Late Payment of Debts (Hansard, 14 January 1987)

§ Mr. Allan Stewart (Eastwood)

I beg to move, That leave be given to bring in a Bill to establish a legally enforceable system of penalties on late payment of debts. The problems created by the late payments of debts, particularly to small firms and the self-employed, are widely agreed by hon. Members and business organisations outside the House to be widespread and serious. The House will recall that my hon. Friend the Member for Nottingham, North (Mr. Ottaway) introduced on 8 April 1986 a ten-minute Bill on the right to interest, which has been reintroduced this Session. My hon. Friend has worked tirelessly to highlight the need for action on this problem; for example, the debate that he initiated on 24 July and early-day motion 63, which has been signed by more than 100 hon. Members on both sides of the House. My hon. Friend also took part in a press conference on 18 November at which the hon. Members for Huddersfield (Mr. Sheerman), representing the Labour party, and for Stockton, South (Mr. Wrigglesworth), representing the SDP, spoke about the problem.

My hon. Friend the Parliamentary Under-Secretary of State for Employment has done an immense amount of work on the problem since he took office. Last year he introduced a code of practice entitled "Payment on time", and I congratulate him on that. It shows his and the Government's concern. Nevertheless, the problem of the voluntary code is self-evident: it has no teeth to ensure universal compliance. My case is that there needs to be legislative change to support the code.

Obviously, the law differs in some respects north and south of the border. But it is astonishing that despite a Law Commission report in 1978, recommending that contract debts should carry a statutory right to interest save where parties otherwise agree, the La Pintada case confirmed that under the Administration of Justice Act 1982 interest does not run before proceedings for recovery of the principal sum have begun.

My hon. Friend's Bill would establish a legally enforceable right to interest on late payment of debts. I would add to that, first, the need to ensure that the Scottish position is fully covered. Secondly, I would propose to limit the new rights of interest to individuals, partnerships and private limited companies. That would answer the Government's criticism that legislation might be used by large companies to the detriment of small companies and the self-employed. Thirdly, the long title of my Bill is sufficiently wide to enable the Government to introduce supplementary proposals in Committee, if they wish.

The problem is certainly widespread. In a survey in November, the Forum of Private Business suggested that Britain's small businesses were owed an estimated £57 billion—£5 billion in Scotland. The problems that result are not only those of cash flow, which inhibits growth, investment and job creation. The problems can create serious personal strain. The Confederation of British Industry (Scotland) recently described the practice as amounting to pernicious and dishonest trading. A CBI survey in November 1985 showed that 81 per cent. of firms replying said that late payment problems were a 279 general burden in terms of the extra costs incurred and management time wasted, and that 11 per cent. suffered serious set-backs attributable to late payments.

Hon. Members will have cases from their own constituencies. My hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) told me of some earlier today. In my constituency a small firm came to see me last week with a problem so severe that it had gone to a debt collector. That has not helped, so now it must sue the debt collector. A business man told me that more than 50 per cent. of his time must be devoted to this problem. In Renfrewshire, Rathoprint closed because big firms would not pay in time.

The problem is becoming worse. Sixty-one per cent. of the CBI survey believed that standards had declined over the past 10 years, and only 8 per cent. believed that they had improved. A Forum of Private Business survey of members' opinions shows that an increasing number are in favour of legislation, now 84 per cent. The commercial collection division of Dun and Bradstreet, the United Kingdom's largest debt collector—and it ought to know what it is talking about—claims that the code of practice is not reducing the problem and that the situation has worsened since the code was introduced last May.

From 1 October last year, the Customs and Excise authorities have been empowered to impose statutory penalties on businesses late in paying VAT, and the penalties range from 5 per cent. to as much as 30 per cent. This puts an additional squeeze on small firms, and it is regrettable that no action has yet been taken to help them with their problems. The effects of what is proposed would not resolve all the problems, but it would be a further step in the right direction.

280 The Scottish secretary of the National Federation of Self-Employed and Small Businesses has said that the Bill would not be a complete solution, but statutory powers would tilt the balance of the dilemma in favour of small businesses. I know that until now my hon. Friend has taken the view that we should wait for two or three years to see whether the voluntary code works, despite the evidence already that it does not.

The threat of a possible application for interest would be enough to change debtors' behaviour, especially if a few well-publicised test cases followed a change in the law. Most other countries, with the notable exception of the Republic of Ireland, have legislation to help with this problem. I commend to my hon. Friend the legislation in Germany and in Japan. This measure would significantly help hundreds of thousands of small firms and self-employed people. We need to change the balance in favour of the honest small business man, so that he can go ahead and expand and prosper in the sure knowledge that he has a greater chance of getting what he is owed in a reasonable time. I hope that the House will accept the Bill and give it a Second Reading.