HC Deb 02 February 1990 vol 166 cc552-615

Order for Second Reading read.

9.36 am
Mr. Michael Mates (Hampshire, East)

I beg to move, that the Bill be now read a Second time.

This is a Bill to help small busineses. I can guarantee that all hon. Members, whether or not they agree with the merits of the Bill, will agree that this is a time when, above all, small businesses need all the help that we can give them. High interest rates, high mortgages on homes and the introduction of the new business rate have hit the small business man particularly hard. When one adds the slower growth that we are experiencing as a result of matters that we will not want to discuss this morning, I hope that every hon. Member will agree that anything that can be done to help small businesses through this difficult period should be done. That is what I am seeking to do with the Bill.

The Bill aims to tackle the scandal of the late payment of debts—and I hope to be able to show that it has become a scandal. I am seeking to ensure that commercial debts owed to small businesses are settled in due time, and that if they are not, those small businesses will not suffer from late payment but will be able to charge interest.

In a sense, the Bill is unusual because it creates no new offence under civil or criminal law. It does not change the law of contract or the interaction between supplier and manufacturer, and it makes no difference to the operation of the market. It provides that those who do not meet their contractual liability must pay interest for their failure to honour their contracts.

For many people, the Bill has been a long time coming. As long ago as 1978, the Law Commission decided that those who do not pay their bills on time should be liable to interest on their debts. It published a report and draft Bill to support that independent view of some of the best lawyers in the land. Our former colleague, Mr. Richard Ottaway, took up the issue when he was a Member and, no doubt, he will return to it when we see him back on these Benches. He introduced a Bill in 1987 which, unfortunately, was not debated.

Some will wonder why, when the Government have taken some action—for which I commend them—the idea of legislating to create a statutory right of interest has been revived. I have done so not to criticise the Government—they should be praised—but to point out to them as clearly as I can that their action, although an honourable attempt, has been nothing like enough and has not had the effect that they would have wished. The Government produced a pamphlet entitled "Prompt Payment Please!" It showed the way that they sought, by encouraging good practice, to persuade companies voluntarily to settle their debts on time.

"Prompt Payment Please!" was a worthy document and all its sentiments were laudable. It was a genuine attempt to make things better. The Government's words on the front of the document are important because they say under the heading "The Payment Problem": There is a special responsibility on large firms to deal fairly with small suppliers, who may be severely damaged by delayed payment". The Government's reason for producing this voluntary code of practice is primarily to help the small business man and, as such, it is entirely commendable. Alas, it has not been successful.

All the great and the good signed up. The document stated: Industry Supports Payment on Time. It continued: the Department of Employment, in conjunction with the Confederation of British Industry, Institute of Directors, Association of British Chambers of Commerce and Institute of Purchasing and Supply published 'Payment on Time', a booklet offering practical guidance to suppliers and buyers. That was thoroughly laudable.

I am a little reluctant to mention names in my comments on the scandal of late payment and I am determined not to abuse my parliamentary privilege in doing so. But so notorious is one of these large companies that I feel that I must mention it because it is such an outstanding example of what is wrong and what the Bill could put right. It is the General Electric Company plc. It signed up to the document and agreed with the principle that it should pay debts on time. In the document, the company stated: The separate units of this Group operate autonomously and make purchases through their own buying departments. They are required by Head Office to settle accounts, whether with big or small firms, in accordance with contractual arrangements. I mention GEC because of the hundreds of letters that I have received. Many people have complained about this firm and its notoriety in not settling its debts on time. I see from their indications of assent that other hon. Members have received similar complaints.

Having made this accusation, I must back it up. One of GEC's subsidiaries, Marconi, issued a letter last November which stated: There has recently been some confusion with our suppliers with regard to the credit terms that Marconi used to pay invoices. To clarify the situation, I have to inform you that Marconi's standard credit terms for all suppliers are 90 days' credit. Under no circumstances are we now able to agree to terms less than that. That answers the first of the objections that my hon. Friend the Member of State raised on the "Today" programme this morning when he said that he feared that, if the Bill became law, more and more large companies would extend their terms because they had to pay interest and that, instead of the norm being about 30 days, it might grow to 60 or 90 days.

That is happening anyway. It is happening not because of my Bill, or even the threat of this legislation, but because of what is happening in the commercial world. Times are getting tough; interest rates are high; and large suppliers are screwing down their small suppliers even harder. I do not quarrel with that, because I do not want to interfere in this interchange. I certainly do not want to distort the contractual arrangements that are made between the big business man and the small business man. However, as that is happening anyway, the little man will be better off if he knows that on the 91st day—in Marconi's case—he will get interest. I say that because of the evidence that I have received. I will not name the people who have written to me because they want to continue doing business with these companies and do not want to be discriminated against for having come to me. I have undertaken to protect their confidentiality. If any hon. Member wants to see their letters, they are available at my side.

Although Marconi is demanding 90 days' credit, it is not paying up until after about 150 days have passed.

Mr. Christopher Gill (Ludlow)

Does not the significance of my hon. Friend's comments lie in the fact that in this specific case—there are many others—the company that receives the goods dictates the payment terms and specifies 90 days? I remember when the terms were a matter of negotiation and agreement between supplier and customer. Does my hon. Friend agree that there is too much evidence today of the customer dictating not just specifications and delivery but terms of payment?

Mr. Mates

I entirely agree with my hon. Friend. He has reinforced my point about the need for this sanction. I have evidence that the average period for Marconi is 150 days and I have evidence of payment as late as 170 days—about six months. If that is what GEC means by the fine words in the document It is our policy that contractual arrangements should be met I am a Dutchman.

I should like to read another letter because it shows what goes on. It is from a small business man who wrote to me in support of my Bill. He said: However there is one practice which I find very irritating, and which seems to be indulged in notably by companies in the GEC group. This is a sort of progressive 'taking advantage' which operates as follows:

  1. (1) The officer who actually wants to buy negotiates a price. Usually a discount will be asked for"—
  2. that is fine—
  3. "(2) Then the purchasing department tries to negotiate a lower price, and longer payment terms.
  4. (3) Then even those longer payment terms are ignored and the company takes as long as they like to pay."
The man went on to say: The whole business is a bit ludicrous, because they place so much stress on negotiating payment terms but then just ignore them. Apart from costing money, this makes it quite impossible to quote reasonably and to predict finances. It also wastes my time in negotiations which I know to be meaningless anyway. If that is not a cause for doing more to put these things right, I do not know what is.

