HC Deb 10 April 1987 vol 114 cc635-42

2 pm

Mr. Richard Ottaway (Nottingham, North)

This is possibly the last debate before the election when I shall have an opportunity to raise this subject. My hon. Friend the Under-Secretary of State and I have discussed this topic more than once. I am pleased that this time we are debating it at two o'clock in the afternoon rather than at 4.30 in the morning, as we did when we last had a chance to consider it.

We recognise that this serious problem of the late payment of debt affects a large number of people from a large number of areas. We recognise especially that industry has a serious problem. It manifests itself primarily as a cash flow problem. It is obvious that, if a firm cannot be paid, its cash flow is affected. Of the 22,000 bankruptcies last year, a substantial number—I cannot be precise—were due to cash flow problems rather than simply insolvency.

On Monday this week, Sir Charles Villiers, a former chief executive of the British Steel Corporation, said at a press conference organised by the Forum of Private Business that the two biggest problems that small firms have to encounter when considering their cash flow were taxation—primarily because of present legislation which requires quick payment—and the late payment of debts. He estimated that, of the 2,500 suppliers to British Steel during his stewardship, 500 went out of business simply because they were not able to get debts paid. He came up with a revealing statement, which is pertinent to the Government's code and guidelines on the late payment of debts. Knowing British business men as he does, he said that they will not change their attitudes to anything, let alone late payment of debts, until they are forced to do so.

I do not wish to he critical of the Government's code, but its weakness is that it is voluntary. It is a good code and I do not believe that any business man, lawyer or anyone involved in these matters can argue with any statement in it. My right hon. Friend the Secretary of State has announced that the code will be revised, and I look forward to reading that revision. If I have one criticism, it is that there should be a recommended period for payment, whether it is 30 days or 60 days, or 30 days net or 60 days net. It would be useful if the revision included a recommended period for payment.

I am not convinced that a voluntary code will change the climate of opinion on late payments of debts. It is worth looking at what happened to the CBI pamphlet which was published in 1980, seven years ago, entitled "Payment of Bills—a guide to good practice". The CBI, in its recent report on the late payment of debt, had to admit that the pamphlet had little effect. I venture to suggest that it had no effect, and that the position has even deteriorated.

I am pleased to welcome two recent converts to the debate on the late payment of debts. The first is no less a person than the Archbishop of Canterbury. In an interview with The Times, he said that debt was a symptom of the decline in our personal morality. He said that he thought that the reason was the high technological era in which we live, which had changed the ways in which we communicated. There is something to be said for that. Debt collection has become an impersonal business. One no longer rings up the man with whom one is doing business and says, "How about sending me a cheque?" One often finds oneself talking to a computer or a recorded message. That is one of many factors involved in this area of debate.

The second convert who perhaps has more influence on this topic is the Chancellor of the Exchequer. In my speech during the Budget debate I referred to this subject. The Chancellor said : Perhaps the biggest problem faced by the small business man today is the trade customer who is late in paying his bills: so late sometimes that VAT becomes due before the bill has been paid. I can do nothing about late payment: but I can, I hope do something about the VAT problem."— [Official Report, 17 March 1987; Vol. 112, c. 821.] One could almost imagine that the first sentence had been drafted by my right hon. and noble Friend the Secretary of State for Employment. It is a welcome statement and the measures introduced to help the small businessman were most welcome and, all in all, it was a good budget for small businesses, particularly with reference to the cash accounting for VAT.

However, it is slightly odd for the Chancellor to say that he could not do anything about late payment because that conflicts with the line coming from the Department of Employment, the guidelines of which clearly go towards the argument that one can do something about it. I do not think that it would publish guidelines if it did not believe that they would have some affect. We have to ask ourselves who is right; is it the Treasury or the Department of Employment? There is a clue to that, which will probably come as no surprise to my hon. Friend the Minister as I have suggested it in the past. It is worth noting that the Treasury has introduced penalties for the late payment of VAT. In reply to a written question that I put to the Chancellor, he confirmed that during the period October 1986 to January 1987 the VAT receipts went up by the staggering sum of £500 million. That was in contrast to the similar periods in the two years before where there had been no increase, but a steady contribution to the Treasury.

