Draft Business Contract Terms (Assignment of Receivables) Regulations 2018

Rushanara Ali Excerpts

Monday 10th September 2018 General Committees

[Kelly Tolhurst]

I am grateful for the Committee’s consideration of the regulations, and to the hon. Gentleman for his contribution to this important debate. I will touch on a number of the elements he rightly brought up.

The hon. Gentleman is absolutely correct that there are two types of benefit to invoice financing: a factoring element and a discounting element. He is also right that it is one tool within the overall finance packages from which businesses are able to draw. The measures before us will aid the growth of invoice financing so that where suppliers want to enter into a contract agreement with invoice financing, nullifying the term allows them to do so. However, invoice financing on its own does not solve the problems with accessing finance. It is one tool—the regulations try to widen the scope for businesses to access it, but there are two different elements.

It is true that many small businesses have applied for finance with banks, but many have not. They decided that they would rather stunt their growth than borrow because of the fears around long-term borrowing. We know, however, that they will often be willing to improve their cash flow, which enables them to grow and invest. Without the ability to access invoice financing, many small businesses would not be able to take up the contracts that they want to, which enable them to grow.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

The Minister will be aware that there is a shortfall in lending to SMEs of £35 billion relative to the pre-crisis period. She referred to just under £1 billion that would be made available through this policy, which is welcome, but is a drop in the ocean compared to the bigger challenges facing SMEs. SMEs have created 2 million jobs since 2010 and power our economy. With the uncertainty of Brexit, life will get worse for SMEs. Will she say something about the broader picture of what the Government will do to address the pre-crisis gap of £35 billion? That is the bigger question that the Government need to address. Lots of work had been done to address the lending issues facing small businesses, but as she knows from her impact assessment, it has not happened to the extent that it needs to.

[Kelly Tolhurst]

The Government are looking at many different ways to increase small businesses’ access to finance. Having run a small business, I know how crucial that is. While this statutory instrument represents just under £1 billion of net present benefits, it is a gain. Because we are making this decision, this element of finance will be available to more SMEs, which can only help. It will also aid the ability of new invoice financers to come into the marketplace, which we welcome, because that brings more jobs and more receipts into the Exchequer.

I have covered the cash-flow issue. Many businesses will not now take an overdraft. Instead they can take out finance invoice and manage their business needs as a small business. It is difficult for small business owners to get access even to what we might regard as small sums, so many suppliers will use this as an ongoing tool. Factoring may suggest that a company has been in financial difficulties. That factoring can now take place on a private and confidential basis, so that customers are not aware of that financing on their faced invoices.

The hon. Member for Sefton Central mentioned the small business commissioner, whom I was pleased to meet for the first time last week. He is doing wonderful work with small businesses in the battle against late payments to ensure that they can receive some of the moneys they are owed. The hon. Gentleman is right to mention the prompt payment code, particularly in relation to Carillion. However, he will know that we are looking to consult widely on late payments. Since I have been in my post I have been particularly concerned about that, so I have been looking at it personally. I look forward to launching that, so that we can assess it and, as a Government, take forward more measures to help small businesses.

We all agree that businesses should be able to access the finance they need, choosing whatever options are most suitable for them. The Government are committed to ensuring that businesses can secure the finance they need to invest and grow. It is not about favouring one type of finance over another. Invoice finance will not be the right choice for every business, but that should be a decision made by individual entrepreneurs, not made for them through onerous terms imposed by their customers. The regulations ensure that restrictive terms will no longer apply to SMEs while protecting freedom of contract for large enterprises. That change will allow thousands of small businesses to access invoice finance for the first time and will reduce the cost for existing and new clients alike. I commend the regulations to the Committee.

Question put and agreed to.