I have another letter that arrived this morning and which I have not quite finished reading. It is addressed to Lord Monson in the other place and is about his comments about large companies deliberately putting off payment to smaller companies. I shall not bore the House by reading the whole letter, because it rehearses old arguments, but at the bottom, it states: Examples given: 45 days late—not too bad. Our current age of debt is approximately 87 days, although our trading terms are 30 days. 45 days—not too bad The Army, four months"— by that, the writer means the Ministry of Defence— GEC, seven months. That is a scandal and the House should be doing something about it.

While getting ready to present the Bill, I had cause to talk to the press. At that stage, I had from Rolls-Royce a letter, which I want to share with the House. As I said at the time, I believe that what Rolls-Royce did in this case, although indicative of the need for my Bill, was thoroughly honourable in that it had at least kept its suppliers informed of what was happening. The letter, addressed to all suppliers, says: Dear Sirs, You will be aware that in the fourth quarter of 1989, Rolls-Royce was adversely affected by two major industrial disputes—one at Boeing and one at our own facility at Hillington. The letter then describes the difficulties that Rolls-Royce has been having and says: However, we must look to our Suppliers to share in the cost of this problem. Accordingly, we will be delaying payments due to Suppliers by one week, commencing at the end of January, for a period of eight weeks. I can confirm that there is no suggestion of passing on the full impact of the disputes to our Suppliers. I suppose that they are meant to be grateful for that. The letter continues: We are advising you of this action in advance so that you can make the necessary arrangements.

That letter was courteous and fair, and I understand that Rolls-Royce has a good relationship with its suppliers. I am not seeking to knock the firm, but I want to point out that the letter is a unilateral breach of contract for which the small man has no redress.

The House may consider it even more significant that, as a result of this case appearing in newspapers, I had a telephone call from Mr. Dominic Sheahy who is the director of public affairs. He wrote a letter in which he said that he did not want there to be any misunderstanding and that Rolls-Royce had taken that action with regret. I repeated that I thought that the firm had been honourable—and rather more honourable than other large firms—in telling its suppliers about the position. However, I pointed out that the firm was unilaterally in breach of contract. He said that it was, but that it could not help it. I asked what the position would be if my Bill were law, so that Rolls-Royce had to pay interest because it was paying a debt late, in breach of contract. He said that if the Bill were law, there would be no point in the firm undertaking that operation because there would be nothing in it for Rolls-Royce. If that is the case, I am interested to know why the Government oppose the Bill. For the life of me, I cannot see the reason.

I want to emphasise that all my examples are cases where there is no dispute over the invoice or the goods. That is another matter with which my Bill does not seek to interfere. They are simply cases of late payment. I want to give credit where it is due. Marks and Spencer pays all its suppliers within seven days of receiving the invoice. That is its standard practice and it keeps it through thick and thin. If it does not, its management wants to know why. If Marks and Spencer can do that, why cannot other firms, such as Marconi, GEC and Rolls-Royce?

The Government are not innocent in the matter. I do not want to put words into their mouth, but that may be why they are reluctant to support the Bill. The terms of the Bill will apply to central and local government. I know of one Ministry of Defence contractor on a major project who has simply stopped working on it because he has not been paid. He has walked off the site and has said that he is not coming back until he is paid. That is a special case about which I heard only yesterday and I have my own ways to take up the matter with the Ministry of Defence to find out what has gone wrong. Nevertheless, I feel wholly justified in quoting that case to the House. When such incidents happen, some of the sub-contractors are the worst hit, because they are not paid as a result of the main contractor remaining unpaid, which simply accentuates the problem.

A vet has told me that the Ministry of Agriculture, Fisheries and Food pays 30 days late as a matter of routine. The vet works regularly as a licensed veterinary inspector. He submits his invoices regularly and they are always paid 30 days beyond the due date. I find it odd that the Government should publish a code of practice urging prompt settlement of debts when they are not paying their own debts on time. It is even odder that the Government seek to defend those practices while they insist that those of us who do not pay our tax or VAT on time are charged interest on our debts and there is no messing around on that because the process is automatic. What is sauce for the goose should be sauce for the gander.

The problem of non-payment is so bad that some companies have ceased to do business with big companies or with the Government because of late payment. J. J. Hamilton and Sons of Oxford have ceased working with a major building contractor just because they are always paid late. As I am sure many of my hon. Friends know, some companies have ceased trading because of late payment. A sad example brought to my notice is a company called Rathoprint of Greenock, which had traded for 17 years. In the end, its bankers refused to sustain its overdraft because it regarded the debts that the company was owed as too old. That is one of the main difficulties that face small firms and one of the reasons why I believe that the Bill is important. It will give small companies an additional confidence with their own bankers. They run up against banks that tell them not to pay their own bills while they wait for the big man to pay them. They are reluctant to do that, as I should be.

Mr. Edward Leigh (Gainsborough and Horncastle)

I am sure that we all respect my hon. Friend for introducing this Bill. My hon. Friend is a fair man and I am sure that he would not want to give the impression that this is simply a conflict between small business and big business. He has, no doubt, seen the press release from the Association of British Chambers of Commerce, which represents 98 chambers of commerce with 70,000 members, many of them small business men, who voted 3:1 that they were unable to support this legislation. I am sure that my hon. Friend would not want to give a false impression.

Mr. Mates

I do not intend to give a false impression and I shall come to all the objections, if my hon. Friend will be patient.

The banks regard debts of three months or more as likely to be bad debts, so they threaten the company concerned with closure. I am rather surprised by that, because the banks themselves benefit from late payments because of the enormous interest they charge us on our overdrafts. It is important to ask why debts are not paid on time when there is no dispute about the goods, the services or the invoice. The basic reason, as I have mentioned, is that large businesses have something to gain by not paying their sub-contractors on time, keeping their money in the bank—or hoping to borrow more—and earning interest for as long as possible.

I believe that it is necessary to focus these proposals on small businesses, as what is seen by a small firm as a large debt is seen by a big company as a small debt. It is of no importance to one of the large plcs that somebody is owed £5,000 when its total debts may amount to millions of pounds, but to that man, the £5,000 might be the difference between life and death, between being able to pay his mortgage or having his house repossessed, and between being able to stay in business or to go out of business. The human side of this may have been overlooked in the welter of figures that have come out. The point of the Bill is that liability of interest as a right makes it no longer worth a company's while not to pay on time. Companies will have nothing to gain.

I believe that that answers the second point made by my hon. Friend the Minister on the radio this morning when he said that he doubted whether the proposal would be enforceable. I do not believe that it will need to be enforced. Most of the companies about which we are talking, and certainly central and local government, are law abiding. Public limited companies have to obey the law, or they can be had up for it at their annual general meeting. If the Bill were to become law, not only would companies obey it, but, as in the case of the company I mentioned, they could dismantle a large office that is employed solely to delay payment on the basis that a simple calculation has been made that the company can earn more by keeping its money on deposit while paying two or three people to juggle the bills around and to wait until the writs arrive. That would come to an end because there would be nothing in it for the company. After all, businesses are pragmatic organisations.