We understand that the backlog of VAT due to the Treasury will decline as a result of the introduction of penalties for late payment from £1 billion to £250 million. It is well on the way to collecting that backlog. Therefore, in a rather tortuous way I suggest that the Treasury supports the principle of some enforcement behind voluntary codes.

There has been a significant development this week in that Dun and Bradstreet, the world's largest credit collection agency, has published the interim results of a survey that if has embarked upon. The results make interesting reading. It asked what sort of problems people have in the area of late payment of debt. The answer was that 18 per cent. experienced severe problems, 78 per cent. experience some problems and 4 per cent. experienced no problems. Therefore, 96 per cent of those consulted had experienced problems on late payment of debt. The survey then asked those questioned whether they had read the guideines contained in the booklet "Payment on Time". A surprisingly high number, 19 per cent,— I congratulate the Department of Employment on getting through to 19 per cent.—said they had. However, 81 per cent had not read it. More interestingly, the 19 per cent. who had read the booklet were then asked whether the booklet had made an impact, only 6 per cent. were able to answer "Yes". Therefore, 6 per cent. out of a total of 19 per cent. have been influenced by the guidelines. That is a figure of about I per cent. That shows that 99 per cent. of businessmen in the country have not been influenced by the guidelines. One has onely to imagine onself inside a finance directors office with a pile of bills and the Government's guidelines in one hand and an unhealthy bank balance in the other and ask what would he do. Would he be influenced by the guidelines and make his bank balance worse, or postpone payment for another month. I think that any businessman, as Sir Charles Villiers said, will not do anything unless he has to.

The fourth question put in the survey was whether those questioned supported any legislation in this area. A total of 73 per cent. said that they did and that they believed it should take the shape of interest on the late payment of debts. We have to ask ourselves whether legislation in this area is a good idea. We know that the Treasury believes that it is, for the reasons that I have already given.

It is important to bear in mind that legislation will not conflict with the Government's guidelines. Frankly, I believe that it will give those guidelines teeth. However, many arguments have been put forward against legislation and there has been a drift away from support for guidelines. Why is the introduction of such legislation criticised?

The first argument against such legislation is that it would be interventionist. Many of us on the Conservative Benches are against the nanny state and interventionist legislation, but I do not believe that this legislation represents intervention. It represents regulation of the market place. We have been down this avenue of discussion many times especially in this Parliament, in our discussions of the Financial Services Act 1986. It is important that the City and the general market place are properly regulated.

The second argument put forward against legislation is that it would be more widely used by big firms than small firms and would act to the detriment of the small firms that we are trying to help. Frankly. I do not accept that. If legislation is introduced, it is available to everyone. It is not specifically aimed at the small firm. I believe that if small firms found that they were being pushed by creditors, they would turn round and lean on their debtors. We must also remember that large firms operate trading conditions and credit checks.

Small debtors cannot be slow payers in today's modern industry. Big company suppliers insist upon three trade references and one bank reference before they start supplying goods. Lesser enforcement procedures may also be followed—for example, the utilty companies may cut off services to small firms. Small firms are especially labour-intensive, and small retailers buy for cash. I believe that the introduction of legislation will redress the balance in favour of small businesses rather than the other way.

The Forum of Private Business, in a survey carried out in January 1987, asked its members whether they were in favour of legislation. The results showed that 86 per cent. were in favour and 14 per cent. were against. Recently, the Forum went back to the 14 per cent. to ask why they had said no. Only 11 per cent. of those asked said that they feared they could go bankrupt. Therefore, 11 per cent. of the 14 per cent.—which is 1.5 per cent.—had a fear of bankruptcy. Therefore, I am not sure that it is a fear of bankruptcy that makes small firms so keen on this legislation.

We must also consider the self-employed, the small, one-man operator who is at the end of the line and who has no creditors, only debtors. It is worth noting that not one survey has been published showing a majority against legislation. The CBI survey showed that 44 per cent. of those questioned would use the legislation and 84 per cent. believed that it would result in the faster payment of bills. I believe that the introduction of legislation would result in a tremendous release of energy—we always serach for that in politics — and will result in a change in the climate in such matters.

