Right to Interest (Hansard, 8 April 1986)

§ Mr. Richard Ottaway (Nottingham, North)

I beg to move,

That leave be given to bring in a Bill to establish a legally enforceable right to interest on late payment of debts. I repeatedly hear cries from Nottingham business men who say, "We have never had a better year for turnover, but we are still in danger of going broke," or, "If all our bills were paid, we would be millionaires, but we cannot recover the sums due." How many times have we heard those cries in industry today, especially in the smaller companies where cash flow represents one of the biggest problems? In a recent survey carried out by the Nottinghamshire chamber of commerce, firms were asked to name four factors which most limited their business prospects. After interest rates, the second on their list was cash flow.

Getting paid has always been a problem, but as money has got tighter in recent years it has become harder still. Any company which has survived the recession is reporting increased orders and a new wave of confidence, but the problems of getting paid are becoming worse. Long delays in payment are being experienced and the worst offenders seem to be large companies, which are making large sums from their capital reserves and which, because of their industrial muscle, can delay payment to smaller companies, which rely upon them for their business.

A classic example is a photographer who complained about advertising agencies for which he worked and which use excuses such as, "There is no sign of the invoice", or, "We cannot get at that invoice until the end of the month because it is in the computer." When it was in the filing cabinet, they got it within minutes. Loth as I am to tell tales against my party's advertising agency, I must say that he complained that, in his view, the main offender was the advertising agency Saatchi and Saatchi which, at the very earliest, only paid him some four months after the job.

The proposal enshrined in the Bill is that, no matter how long it takes to get paid, the party who has been out of pocket will be entitled to sue for interest. Incredibly there is at present no right to sue for interest on the late payment of a debt. A person can sue for interest if he commences proceedings before he is paid, but that means that the only way to be sure of receiving interest is to issue a writ with every invoice. That is hardly likely to lubricate the wheels of industry.

The Bill would give anyone a legally enforceable right to interest. That means that the right would not be confined just to business men but would apply to anyone who is owed money by, say, a Government Department. However, I am pleased to report that Government Departments and local authorities are, by and large, quite prompt about paying their debts. Critics of the proposal may suggest that it would be hard to define when the right to interest arose—a certain amount of leeway must be given to make a payment. I quite agree, and the proposal is that the right to interest arises 30 days after notice has been given of the intention to enforce the right. Enforcing the right would be easy, utilising the facilities of the county court, which has a jurisdiction of up to £5,000.

It may be said against the Bill that it is impinging upon a relationship between two contracting parties who could make a contractual relationship for interest if they so 37 wished. As someone who is most concerned about individual rights, and about the rights of the individual rather than the collective, that is a criticism which I have considered carefully and rejected. The object of the Bill is to protect the small man against oppression from the large company. It is interesting to note that in a CBI survey only 19 per cent. said that they included a provision for interest in their contractual terms.

Why has there not been such a right to date? As long ago as 1978, the Law Commission, in its report on interest, concluded that the existing law did not provide adequate means of redress for the creditor who is kept out of his money by his debtor, and recommended that

the introduction of statutory interest is appropriate and necessary". We are very much the odd man out in Europe. Only Ireland and the United Kingdom, with the exception of Scotland, do not have laws entitling creditors to interest on the withholding of a debt. In certain instances even Scottish law provides a right. There is even a precedent in English law in that the little used Uniform Laws on International Sales Act 1967 gives an entitlement to interest where the buyer delays payment in breach of contract. But that is not a general right.

It has been argued that a voluntary code is sufficient, but, although I would welcome a voluntary code, I cannot accept that it alone would be sufficient. Payment of interest, on a voluntary basis, has not worked during the past few hundred years, and I see no reason why it should work now. It is vital to put some statutory teeth into combating this problem.

It is said that industry does not want the measure, but that simply is not true. Since starting my campaign to introduce a right of interest I have received substantial support. I have the support of the Nottinghamshire chamber of commerce, the Institute of Directors and the small firms council of the CBI. The full council of the CBI is actively considering the proposal and I hope that it will shortly be giving its support to it. The CBI recently carried out a survey on the late payment of trade debt among small firms. Among the questions asked was If there was a right to interest do you think you would ever use it? Of those asked, 44 per cent. said yes, which included a yes answer from 67 per cent. of the construction industry. But more interesting still is the fact that when asked

If you were automatically entitled, by law, to interest on any debts paid late, do you think your customers would pay more promptly? a staggering 85 per cent. answered yes.

To me, that shows that the mere existence of a right to interest would result in the faster payment of bills without the need to refer to the courts. That must be an utterly desirable objective, and I commend the Bill to the House.