Draft Small Business Commissioner (Scope and Scheme) regulations 2017

Mark Prisk 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.

--- Later in debate ---

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I, too, welcome the appointment of the commissioner. I know Paul Uppal from his time in the House. He has a strong business background. Having been a member of the governing party may have helped him, of course, in securing the post—I could not possibly comment on whether there is any truth in that scurrilous accusation.

The Minister pointed out that there are £26.3 billion-worth of late payments in the private sector according to the latest figures from Bacs, but she did not mention that the time businesses wait is 72 days on average. Members on both sides of the Committee have mentioned the sadly all-too-common game playing by larger companies in dealing with their smaller suppliers. It is fair to say that a reduction in that kind of game playing is one of the many things that I would like to see Mr Uppal and his team address. If he is to repay the faith that has been shown in him, perhaps that is something he can take on board and investigate, to see what recommendations he can come back with on how to address some of those endemic problems.

The relationship damage done when a small supplier challenges a larger customer is a serious block in challenging late payments. It is one of the reasons why, in the Enterprise Bill Committee, we pushed the Government extremely hard on alternatives to the very mild voluntary system that has been set up, which the Small Business Commissioner has before him and his team. The Australian system of binding arbitration, with proper fines behind it, appears from the evidence we discussed in Committee to have been a significant success in bringing down the number of days that small companies waited to be paid. I again urge the Minister not to rule out moving to such a system over a period of time, and urge the commissioner to consider whether that is the sort of system we should consider in this country as well at some stage.

I have previously raised concerns that the system is restricted to the private sector, and I raise them again. The public sector is a source of significant late payment concerns for smaller businesses. The Minister mentioned the prompt payment code; signatories to the code tend to be in the public sector, with some larger private sector firms, but they do not cover the entire public sector and it is too early to say how effective they have been in reducing the time that small companies must wait to be paid.

There are examples of Governments in other parts of the world—the United States is one that springs to mind—using the procurement system to ensure prompt payment. The rules in the United States are that if a company trades with the federal Government, it has to pay its suppliers promptly. I wonder whether that is something the Minister would take on board. Again, that is something we said in the Bill Committee during the passage of the Enterprise Act 2016 that created the post. All too often in this country, companies that procure from Government are paid within 30 days, often as quickly as five days, and then delay their own payments. That is an opportunity within the commissioner’s terms of reference and something else for him to investigate, because those are private sector companies potentially using their position to improve their own cash flow at the expense of their smaller suppliers, and using Government money to do so. That is a particular area where the Government should be interested and could act. As I say, if it is part of the agreement in America, why not in this country?

[Mr Prisk]

I am grateful to the hon. Gentleman for raising an important point. My understanding is that most transactions in America are for payment on receipt of goods or services, so there are no 30-day or 60-day terms in most common business practice. Is that something he recognises? It would change the nature of his question.

[Bill Esterson]

The hon. Gentleman is more familiar with what goes on in America than I am in that case. Certainly, the evidence that we were presented with when we discussed the matter in the Bill Committee suggested that that was not true of every contractual relationship in America. Perhaps we could discuss that outside and look further at the evidence. Payment on delivery is one way of addressing the point we have just been discussing.

Some questions emerge from the regulations before us. My understanding is that the commissioner, as constituted, has the power to name and shame. I wonder whether the Minister can shed some light on what the intention is for the use of those powers, and how quickly she feels the commissioner should look to set up some kind of naming and shaming system.

How many complaints does the Minister envisage the commissioner will be investigating every year? How many complaints does she expect him to receive every year? How many complaints could his office deal with every year? That relates to how many staff he has and what his budget is, which the Minister could perhaps address.

From some of the representations I have received, it appears there is a question mark over whether the construction sector will be included in the Small Business Commissioner’s work. Given that a significant number of the problems of late payment lie in the construction sector, can the Minister clarify whether that is true? The concerns around retentions of 5% or even 10% over a number of years are a very important part of why construction should be included.