The statistics vary but there is no doubt that the problem is getting worse—another shot at the argument that we do not need the Bill. Dun and Bradstreet, the largest debt collectors in the country, conducted a survey, in which 77 per cent. of the 500 firms questioned said that they would be able to reduce their bank borrowing if their bills were paid on time.

It may help the House if I cite a few examples. Mr. Peter Valentine of CASMU Contracts wrote to me and said that he is owed £500,000 in overdue payments—one quarter of his turnover. He has calculated that he is spending £25,000 a year on interest, purely as a consequence of unpaid bills. Of that £500,000, a total of £152,882 is owed in overdue payments by just six large firms. I ask the Minister to imagine what effect that has on a small man struggling to make his way. I hope that I have shown conclusively that the Government's code of practice is simply not working.

A business man from the Isle of Wight wrote me a fairly long letter saying that he had tried to raise the problem before: I should therefore like to add my wholehearted support for your campaign in the hope that this time you may achieve something more positive than David Trippier's ineffectual pamphlet, 'Payment on Time'. I shall not join the criticism of my hon. Friend who is now the Minister for the Environment and Countryside because what he did was laudable. It was right to approach the problem on a voluntary basis at first. But I hope that I have been able to show the House that that has not been enough. It may have made some difference, but we must now tackle the problem in a more robust way and bring large businesses and central and local government to account.

One might think from all the examples that I have cited that all those who have anything to do with small businesses would be in favour with the scheme. I am sorry to say that not all of them are as strongly in favour of my Bill as the Forum of Private Business, the Institute of Directors, the National Chamber of Trade and the Union of Independent Companies. It is most significant that the Institute of Directors, which represents directors of large, medium-sized and small firms should have changed its mind. I hope that all my hon. Friends have received a copy of the IOD's parliamentary brief. [HON. MEMBERS: "No."] It was in the mail this morning. [HON. MEMBERS: "Oh."] I did not post it. [Interruption.] I do not want to go down a blind alley.

Mr. Ian Taylor (Esher)

Our secretaries are reading it now.

Mr. Mates

I must say that I thought to myself, "What the hell is this doing arriving on a Friday morning?" I sent my research assistant to the wastepaper basket and we discovered that it had been posted first-class on Monday so I do not blame the Institute of Directors, although its late arrival is an interesting comment on the times in which we live.

Mr. Ian Taylor

Perhaps that is another reason for late payment—that cheques do not arrive through the post on time.

Mr. Mates

I think that if it was a question of postal delays, no business would seek to charge interest, so great would be the sigh of relief that the payments were close to being on time. The IOD's letter is interesting: Thank you for sending us details of your Bill. As you know, the IOD has always opposed legislation on this subject in the past as an unwarranted interference in freedom of contract which, in any event would not have had the effects desired by its proponents…Your Bill, however,"— some of my hon. Friends may not quite realise this— differs from previous proposals in two significant respects…Thanks to these changes, your proposal is better targeted, more likely to be effective and more compatible with freedom of contract. I hope that the Minister has received the letter—I believe that I sent him a copy—in which the IOD explains its change of heart. I note that he is completely dumb.

Mr. Paddy Ashdown (Yeovil)

The hon. Gentleman did not have the benefit of seeing the Minister's face when he produced the Institute of Directors' letter; he showed some shock at the hon. Gentleman's revelation. I think that we may conclude that he has not yet received it, but no doubt he will ensure that the civil servants in the Box provide him with it as quickly as possible.

The Minister of State, Department of Employment (Mr. Tim Eggar)

For the avoidance of doubt and the discomfiture of the leader of the SLD, let me make it clear that I opened my mail at 8 o'clock this morning, and among the letters that I received was one from the IOD.

Mr. Ashdown

In that case—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. We cannot have interventions on interventions.

Mr. Mates


Mr. Ashdown

Will the hon. Gentleman give way?

Mr. Mates


Mr. Ashdown


Mr. Deputy Speaker

Order. Perhaps the right hon. Gentleman did not hear me the first time. It is not our practice to allow interventions on interventions.

Mr. Mates

I would not challenge your ruling, Mr. Deputy Speaker, but I thought that I was on my feet and had given way to the right hon. Gentleman. I trust that you will allow me to do so now.

Mr. Ashdown


Mr. Deputy Speaker

Mr. Ashdown.

Mr. Ashdown

I thought that the hon. Gentleman might like to know that perhaps the Minister's look of surprise came from the fact that although he had received the letter, he had not yet read it.

Mr. Mates

I should have listened to your ruling, Mr. Deputy Speaker, and I stand corrected.

Among those not in favour of my Bill is the National Federation of Self-Employed and Small Businesses. I find that most surprising as I have received letters from many members of that federation all of whom have said that they are 100 per cent. in favour of the measure. At a meeting of many small businesses at which I was present, Mr. George Thorpe of the national federation said that he ran a small business and that he was so fed up with late payment by local government with which he mostly dealt, that he had simply refused to work for local authorities any more. He made those remarks in the context of his opposition to the Bill. I find that a little difficult to understand, but perhaps he, too, had not realised how different this Bill is from the Law Commission's Bill and the Bill that Richard Ottaway attempted to introduce four years ago. One must ask whether in this case headquarters speaks for its members.

Let me now come to the point raised by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh). Less puzzling to me now that I have learnt more about the matter is the fact that the Association of British Chambers of Commerce is not in favour, although more than a dozen individual chambers of commerce, not all members of the association, have indicated their full support. I started to understand why the association is against the Bill when I realised to what extent large companies are members—often controlling members—of chambers of commerce in their areas. One must not look at the association as purely a small business organisation.

Mr. James Arbuthnot (Wanstead and Woodford)

My hon. Friend will have seen the press release from the Association of British Chambers of Commerce which says that nine out of 10 of its members have small businesses.

Mr. Mates

I did not say that the majority were not small businesses. I said that some of the controlling members—those who get the chairmanships and offices—come from large businesses. I am not cavilling at that; I am simply pointing it out, and I want to give the House an example.

A small business man wrote to me to say: All the best with your 'prompt payment' Bill. I run a tiny firm—two part-time girls and me part time also yet I am owed over £30,000 beyond my 30 day settlement request (⅓ of my turnover)". The business man enclosed a cutting from The Northern Echo, which deals with my Bill and the ABCC's view of it: Mr. Giles' views are held by the Association of British Chambers of Commerce which yesterday told small firms minister Tim Eggar it cannot support Mr. Mates' Bill. The small business man has written on the cutting: Little wonder Chamber of Commerce are against it—they are the people sitting on my money. Have no sympathy with them.

