Small Businesses: Late Payment (Hansard, 16 June 1994)

§ The Minister of State, Department of Trade and Industry (Lord Strathclyde)
My Lords, we are concerned about late payment. That is why we consulted the business community and why we have announced in the White Paper on competitiveness a package of new and practical measures to address that important problem.

§ Lord Ezra
My Lords, I am glad to know that the Government attach so much importance to this matter. Is the noble Lord aware of the full extent of the problem; that of the £40 billion owed at any one time to small firms, no less than £20 billion is paid late? That £20 billion is roughly equivalent to their bank overdrafts, 1815 which are extremely costly. Is he aware further that, in a wide-ranging inquiry in 1991, 80 per cent. of small businesses said that they thought that they would be paid more promptly if there was a statutory obligation to pay interest? In that regard, the Government have said that they are going to wait another two years. Should they not make up their minds now?

§ Lord Strathclyde
My Lords, of course the Government have made up their minds and we shall not legislate at this stage until we have introduced the very important practical measures which we announced in the competitiveness White Paper. The figures used by the noble Lord were the latest in a long line of very different figures used by a variety of people to support their particular case. That is one of the problems. However, when we consulted the CBI Small Firms Council and the Federation of Small Businesses, both agreed that legislation was not the way forward.

§ Lord Hailsham of Saint Marylebone
My Lords, am I not right in thinking that it is probably about 10 years or more since a committee set up by the government of the day reported in favour of interest to be paid for non-payment of simple debts, and that that interest should be enforceable by the courts? I wonder why it is that no governments have supported that recommendation in the interval, because it seems a very simple provision.

§ Lord Strathclyde
My Lords, the problem is that at the moment the courts can already enforce contracts which require prompt payment and interest. To add a statutory right to interest simply gives powers which already exist. That is why this Government have not acted. We much prefer to look at speeding up court procedures and making the Government lead by example. We are looking at a variety of educational and informational means to make sure that people have their bills paid on time.

§ Lord Dean of Beswick
My Lords, is the Minister not aware that traditionally the building industry has been the biggest culprit as regards this practice? In order to assist their own cash flow problems, the very large companies have delayed payments to smaller companies doing sub-contracting work. Very often that has resulted in small companies being driven into bankruptcy. Is the Minister further aware that I am distressed to see that there has been an increase in late payments to small firms? I had understood that the situation had improved, but if that is not the case, is it not time for urgent action?

§ Lord Strathclyde
My Lords, the noble Lord is absolutely right when he says there is a quite specific problem in relation to the building industry. The construction industry has an endless stream of contractors and sub-contractors. That means that people have consistently been paid badly. That is why the Department of the Environment is presently consulting the construction industry; and that is why the CBI has supported specific schemes to try to solve the problem. Those schemes are showing some success.

Baroness Sharpies
My Lords, is my noble friend the Minister aware that in 1980 I asked the selfsame Question as the noble Lord, Lord Ezra, and the answer today has been just about equivalent? Is he also aware that in 1991 I asked the same Question and the Minister responding from the Front Bench said that government departments were instructed to deal with their bills within 30 days of receiving invoices?

§ Lord Strathclyde
My Lords, for a long time I have believed that the primary causes of late payment are either the recession or high interest rates. However, we are now firmly into recovery and we have low interest rates. That is why, uniquely in Europe, it is British payment times which are falling, whereas on the recession-hit European Continent they are still increasing.

§ Baroness Seear
My Lords, can the Minister remind us of the policy of Her Majesty' s Government regarding payments owed by government departments in relation to both their commercial transactions and moneys that they have committed themselves to pay to various voluntary organisations? If such a policy is not adequately carried out, what is the procedure to enable such organisations to gain redress?

§ Lord Strathclyde
My Lords, as part of our announcement in the White Paper, we declared that government departments would stick to the code of practice issued by the CBI, which obliges departments to pay in accordance with contract terms. I do not know whether that also includes payment to voluntary organisations, but I shall make it my business to find out.

§ Lord Stoddart of Swindon
My Lords, is the Minister aware that I cannot understand why the Government will not take a statutory route towards tackling such a difficult problem? After all, the Inland Revenue does it in reverse; indeed, it charges small as well as large taxpayers who do not pay on time interest. Why on earth should the same procedure not operate with industry?

§ Lord Strathclyde
My Lords, as I have already explained, at the beginning of the year we carried out a wide-ranging consultation process. There was no overwhelming consensus for legislation. Many people believe that a statutory right could be positively harmful.

§ Lord Peston
My Lords, I am slightly surprised by the Minister's reply. Is he aware that many small business men have been in contact with me? They say that they would very much like a mandatory right to interest on late payments, subject to one point: the law should be drafted so that they do not end up with even more expensive litigation, which is their real worry; in other words, there should not be yet another subsidy for lawyers. Is not the main problem that late payment means that small business men are spending their time on matters which are not germane to the central activities for which they went into business and that they spend their time on anxiety-creating attempts to stop their businesses going bankrupt because of poor 1817 cashflow when in fact they are not in the financial game? In the circumstances, should not the Government be acting rather more powerfully and rapidly?

§ Lord Strathclyde
My Lords, many people believe that the simple fact of having a law against late payment will somehow, by magic, solve the problem. Of course, it will not. Many smaller firms suffer because they have poor credit control. They do not send out invoices and they do not have contracts. Those are the matters that we need to tackle.