The Government have not been unreasonable. The Minister has said that, if my colleagues and I can persuade him that industry wants a change from the guidelines and wants the introduction of some legislation to give those guidelines teeth, he will have an open mind on the topic. I thank the Minister for that positive approach.

Time is running on, but I have a list of trade and professional associations — some 25 supporters — in favour of a change in the Government's attitude to this matter. They are primarily in support of legislation. If I may pick out one or two of those associations they include the Road Haulage Association, the National Farmers Union, the Small Business Bureau, the Federation of Master Builders and the Chartered Institute of Transport. All those organisations have a substantial number of members. Indeed, some 300,000 businesses now support the concept of legislation to deal with this problem.

The other day, my hon. Friend the Minister said in a press release that, of the seven principal lobby groups, only one supported some change to the present law. I do not believe that that is strictly true. If we consider the seven principal looby groups, we can discern a pendulum swing of opinion on this matter.

The Institute of Directors remains against legislation. The Association of Independent Businesses has made no comment. The Union of Independent Companies said this week that it has the situation under review and may have to support legislation unless there is considerable improvement. The Association of British Chambers of Commerce is slightly muddled in its advice. It said that, if legislation is introduced, it will support it provided that it does not result in a change in what is already the law, so I am afraid that we cannot look too much at the association's advice. However, it is worth noting that the Bristol, Plymouth and Nottinghamshire chambers now support a change.

The National Federation of Self-Employed and Small Businesses has begun to show a shift in opinion and is now calling for interest penalties in the county courts. The CBI is in favour of a discretionary change in the law and possibly reviewing the position. As we know, the Forum of Private Business is for legislation. I commend to my hon. Friend the Minister the report that it published this week.

An early day motion has also been tabled on the topic. It is not frivolous, like many that appear on the Order Paper. It now has the support of 183 Members of Parliament, representing 15 million people. One cannot ignore such a substantial number of Members who now believe that there should be a change in our approach.

I thank my hon. Friend the Minister for his interest in this topic during the lifetime of this Parliament. I am pretty sure that this is the last time that we shall have the chance to discuss it before the election. I shall be interested to hear what he says about it.

2.16 pm
The Parliamentary Under-Secretary of State for Employment (Mr. David Trippier)

The late payment of business debts, which we are debating today, is in some respects an unusual subject. There is very wide agreement about the existence of the problem and the need to do something about it. At the same time, there is substantial disagreement about the best way of dealing with it.

My hon. Friend the Member for Nottingham, North (Mr. Ottaway) is convinced that further legislation is a necessary part of the solution, and I am not. I do not say, and never have said, that I am rigidly opposed to legislation, but my starting point is that we should not use legislation to dictate to firms, large and small, how they should do business with each other unless the advantages of legislation are quite clear. That point should be common ground to Conservative Members and even to many Opposition Members. As my hon. Friend supports legislation, it seems that he has satisfied himself that the advantages are clear. I must say to him, despite his closing remarks, that I do not believe that he has yet satisfied most of the principal representatives of small business in whose interest he makes his proposals.

I have close contacts with the organisations representing small firms and I have discussed the problem of late payment with them on many occasions. The great majority of them either are opposed to legislation or have serious reservations about its desirability. The National Federation of Self-Employed and Small Businesses, which certainly represents very small businesses, as my hon. Friend will concede, the Association of Independent Businesses, the Association of British Chambers of Commerce, the National Chamber of Trade and, I believe, the smaller firms council of the CBI, have all told the Department or me that they do not support legislation along the lines proposed by my hon. Friend.

For example, I should like to quote from a letter addressed to me by the chairman of the National Federation of Self-Employed and Small Businesses, Mr. Brian Prime, dated 6 March, in which he said : The Federation has always been reluctant and very cautious over this subject. I felt it was time to confirm our policy on this subject. With this point in mind, it was raised at our February National Council Meeting and after debate Council once more confirmed the Federation's opposition to legislation being introduced that would make interest on late payments of bills mandatory. We feel this would have a more detrimental effect on small business than a beneficial one.