Mr. David Martin (Portsmouth, South)

My hon. Friend has quoted the example of a real small business, so it is important that we know how he defines "small business" in terms of the numbers of people employed.

Mr. Mates

I am grateful to my hon. Friend. I am coming to that point, but first I am trying to give some illustrations to show the necessity for the Bill before I take the House, as briefly as I can, through the mechanics of what I am trying to do.

One reason why some small business organisations have not come round to my point of view is the speed with which we have had to conduct our campaign prior to today. Members of those organisations have not had time to realise the differences in this Bill and to make their views known to their headquarters. I have no complaint about that, because that is the system that faces us with measures in private Members' time. Another argument for allowing the Bill its Second Reading is that that will allow us a month for mature reflection before we go into Committee. That will give us time for various views to surface and for them to be properly presented. The Minister knows full well that I am not seeking to override any properly conceived views, and that my willingness to meet him almost anywhere to get just some part of the way down this road is absolutely boundless—[Interruption.] I do not know whether hon. Members are laughing about my reasonableness. Perhaps that is what I am so well known for.

The mechanics of the Bill are simple. It establishes a statutory right to interest on commercial debts owed by central and local government and all the agencies that act for them, and by nationalised industries and large companies—that is, those that are not small and medium-sized enterprises as defined in the Companies Act 1985. There is a clear distinction between small and medium-sized enterprises for accounting purposes, based on criteria of turnover, capitalisation and the size of the work force. Any enterprise that meets any two of those three criteria qualifies in accounting terms and in the way in which its accounts are presented and its tax is paid. Therefore, there is already a clear distinction in law. Those companies that are in the category of small and medium-sized enterprises will not be affected by the legislation except, of course, as beneficiaries.

Interest would run from the payment date agreed in the contract. Once again, I am not attempting in any way to interfere with the way in which contracts are arrived at and negotiations are carried out. The Bill simply states that if no contract date is specified, the interest will run from 28 days after the demand for payment has been made.

I have made two important changes to the provisions in the Law Commission's draft Bill, First, small and medium-sized enterprises, as I have defined them, would not be statutorily liable for interest on overdue payments. I shall explain that in a moment. Secondly, companies will not be able to exclude any right to interest in the contract. The reason for the first change—the exclusion of small and medium-sized enterprises from the statutory interest scheme—is that the bulk of those that pay late are large companies, not small ones. In addition I am anxious that the Bill should impose as little in the way of additional bureaucracy on small businesses as possible.

Mr. Michael Colvin (Romsey and Waterside)

I am interested in the comment that my hon. Friend has just made, because therein lies a fundamental flaw in what he is proposing. I say that, although I support the Bill. When I was at agricultural college, we were told that suppliers were a source of credit. In those balmy days, suppliers used to give farmers—I am one—a discount if they paid promptly. I am afraid that those days are gone, which is regrettable. My hon. Friend's case would be a great deal stronger if the concept of interest payable on outstanding debt were to apply to everyone, and not relate only to big businesses that are paying small businesses.

Mr. Mates

If that applied to everyone, it would, indeed, be a counsel of perfection. My hon. Friend is right. In logic, the provision should apply to everyone. However, I ask him to look at what would happen when the chain broke down, because that is why I decided to restrict the provision. Companies such as Rolls-Royce, Marconi and GEC, pay their bills late simply for internal accounting reasons and because they would like to make a bit more money from their cash flow, but when the chain breaks down at a lower level, it adds to people's woes. If one small business man cannot pay another on time because he has been let down, the interest continues to accrue and the small business man gets into an ever bigger slough of despond. We must remember that some of these enterprises consist of only two or three people working part time. As the additional bureaucracy involved in extending the application of the provision would be unreasonable, on the whole, it is better to leave small businesses out. However, if arguments were raised about that in Committee, I should listen to them, as I have already advised my hon. Friend the Minister that I shall listen to him.

Mr. Leigh

I am grateful to my hon. Frienf for giving way again. He is most generous. I should like to put a point to him in the robust language of the market place. The director of the Coventry chamber of commerce, which represents 1,800 small firms, has written: It is also our own experience that small companies are every bit as likely to pay slowly as large ones and when it comes to absolute refusal to pay, they come top of the league. We have no current mandate from the membership to support this Bill and I must warn that, once the legal experts translate your aspirations into statute, the by-products in terms of `buggeration' are more easily handled by large firm accountants than by the small trader.

Mr. Mates

I am most interested in the temperate language of the Coventry chamber of commerce, which I should have hesitated to use. However, it is evidently wrong, because no legal experts will do any picking over and there will be no increase in bureaucracy for small businesses because the provsion will not apply to them. My hon. Friend has just produced a resoundingly clear argument in favour of my distinction between small and medium-sized firms, which will not be affected by the liability to pay interest. They will suffer no difference—

Mr. Tony Favell (Stockport)

Will my hon. Friend give way?

Mr. Mates

Yes, but I am trying to make the point that many people who have written about the Bill have got their facts wrong.

Mr. Favell

Will my hon. Friend take it from me that he puts his Bill in jeopardy with that provision, because some people, such as myself, believe that prompt payment is a good thing and should apply to everybody?

Mr. Mates

I agree absolutely with my hon. Friend. It is a counsel of perfection. However, my hon. Friend must ask himself whether it is better to try to introduce a massive change such as that—he may say yes—

Mr. Favell


Mr. Mates

—or that the alternative is better, which is to do nothing and not to try to beef up what the Government have done which is being so blatantly ignored by so many large businesses which, frankly, should know better. I am aware that I am not going as far as some people would like, but I hope that my hon. Friend will come with me part of the way down the road. If, in a year or two, we find that the provisions are working so well that we can extend them, that will be another matter. My hon. Friend might even be as lucky—or as unlucky—in the ballot as I have been.

Some of the Bill's critics have misunderstood the right to interest. Any company statutorily entitled to interest could waive its rights if it so chose. Likewise, if someone owes me money and I choose not to charge interest on it, I am free to do so. If that is my relationship or friendship with the supplier I can opt out of the provisions. What the Bill states is that the big man cannot opt out of his liability. Again, that is an advantage for the small man, which I hope that the House will feel is a reasonable way to go about things.

Mr. James Couchman (Gillingham)

How does my hon. Friend reconcile that apparent voluntary opting out with his desire in the Bill to have no opting out of the right to statutory interest?

