Businesses: Prompt Payment of Bills (Hansard, 18 June 1991)

§ The Parliamentary Under-Secretary of State, Department of Employment (Viscount Ullswater)
My Lords, it is the responsibility of all businesses to ensure that their accounts are accurate, clear and timely. Paying bills on time is an important aspect of good business practice for both buyers and suppliers. To help in this process the Department of Employment publishes the guidance booklet Prompt Payment Please, which advises small firms on credit management and correct invoicing and large firms on their responsibilities to suppliers.

§ Baroness Sharples
My Lords, I thank my noble friend for that information. Can he say what is the average time taken by the Department of Health and the Ministry of Defence in the payment of subcontractors? Further, in view of the proposed European Community directive does he agree with the Law Commission's recommendation in its report of 1980 that there should be a statutory right to interest on delayed payments?

§ Viscount Ullswater
My Lords, the Treasury guidelines to departments are to pay bills within the contract term or, where no contract terms are specified, within 30 days of receipt of goods or a valid invoice, whichever is the later. The Department of Employment is conducting a survey of payment times by all major spending departments, including both the Ministry of Defence and the Department of Health, in the 1991–92 financial year. The overall result will be published at the end of the financial year.
With regard to the Law Commission report regarding statutory interest, there does not appear to be any conclusive evidence that in general countries where statutory interest applies have less of a payment problem than those where it does not.

§ Lord Mellish
My Lords, I appreciate the Minister's reply. However, is it not correct that the Government 36 of the day and previous governments were the worst offenders? Small businesses had to wait until their work was impacted and the invoice had gone through all the red tape in the machinery until, finally, a cheque was sent. I hope that that situation has been amended.

§ Viscount Ullswater
My Lords, we must be clear whether we are speaking of late payment or long payment. The idea of long payment is that contracts negotiated by firms may allow for three months for payment, whereas it is possible to contract for shorter times.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that, while the advice given in his Answer makes good sense, it is rather toothless? Is there no way of being more specific when the debt is owed by a local authority or government department?

§ Viscount Ullswater
My Lords, legislation, which is the alternative, will not change the position of the bargaining power between the small and the large companies. If there are instances of government departments or the top 100 companies paying late, my honourable friend Mr. Forth has said that he will take the matter up with the companies concerned. He said that in 1990 and the offer remains open.

§ Baroness Seear
My Lords, many voluntary organisations are suffering from late payment. Does the noble Viscount agree that, if instances of late payment by government departments which clearly damage the activities of voluntary organisations are referred to him, he will personally take up the matter?

§ Viscount Ullswater
My Lords, of course I shall stand in my honourable friend's shoes.

§ Lord Hailsham of Saint Marylebone
My Lords, given the high rate of interest charged by banks and the state of inflation in this country, is not the late payment of debts by contract date a clear case of unjust enrichment? Is not my noble friend Lady Sharpies perfectly right to remind the Government of the Law Commission's report? Sadly, it has never been implemented, owing largely to the attitude of the department for which my noble friend is speaking.

§ Viscount Ullswater
My Lords, to some extent I must defend myself against my noble and learned friend. Most small-firm organisations, including the Association of British Chambers of Commerce, the National Federation of Self-employed and Small Businesses Ltd. and the CBI smaller firms council, are firmly against legislation.

§ Lord Mason of Barnsley
My Lords, is the Minister not aware that during 1990 4,581 businesses collapsed? Many of those were small businesses which failed because money was owed to them. Does not the Minister agree that the Government should insist on companies paying their debts promptly to save small firms from being squeezed by big companies? Will he consider imposing a tax on those firms which do not pay their debts within 30 days? That should have an effect.

§ Viscount Ullswater
My Lords, the operation of such a scheme would be extremely difficult. As I tried to point out, the small firms thought to be those which are put upon very often do not have a good reputation for paying their own bills. It goes all the way through. It is important, too, to make a distinction between late payment and long payment.

§ Baroness Turner of Camden
My Lords, is not the Minister aware that the practice of subcontracting has substantially increased in this country in the past few years? In such circumstances, does he not agree that, if the bills are not paid when money is owed to small companies, there is a very serious threat to employment should such small companies be unable to maintain their businesses? Cannot something be done by the Government in view of the employment threat implicit in this state of affairs?

§ Viscount Ullswater
My Lords, I believe that the Government are taking action. The action that I have indicated is that they have produced the booklet Prompt Payment Please. They are also looking at the booklet again and updating it. The Government are making certain that it applies to the situation as it now exists. They are using the technical advice of the Institute of Credit Management. It is the education of the small firms in the operation of their accounts which is most important.

Baroness Sharpies
My Lords, does my noble friend accept that, apart from Ireland and Portugal, we are the only country in Europe which does not have statutory interest payment?

§ Viscount Ullswater
My Lords, I believe that to be so. However, in the circumstances we pay a great deal of attention to the advice that we get from the small businesses whose interests my noble friend seems to be supporting.

Lord Wallace of Coslany
My Lords, is the noble Viscount aware that delaying of payment is quite widespread in the National Health Service and that that is mainly due to under-funding?

§ Viscount Ullswater
My Lords, I am not aware of the problem which the noble Lord identifies. I have given the Treasury guidelines for payments by departments. As I have said, it is most important that firms tie up the contract for payment and that we distinguish between late or long payment.

§ Lord Elton
My Lords, is it not what the Government say but rather what the departments do that exercises us? Does my noble friend realise the enthusiasm with which we await the figures now being collected and which he promised us for next year?

§ Viscount Ullswater
My Lords, yes. I take note of what my noble friend says.

§ Lord Mackie of Benshie
My Lords, will the Minister confirm that there are large and important firms in this country which have built up large cash balances to their own great benefit simply by withholding money from firms which depend on them?

§ Viscount Ullswater
My Lords, I believe that that is anecdotal evidence. There is no reason to suspect that good firms have built up their cash balances in such a way.

§ Lord Orr-Ewing
My Lords, could not my noble friend set up a working party to consult and see what other countries do? There must be a solution to the problem. If this country is one of the worst transgressors with companies being paid very late, does my noble friend agree that we could take the best of all the ideas in Europe and bring forward legislation in the next Session of Parliament to make those ideas effective here?

§ Viscount Ullswater
My Lords, as I said originally, there is no conclusive evidence that in general in countries where statutory interest applies to late payment and where legislation has been introduced there is less late payment than in this country.