Mr. Ottaway

May I refer my hon. Friend to the manifesto of the National Federation of Self-Employed and Small Businesses, published this week? On page 10 it says that the federation supports a strengthening of the County Courts system, enabling those bodies to impose discretionary interest penalties". I agree that that is not exactly what I am saying, but a change in the law is needed to introduce that.

Mr. Trippier

I am grateful to my hon. Friend for stressing that. However, in a number of debates that we have had on this issue, the point has been missed that the Administration of Justice Act 1982 is already on the statute hook. That allows discretionary payment to be awarded by the courts. That may have been missed from the Dun and Bradstreet survey to which my hon. Friend referred. I maintain—perhaps this is a weakness— that the Government have not made the nation increasingly aware of the fact that the Administration of Justice Act 1982 exists. Perhaps the vast majority of people are unaware of that.

I accept that the National Federation of Self-Employed and Small Businesses is asking for changes at the county courts level. No one disputes that. However, it is not prepared to follow the route down which my hon. Friend is seeking to lead it at this stage. He has referred to the Union of Independent Companies. This morning I spoke to the chairman of the Union of Independent Companies, Mr. Barry Baldwin. My hon. Friend is absolutely right to say that the union is keeping the matter under constant review. I understand that that statement was made by the vice-chairman. He said : It may have to support legislation unless the situation improves considerably. The chairman volunteered the information to me that it was unlikely that the union would ever take that step, but he would certainly stand by something which my hon. Friend would welcome— the fact that the union would certainly keep the position under review.

I query this point not because I doubt anything that my hon. Friend has said, because I know that he speaks with some authority on these matters. If we refer to the case put forward by the Forum of Private Business—for which I have a great deal of time and respect; I tend to agree with the vast majority of what it says—the forum claims at the back of its booklet to have the support of the Federation of Master Builders. It does not. I have a letter from Mr. Bill Hilton dated 5 February — relatively recently—which clearly makes the point : as you have previously maintained, there could be serious disadvantages arising from such legislation in the absence of certain safeguards. And when does payment become 'late'? I could quote from various letters that I have received only recently.

I am not prepared to take on the Archbishop of Canterbury; and my hon. Friend would not expect me to do that. However, if I take time out, as I am prepared to, to study what the Archbishop said—

Mr. Ottaway

What about the Chancellor of the Exchequer?

Mr. Trippier

If my hon. Friend reads the case laid out by my right hon. Friend the Chancellor of the Exchequer in his Budget speech, he will discover that my right hon. Friend's case supports my position.

My hon. Friend was kind enough to say that at least I have kept the door open. I will refer to that later in my speech. However, to paraphrase my right hon. Friend the Chancellor, he said that he could do nothing about late payment. With the Administration of Justice Act 1982 and the code of practice, we have shown that we are doing all we possibly can to help. We are not prepared, however, to go as far at this stage as my hon. Friend has suggested.

Other organisations with a strong representation among small businesses, such as the Institute of Directors, have also expressed their concern and opposition, as has the Institute of Credit Management, whose members have practical experience of the problem. I am tempted to say that there is a consensus of informed opinion against my hon. Friend's proposals, but I recognise that they find a measure of support. It would be foolish to say otherwise.

The Forum of Private Business in particular has campaigned vigorously for legislation in that area, and I accept that it is not without allies. I must congratulate the forum and my hon. Friend on their determination to bring this problem to the forefront of public attention where it belongs. At the same time, I hope that I have made it clear that their support for legislation remains in my view a minority opinion among those who have considered the problem in depth.

I have said publicly, and repeat again now, that I attach great value to the views of the organisations representing small businesses. If they were to give their firm backing to my hon. Friend's approach, I would take their views very seriously indeed. My hon. Friend referred to hon. Members who have signed the early-day motion. I respect that, but I find it hard to believe that, where the arguments have not been explained in some detail, hon. Members would wish to support a proposal that is opposed by the small firms lobby groups which represent the vast majority of people in the small firms constituency. Perhaps it would be wise if, after the debate, I sent them copies of Hansard reports of this and other debates on the matter.