Mr. Mates

I have made it quite clear that the creditor can opt out in just the same way as if my hon. Friend owed me £100 and I chose to say, "Give me only £50" because I like the cut of his jib so much. I am free to do that. It is a freedom which a person who is owed money has always had. He can ignore the debt if he wants to. However, the Bill must not allow the big man to opt out of his liability by contract because the whole thing would be rendered worthless if that were to happen. Indeed that ability was included in the Law Commission's proposals and in the Bill that Richard Ottaway sought to introduce.

Mr. Kenneth Hind (Lancashire, West)

While I agree with my hon. Friend that the big man should not be allowed to opt out, it is, in my experience—I declare an interest as chairman of a group of companies that often deals with medium-sized companies that are often under-capitalised—the medium-sized companies that are the worst offenders in this area. They take credit from other suppliers, which they would not be able to get from the bank, and they do not have to pay for it. From my reading of the Bill at the moment, I understand that quite a lot of those companies will be outside the provisions that we are discussing.

Mr. Mates

Yes, we are about to come to a point on which we can have a useful debate both this morning and in Committee. I am not saying that the Bill is perfection. I have acknowledged the counsel of perfection already. The logical conclusion of what several hon. Members have said would be to make the provision apply to everybody, but I do not think that that is practical politics. The large firms instigated, in conjunction with the Government, a voluntary code of practice. We should seek to regulate them first because, statistically, they are the worst offenders.

Mr. Arbuthnot

My hon. Friend said that his decision not to allow opting out was in the Law Commission's proposals. Paragraph 99 of its proposals says: We have concluded that an agreement to exclude the right to statutory interest should be no less effective than a provision for the payment of contractual interest, at whatever rate. The creditor should not be entitled to recover statutory interest where the right to it has been excluded by contract. We recommend accordingly. Would my hon. Friend like to reconsider?

Mr. Mates

That was written in another day—1978. I have read to the House a letter from Marconi saying that it automatically increased the period from 30 to 90 days. If it then added that no statutory interest would be payable if it were late, which it would do, the Bill would become meaningless. I came to that conclusion largely because of the change in climate during the past 12 years.

I have taken the rate of interest payable on the debt which already applies. It is the rate of judgment debt—currently 15 per cent.—which is set by the Government from time to time and varies as circumstances change. The rate is well understood. It is the same rate that we have to pay if we are late in paying our tax or VAT. Once again, it is sauce for the goose as well as sauce for the gander.

Let me rehearse some of the arguments of those who are against the Bill or have reservations about it. Some particular points of difficulty have been raised and I shall be more than happy to listen to arguments in Committee, to consult all those involved and to make changes that are seen to be necessary.

The first fundamental argument against the Bill is that it is both unnecessary and undesirable. Some say that it is unnecessary because the problems are exaggerated, that there is no great problem and that such problems as exist are caused as much by small companies being poorly run as by large companies choosing not to pay on time. All the small business organisations accept, as I do, that, in the long-term, education in financial management is important. However one considers the statistics, it is clear that there is a problem and that it is getting worse. Some people seem to forget that those who fail routinely to pay within the agreed time are routinely in breach of the law of contract. That should not continue.

The second argument is that it is undesirable for Parliament to impose extra regulations on industry and commerce. I have covered most of that with some of the examples that I have given. I have great respect for that argument. It has merit and I do not dismiss it lightly. The weakness in the argument is that we have tried the voluntary way. I hope that I have shown the House that the voluntary way does not work I see no alternative to legislation.

I dealt with the argument that the measure will be unenforceable in referring to what my hon. Friend the Minister of State said on the radio this morning. I shall make two points briefly. I am sorry to have detained the House for so long. First, the Minister is well aware that only three countries in the European Community apart from Britain do not have some form of legislation covering late payment of contract debt. They are Greece, Portugal and Ireland. I make no comment about that, in case we run into other arguments about the Community. I simply state the fact and ask the House to bear it in mind.

Legislation on late payment of debt will come. When the time comes, there will be a harmonised practice, just as there will be a single market. It is almost unthinkable that harmonisation will not happen. My argument is that we must put something on the statute book now so that we start from a position where we have a modest base. We should not be one of the few countries that does not have legislation. To have legislation would be greatly to the Government's advantage, as well as ours.

Many people say that the Bill would impose a great deal more work on the courts. That would be important if it were true. If it were true, I doubt whether I should be here today. I have consulted about it. Dun and Bradstreet advised me about it. It does more debt collection and, presumably, more court appearances than anyone else. It is absolutely sure that the Bill would not impose more work on the courts. On the contrary, it might save court time. No one will go to court to obtain the interest that I propose should be charged. People will have to go to court for the debt. That would be subject to precisely the same process as we have today—cajolement, persuasion, threats and writs.

Mr. Favell

The only way in which one can claim interest, unless it happens to be provided for in the contract, is by obtaining a judgment debt. The only way to start interest running is to go to the courts.

Mr. Mates

That is what my Bill will avoid. It will unclog the courts. If the interest has started to run statutorily, no one will have to go to court. I am grateful to my hon. Friend who makes that point from his experience. That is another good reason why my hon. Friend the Minister should withdraw his opposition to the Bill, if he can. It is a free country. It is Friday today, he can do what he likes. This is private Members' time. I am glad that my hon. Friend the Member for Stockport (Mr. Favell) made that point so potently. The Bill would create considerably less clogging of the courts.

The Bill will not impose a great burden on industry. Far from it; once everyone has accepted the legislation. it will be a once-and-for-all exercise. That is a most important point. Once late debt became liable to interest there would be no cause for firms to continue to pay late. There would be a vast unleashing of funds once and for all into the system. Large companies would pay on time and that would go all the way down the chain of debt. Hon. Members may be interested to know that the current debt sloshing around the system is £57 billion. That is a huge sum of money. By breaching that dam once, everyone, particularly at the bottom end of the chain—the people we wish to help—would have the chance to draw breath. From then on, even if the terms of contracts were changed and longer terms were negotiated, people could be certain that they would be paid or, if they were not paid. that it would not cost them money.

Mr. Anthony Nelson (Chichester)

My hon. Friend is generous in giving way. He has presented his Bill persuasively and with a conciliatory attitude. May I stir matters a little by suggesting, as one of the sponsors of the Bill, that it would be a gross political error of judgment, which would be widely misunderstood outside the House if Ministers and Conservative Members—both those who are here and those who are not here—prevented the Bill from proceeding either by a closure or a vote on Second Reading? If this Bill cannot be supported, what can be supported? We have all received representation in support of it.

