made by the hon. Member for Hertford and Stortford, a major issue faced by small businesses is that if they challenge late payments, their customers may simply cease trading with them. Small businesses therefore have to decide between waiting 90 or 120 days to be paid or getting no business at all. Changing the culture so that businesses can make complaints without customers knowing who they are will be crucial to solving this problem, which we have wrestled with for many years.

[Margot James]

I agree that confidentiality is often a requirement and that the lack thereof is a disincentive for small businesses to challenge the late payment practices that have been a part of business culture. There is provision for the commissioner to respect the confidentiality of complainants and, indeed, it is his duty to do so unless the complainant gives permission for his or her name, or the company name, to be disclosed. We can discuss that further later in the debate because it is important. I am well aware that in a system that provides for confidentiality, there are occasions when it is impossible to conceal the true identity of the complainant company in reality. The hon. Gentleman raises a difficult issue.

The regulations set out: that a business must have a headcount of fewer than 50 staff on one of the assessment dates or during one of the assessment periods to qualify to use the commissioner’s services; the requirements that must be met before presenting a complaint; the requirements for the form and content of the complaint; the time limit for presenting a complaint; the power for the commissioner to fix and extend time limits and to dismiss complaints; the matters that the commissioner must take into consideration when determining whether an act or omission complained about was fair and reasonable; and factors to be taken into account when deciding whether to identify a respondent in any report of any complaint. They apply to the whole of the United Kingdom.

We consulted between 13 October and 7 December 2016 on how the Small Business Commissioner would handle complaints. We published draft regulations in February and interested parties were invited to comment on them between 24 February and 9 March. The key message from respondents to that consultation was that the regulations should be simple so that the Small Business Commissioner’s services would be as efficient and effective as possible. The regulations will enable the Small Business Commissioner to accept complaints on payment matters from small business suppliers about their larger clients. That is an important part of the Small Business Commissioner’s role in supporting small businesses.

Although the debate is limited to the regulations, I take the opportunity to welcome Mr Paul Uppal to his post as the UK’s first Small Business Commissioner. He competed against many other well-qualified candidates to secure the role. I thank all those who applied for the role and who engaged with the consultations and policy development inside and outside the House.

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[Margot James]

I thank the shadow Minister for his thoughtful comments and I am grateful for his encouraging words about the choice of Paul Uppal to take up the post. I will do my best to answers the questions he posed about some of the details.

He mentions that the average late payment is 72 days, which was also part of the figures that I gave from Bacs’ data. That is quite unacceptable; it is effectively two and a half months, and if it is the average, we have a lot of work to do. On a more positive note, and as testimony to some of the voluntary work that has already been established through the prompt payment code, there has been a substantial improvement in Bacs’ data. The latest figures show an average of what is owed to small businesses at any one time of around the £14.2 billion mark, as opposed to £26.3 billion the year before. I have chaired roundtables of small businesses around the country and found some enthusiasm for the prompt payment code, and some companies reporting that they have been able to deploy accounts staff in more productive functions than simply chasing up late payment all the time as a result of the improvement that they have seen. As I say, there is clearly still a long way to go, but I think the prompt payment code and other measures the Government have introduced have started a change in culture.

The hon. Gentleman mentioned the Australian model and a more punitive function, and asked me to comment on whether that might be an end point for what we are setting up here today. I do not see it is a logical extension. The business support landscape in Australia is very different from that of the United Kingdom and I think that we can achieve more by trying to bring about a cultural change, rather than introducing hard-hitting measures and fines and going down that route straight away. I would not rule out such an approach if that does not work, but I am quite optimistic that, given the progress we have already made—as well as the progress of interventions in other sectors, such as the Groceries Code Adjudicator—we can achieve more with an approach that tries to take business with us. However, as I say, I would not rule out in the long run something of the sort that the hon. Gentleman described if it became clear that it was needed.

The hon. Gentleman asked about the public sector. There is perhaps a difference between what is required and what is seen as standard, by way of the letter of the law, and what is actually carried out in practice. Under the letter of the law, all public sector contractors are mandated to pay within 30 days and ensure that the 30-day policy applies all the way through the supply chain. I am sceptical about whether that always happens in reality, but that is the goal. The public sector is therefore not incorporated in the regulations.

[Bill Esterson]

The Minister says that payment within 30 days is mandated all the way through the supply chain, but that she is sceptical about whether that is really happening. What are she and her colleagues doing to enforce it?

[Margot James]

I became aware of the issue only a few months ago, and I have not decided yet whether we need to do more than we are doing already. We fund a mystery shopper service that checks how public sector contracts are complied with, particularly in respect of late payment, and I will look closely at its findings. It is encouraging that payment within 30 days throughout the supply chain is the standard, but I will need to satisfy myself that it is being complied with and adhered to. The mystery shopper service may inform that process.

[Bill Esterson]

If the Minister finds that there is still a widespread problem with payment not being passed down the supply chain, is she prepared to take enforcement action? The mystery shopper service may identify the problem, but I am not convinced that it will stop it.

[Margot James]

I shall have to return to that question once I have investigated what the service has identified. I cannot prejudge what we will do based on what we find out, so I hope the hon. Gentleman with bear with me to that extent. In answer to his question about the number of complaints on which the system is predicated and the resources at its disposal, the establishment cost of the Small Business Commissioner’s office is £1.1 million and the anticipated running costs are £1.4 million a year, based on an estimate of 70,000 companies referring just under 400,000 disputes, of which 500 result in full-blown complaints.

The hon. Gentleman also asked about construction. Construction is certainly included in the commissioner’s remit, but I would like to go further, because I recognise that there are special problems with late payment in the sector. Two weeks ago, we announced a consultation on the culture of late payment and payment retention in the construction sector. I urge individuals and companies to respond to that consultation, because there is widespread anecdotal evidence of a big problem of unfair treatment of small businesses in the construction sector.

I think I have answered the hon. Gentleman’s questions, so I thank hon. Members for their time and commend the regulations to the Committee.

[Bill Esterson]

rose—

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[Margot James]

In a spirit of generosity, and since Mr Sharma has not called time, I give way.

[Bill Esterson]

It was only that I asked the Minister how she would raise awareness of the service.

[Margot James]

The hon. Gentleman did ask that, and I failed to answer. We will promote the service’s launch heavily through all media, including traditional media—as he mentioned, a lot of businesses are not online. We will also use the routine communications of other Government agencies with businesses to alert them to the importance of this new development.

Question put and agreed to.