Having stated where I disagree with my hon. Friend, I should emphasise the substantial areas of agreement. First, we agree that there is a serious problem. During my time as Minister responsible for small firms, few issues have struck me as forcibly as this. At the best of times, many small firms have cash flow problems, and late payment of bills by their customers makes a bad position worse. If the small firm is lucky enough to have a sympathetic bank manager, it may be able to borrow to help it through its difficulties, but the cost in interest charges and in the reduction of funds available for other purposes makes that a far from ideal solution. In addition to the financial strain, there is an extra burden on management time. Small business men already have enough roles to play without becoming debt collectors.

We agree that there is a problem. We also agree that, to solve the problem, above all we need a major change in attitudes and practices. Those who advocate legislation believe that it will have a helpful effect on attitudes and practices. Those who oppose it, or are sceptical about it, doubt whether it will be helpful. Some think it will be harmful. But there is general agreement that legislation will be useful only if it encourages a change in attitudes and practices. Merely to give the victims of late payment an additional means of redress will bring only a very marginal benefit if it does not have a much wider effect in deterring bad practices and encouraging good ones.

It is important that the problem of late payment should not be oversimplified. It is not, as is sometimes suggested, simply a matter of large firms deliberately delaying payment as a means of improving their cash flow and investment income at the expense of their smaller suppliers. Where that happens, it is, of course utterly deplorable. But there are other reasons for delay, bureaucratic inertia, cumbersome payment systems, and disputes over contract performance among them. Although I receive many complaints about late payment, relatively few of them are straightforward cases of unwillingness to pay on time. Often there is a dispute about the quantity or quality of goods supplied. In other cases, the complaint is about the terms of contract themselves, where one party considers the payment clauses unreasonable. I am bound to be influenced by this experience in forming my views on legislation, which seems to offer a simple solution to what is often a complex problem.

I must also emphasise that a change in attitudes and practices is needed among small firms. At least part of their problem is often due to lack of thought at the stage of contract or invoicing, or to inadequate systems of credit control. If the contract or the invoice does not make it clear when payment is required, it is not surprising if payment takes longer than the supplier would like.

The public sector, too, has come in for some criticism. But if I refer to the fairly recent CHI survey, I gain some comfort from the knowledge that only 5 per cent. of respondents felt that central and local government bodies are the worst payers. That does not mean that there is any room for complacency. Far from it. It is important that I stress yet again in public that I am willing to take up cases of late payment involving Government Departments. I am pleased to say that my intervention has often been effective.

So much for the nature of the problem. What can the Government do to help towards a solution? I am glad that the title for our debate refers to the Government's guidance, because we have indeed given guidance. Last year, in conjunction with the CBI, the Association of British Chambers of Commerce, the Institute of Directors and the Institute of Purchasing and Supply, my Department issued the booklet "Payment on Time". The booklet has been much in demand, with 150,000 copies distributed, and requests for more copies continue to arrive. I am not discouraged by surveys purporting to show that the booklet has had no impact. I know, for instance, that a Dun and Bradstreet survey has found that only 19 per cent. of those surveyed had read the booklet. By the standards of most Government advice booklets, I suspect that that makes it a best seller. My estimate of the size of the small business constituency is more than 4 million. One fifth of that would mean that about 800,000 copies of my code have found their way into the hands of small business men. As only 150,000 have been made available, someone else must be printing them. I only hope that it is a small firm, but I should like to know who is paying.

I recognise that the code is not the end of the story, but my hon. Friend has been kind enough to refer to the new initiative that I announced this week, which will update the code and print some of the replies that I have received from the chairmen of the larger companies.

Strange though it may seem, I welcome the opportunity that we have had to debate the issue again; I welcome any initiatives that keep the issue in the spotlight. The need for improvements is not in dispute. However, there is room for general disagreement about how to achieve them, and I still believe that co-operation is better than coercion.

It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.