Mr. Mates

I am grateful for my hon. Friend's remarks which, no doubt, my hon. Friend the Minister has heard.

The cynic in me tells me that some attempts may be made to prevent my Bill from receiving a Second Reading and that some hon. Members may have come here to speak against it. I hope that they are now better informed and that they will not raise matters that are not really problems, as my hon. Friend the Member for Gainsborough and Horncastle, did, in all innocence. The letter to which he referred to is fundamentally wrong. If we have cleared up some misunderstandings, perhaps hon. Members who thought that they would help the Government by coming here today will go home and have a good lunch with their wives.

This is not a party political matter—and in saying that, I am not trying to highlight the solitary miseries of the hon. Member for Fife, Central (Mr. McLeish). I am very grateful that he has come along.

If there are any serious flaws in the Bill—and there always are flaws in any Bill that has not been drafted by the Government—if the Government want changes and think that I have gone too far, and if they think that they should set the example, I am prepared to listen to all the arguments. I am not telling the House that only the Bill as drafted will satisfy me. However, I want us to take one pace down the road of good practice. The voluntary way has been tried, but it has not worked, as I hope that I have shown. The time is right for some form of legislation. However small a step we take, we shall all take it to help the small business man during this particular difficult period of his life.

Mr. Simon Hughes (Southwark and Bermondsey)

On a point of order, Mr. Deputy Speaker. This morning we have learned of the speech made by the President of South Africa, in which he announced the unconditional release of Nelson Mandela on a date soon to be fixed and the removal of the ban on the African National Congress and of 33 other groups—

Mr. Deputy Speaker

Order. What is the hon. Gentleman's point of order?

Mr. Hughes

My point of order, Mr. Deputy Speaker, is whether, the Government will arrange, through the usual channels, for a very early opportunity for the House to respond to that news.

Mr. Deputy Speaker

Order. It is not the responsibility of the occupant of the Chair to arrange for statements to be made. Doubtless the hon. Gentleman's remarks have been heard.

Mr. Hughes

Further to that point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. I thought that I had made it clear that the hon. Gentleman had not raised a proper point of order.

Mr. Hughes

I raised the matter, Mr. Deputy Speaker, because there has been no indication this morning that any statement is to be made. The urgency of the matter arises from the interrelationship between the announcement and the current visit to South Africa of the Minister for Overseas Development. She has, perfectly properly, put on record the Government's views in respect of the current tour by British sportsmen and the problems that it has caused. If the Government can find an opportunity to make a statement today, a united, across-the-House view could be represented to those who are undermining the steps being taken in South Africa, which would be widely welcome. I hope that the announcement is deemed to be sufficiently important for the Government to make a response in this House.

Mr. Deputy Speaker

The hon. Gentleman has had a good run at this, and doubtless his remarks have been heard by Ministers.

10.32 am
Mr. Henry McLeish (Fife, Central)

Given the lack of attendance by my right hon. and hon. Friends, I am enternally grateful to the hon. Member for Hampshire, East (Mr. Mates) for remarking that the measure before the House is not political, only technical. I therefore feel slightly more at ease giving a brief resume of our views.

The hon. Member for Hampshire, East referred to the scandal of late payment.

Mr. Favell

On a point of order, Mr. Deputy Speaker. It is absolutely outrageous that the leader of the Liberal party, the right hon. Member for Yeovil (Mr. Ashdown), remained in the Chamber only for as long as a bogus point of order was made by the hon. Member for Southwark and Bermondsey (Mr. Hughes), and then left. Certain people are abusing the Standing Orders of this House for the purpose of achieving television coverage.

Mr. Deputy Speaker

Order. The hon. Gentleman makes an allegation that may or may not be unfounded.

Mr. Couchman

Further to that point of order, Mr. Deputy Speaker. It seems to me that the hon. Member for Southwark and Bermondsey (Mr. Hughes) raised his bogus point of order to exploit the televising of our proceedings. He may be the hero of the Rose theatre, but he is not the hero of this Chamber on this Friday morning.

Mr. Deputy Speaker

Order. The House should resume debate on the Bill.

Mr. McLeish

I am more and more impressed by the excitement being engendered this morning, and I am encouraged to attend on a few more Fridays, to participate in such activities.

While the hon. Member for Hampshire, East, and I may differ as to the extent of the scandal of late payment, no-one disputes the fact that it is becoming an increasing burden for a large number of small firms. I hope that the Minister, when he responds, will go further than was suggested in The Daily Telegraph of 26 January, which stated: The Government says it is adopting a 'neutral' approach to the Bill. But Tim Eggar, small companies minister, is making it clear the Government is against the measure and there is concern that he will use the differences to argue the Bill has only limited support. It would be a mistake for the Minister to adopt that approach. Although there are differences of opinion about the Bill's implications, that will always be the case with any legislation that is brought before the House.

We can surely agree that there is a problem, and that was emphasised in a debate in April 1987, when the then Minister with responsibility for small businesses, the hon. Member for Rossendale and Darwen (Mr. Trippier), said: 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."—[Official Report, 10 April 1987; Vol. 114, c. 641.] The Bill attempts to highlight the best way of tackling that problem

The hon. Member for Hampshire, East, referred also to the history of the matter, which stretchs back to the then Lord Chancellor's interest in 1974 and the Law Commission's report in 1978. Certain changes were made in the Administration of Justice Act 1985, but otherwise Governments of both parties have resorted to codes of practice to encourage prompt payments of business debts.

Efforts to improve the situation were also made by the Confederation of British Industry in 1980 and by the Department of Employment, together with business community groups, in 1986, with a document on prompt settlement of business debts. While all those efforts were helpful, the incidence of late payment has dramatically increased. It is difficult to gauge the scale of the problem, but no doubt the hon. Member for Hampshire, East, has much evidence that he has not been able to put before the House to support that contention.

The problem with voluntary arrangements is that they have no statutory back-up, and in an environment in which many small businesses feel that they are the victims of creditors, it is clear that something more significant must be done. In essence. there is compelling common sense in the hon. Gentleman's proposals, but I sense that many right hon. and hon. Members are concerned about the practical aspects of his Bill. Nevertheless, we can all embrace a basic sense of justice.

The problem dealt with by the Bill has been simmering in this House and in the business community for 10 or 12 years, and one wonders why no decision has been taken to deal with it more effectively. I hope that the Bill will receive a Second Reading, because while it may present practical difficulties, it will bring to an end a debate that has simmered on without any conclusions being reached. The Government's activities have been littered with documents such as "Prompt Payment Please!", but it is evident that they have had no effect in the business community.

Mr. Jacques Arnold (Gravesham)

If the Opposition support the Bill, why is it that not a single Member of the hon. Gentleman's party, other than the Whip on duty, is in the Chamber with him today?

Mr. McLeish

In view of the number of hon. Members who wish to speak I shall treat that intervention with the contempt that it deserves.

I was about to quote the right hon. Member for Northavon (Mr. Cope) who states in the document "Prompt Payment Please!": Everyone in business is concerned about cash-flow. Firms of all sizes need to receive prompt payment, but small firms are more vulnerable and do not often have the cash reserves to carry debts. That highlights the reason why the Bill should be supported.

There is increased pressure on small businesses. In an earlier debate this week we talked about interest rates, the prospects of the uniform business rate and the coming together of a number of pressures which make cash-flow more complex and difficult at present. A low level of indebtedness or late payment has a disproportionate impact on many small businesses. They do not have the overheads and apparatus which big companies have to deal with their particular burdens.

There is evidence that not only are large companies, Government, and local authorities indulging in late payments, but they are building it into their systems and institutions. A few hon. Members may have seen a press report earlier this week on Lothian health board in Scotland which—in its eyes—is suffering from cash cuts. I do not want to go into the merits of the National Health Service, but the health board has gone on public record as saying that it will get through to the end of the financial year by not paying its Bills. It is scandalous that a public authority such as that should state publicly, after a board meeting, that it will not be paying its debts on time as a way of helping its cash-flow until the end of the financial year.

The most telling reason why the Bill should be supported relates to the experience of small companies with these difficulties. I have a letter from a managing director sent to my hon. Friend the Member for Sunderland, South (Mr. Mullin) who has kindly allowed me to use it in this debate. It states: I am pleased to learn from the Forum of Private Business of which I am a member, that you support Michael Mates' Private Member's Bill 'Interest on Debts'. Given the importance of this proposed legislation to the small business community at large I am writing to ask you to demonstrate this support by attending the Bill's Second Reading on February 2. It would be a tragedy to see such worthy proposals jeopardised by a poor attendance in the House so I trust you will do your utmost to support the Bill. This business owes less than £10,000 to suppliers the rest being paid by direct debit. We are owed an average of £200,000 per month every month of the year and if this Bill were to go through Parliament it would change our business from standing still to one capable of expansion.

That is a practical illustration of the fact that if there were a faster movement of payment in the business community many companies would feel the financial benefit which would allow them not only to expand, but possibly create more jobs in the process.

The efforts that have been made have had no real impact on what is happening. The Bill is symbolic of Parliament's anxiety about what is happening and, more importantly, it is a demonstration that the Government, who frequently say that they support small businesses, actually do so. The Bill gives them the opportunity, not to welcome the measure with open arms, but to take it into Committee, as the hon. Member for Hampshire, East (Mr. Mates) suggested. If that were done, many other aspects could be discussed. We are discussing a principle, which is why the Bill should be supported.

The .debate will send a clear message to the business community that the House is angry about what is happening, especially in relation to central Government and the corporate sector. Someone suggested that we are talking about morality in business. It cannot be right for companies to institutionalise processes which they know, by their very nature, will harm companies and—as the hon. Member for Hampshire, East said—force them out of business. That cannot be right. We should send a clear message that this corporate morality must be maintained. If companies could push the flow of debt around quicker, that would ease the burden and would not require legislation. Sadly, we may need to bring in legislation to achieve that.

I hope that when the Minister responds he will not, as The Daily Telegraph article suggested, merely give us platitudes about the benefits of small businesses and their contribution to the economy. He should go further and accept that the Bill, if it gets through the House, will provide a useful opportunity in Committee to air the issues that we do not have time to discuss today. More importantly, it would reassure people who are suffering that the House is concerned. Although my hon. Friends are not jumping up behind me to support me, there is all-party support for this measure.

The hon. Member for Hampshire, East has given many ilustrations for his argument and identified GEC. I think that hon. Members would agree that that company is not alone. It was right to highlight GEC because the institutionalisation of its procedures is folklore throughout the country. However, for the business community to look towards 1992, we must have cohesion in our economic policies to ensure that we obtain the benefits from 1992 and beyond. I appeal to large businesses, whether public or private, to acknowledge that we need the small business community which contributes a great deal to the economy, prosperity and jobs. If the problem of late payment is reinforced by high interest rates and the UBR, the problem will only get worse. some day in the future, as the hon. Member for Hampshire, East said, we shall have to return to the House for legislation. Let us take action now and prevent any further deterioration of the late payment problem.

10.47 am
Mr. Tony Favell (Stockport)

I am grateful for the opportunity to speak on this matter today. As a solicitor I have attempted to recover, on behalf of creditors, literally thousands of debts. I have also sought, on behalf of debtors, to avoid the payment of thousands of debts. I speak with the benefit of some experience.

Mr. Richard Page (Hertfordshire, South-West)

Is my hon. Friend speaking today as a poacher or a game-keeper? It is most important to know.

Mr. Favell

I hope that I speak as an honest broker.

During the 25 years that I have been in practice I have never understood the argument against an automatic right to interest on bills which are paid late. Therefore, I am broadly in favour of the thrust of the Bill. However, I have some reservations about it and until they are dealt with I cannot give it my unqualified support.

Like it or not, there are unscrupulous firms. My hon. Friend the Member for Hampshire, East (Mr. Mates) mentioned one or two firms which I have come across during the course of my professional career. One that he did not mention was the British Steel Corporation while it was in the public sector. BSC was referred to by our late colleague Mr. Richard Ottaway, who I hope—[HON. MEMBERS: "Former colleague."] Yes, former colleague. I beg his pardon, wherever he may be. We hope to see our former colleague, Mr. Richard Ottaway, back in the House soon, perhaps even representing the constituency of Nottingham, North. He mentioned during an Adjournment debate in April 1987 shortly before the election, that Sir Charles Villiers, the former chief executive of the British Steel Corporation, said at a press conference organised by the Forum of Private Business that small firms encountered two major problems when considering their cash flow. The first was taxation—primarily because present legislation requires quick payment and why not? As a taxpayer, I like late payers to pay their bills quickly and if they do not they should pay interest for the benefit of their fellow taxpayers.

Sir Charles Villiers said that the second problem was the late payment of debt. He estimated that of the 2,500 suppliers to the British Steel Corporation during his stewardship, 500 went out of business merely because they could not get their debts paid. That is a disgrace. One fifth of the British Steel Corporation's suppliers went out of business because they were paid late.

Since it was privatised, British Steel has behaved a great deal better. I practised as a solicitor in Sheffield and I had several clients who went out of business because British Steel, the biggest employer in Sheffield, paid late. My clients were often little firms whose sole customer was British Steel, so there was nothing that they could do. They used to ask me what to do and whether I would sue British Steel. I asked what would happen if I did. They replied that they would lose their sole customer. The British Steel Corporation had them in a vice when it was in Government stewardship and doing so badly. All that was appalling and sad, not only for my clients but, in turn, for their suppliers: each time a firm went bankrupt, it took several firms with it.

Mr. Mates

If my hon. Friend feels as strongly as he does, and if he will not give my Bill unqualified support, will he at least give it total support in so far as it applies to central Government, local government and nationalised industries?

Mr. Favell

I would support it if it applied to everyone else, too. There should not be one law for one body and another law for others. Then I would give the Bill my wholehearted support, except as it applies to contracting out. I do not agree with the provision that customers cannot contract out. I agree with the views of the Law Commission, as outlined by my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot).

Mr. Mates

It is not customers but suppliers that I am talking about.

Mr. Favell

I beg my hon. Friend's pardon.

The Government have tightened up. I listened this morning to the "Today" programme, on which my hon. Friend the Minister—

Mr. Mates

He was not very good.

Mr. Favell

I thought that he was excellent and put the Government's case well—but I have a certain interest in saying that.

Mr. Leigh

If the Government have been so successful in tightening up their procedures, surely they should have no objection to the Bill applying to them? If it applied only to the Government, I should withdraw my objection to it.

Mr. Favell

Given my special connections, I should not go down that road.

What my hon. Friend the Minister had to say on the programme was interesting. Since he was made the Minister responsible for small businesses, he said, he had had only three complaints of late payment by Government Departments, two of which he had found unjustified and one of which he was investigating. That bears out my experience. Since the Government came to power, Government Departments have honoured their obligations to small businesses commendably.

Mr. Ian Taylor

Does my hon. Friend accept that problems have emerged in my constituency with the Ministry of Defence, especially in its relations with prime contractors, and in the relationship between prime contractors and sub-contractors? They cause great concern.

Mr. Favell

I have no personal experience of that; no doubt we shall hear from my hon. Friend on the subject later.

My hon. Friend the Minister pointed out on the "Today" programme that some bodies are regarded as Government bodies, yet are not—that is, health authorities. I know from experience that health authorities having trouble with their budgets towards the end of the year pay late.

Mr. Arbuthnot

Does my hon. Friend agree that the early payment of debt is a matter of morality and of agreement that applies to everyone in the land—not only to Government authorities or to large companies, but to small companies and people?

Mr. Favell

I quite agree. One of the arguments advanced by the opponents of the Bill is the idea that we are all big boys now and when we enter into a contractual obligation to supply or buy goods we must make our own decisions on whether to include interest. That does not apply to many people, however. Many still believe that an Englishman's word is his bond. Many small firms dealing with a large company such as British Steel, or GEC, or a health authority or local authority, believe it when they are told that they will be paid in 28, 30, 60 or even 90 days. They are terribly surprised when they are not paid on the stipulated day, as they were promised by those august bodies that they would be. By that time, it is often too late.

Small firms must continue to pay wages; people must continue to pay their mortgages; they get caught in a downward spiral, and the banks charge them interest. The banks do not defer interest simply because a firm has been let down by someone else. It is a tremendous disadvantage to a new small firm to enter a contract with a large company that does not honour its debts.

The Department of Employment has issued a couple of pamphlets, and they are fine for people who believe that codes are to be followed and words kept. They are fine for the scrupulous, but the unscrupulous will take no notice of a voluntary code, especially as they will make 15 per cent. on the money by not paying it to the supplier. Why on earth should they follow such a code? There is big money to be made in paying late, and the bigger the company, the more money to be made.

The man in charge of paying suppliers is told to pay as late as possible—that is his job and if he wants to keep it, that is what he must do. For some concerns, the law of the jungle operates, not the law of the code. I see nothing wrong with the Government legislating against people who believe in the law of the jungle and in bringing down little people who have taken them at their word.

The Inland Revenue and Customs and Excise know that if interest runs from a certain date, people pay up. Lawyers know that, too. I intervened in the speech of my hon. Friend the Member for Hampshire, East on the subject of courts. The Supreme Court Act 1981 went some way towards the recommendations of the Law Commission by laying down that if proceedings were brought, interest became payable on debts paid late; but if proceedings were not brought, interest did not run. So if a seven day letter is sent by a solicitor asking for payment, the recipient can avoid paying interest, even if there has been a six-month, 18-month or two-year delay, merely by paying up quickly before proceedings are issued.

Such a case went all the way to the House of Lords in 1984. There had been an appeal against a decision of the Court of Appeal that interest was payable on a late-paid debt. Lord Scarman's judgment ran as follows: I also reach with regret and reluctance the conclusion that the appeal must be allowed. The sooner there is legislation along the lines proposed by the Law Commission or some other solution achieving the same end, the better. I agree.

Ms. Joyce Quin (Gateshead, East)

On a point of order of which I have given notice, Mr. Deputy Speaker. Have you received a request from the Secretary of State for Trade and Industry to make a further statement to the House on the sale—perhaps I should call it the giveaway—of Rover to British Aerospace? The point of order arises from the disturbing report in today's issue of The Guardian that the European Commission may request British Aerospace to repay up to £283 million. That sum is well in excess of the—

Mr. Deputy Speaker

Order. The hon. Lady must not tell the House what she might have said had there been a statement. I have not seen any request for a statement to be made. No doubt what has been said will have been heard by Ministers.

11.1 am

Mr. Paddy Ashdown (Yeovil)

It is a pleasure to know that the hon. Member for Stockport (Mr. Favell) agrees with the Bill. I am sorry to be a little rough with him but he seems to have jumped to a conclusion about my brief absence from the debate for a total of about three minutes. He and the hon. Member for Gillingham (Mr. Couchman) sought to draw the conclusion that I had left the Chamber because the business for which I was here related only to Nelson Mandela. The hon. Member for Stockport should have taken the trouble to look into the background or should have consulted his hon. Friend the Member for Hampshire, East (Mr. Mates) who has known for at least 24 hours since I wrote to him yesterday that I would be taking part in the debate because I have had a long interest in this matter. During the debate I shall have to leave the Chamber from time to time because of events relating to the release of Nelson Mandela. I apologise to hon. Members in advance for those absences. I assure the House that in no sense do they diminish the importance that I attach to the Bill.

Mr. Favell

I apologise to the right hon. Member for Yeovil (Mr. Ashdown) for having jumped to the conclusion that he was here merely to hear the totally bogus point of order. I reached that conclusion because he left immediately afterwards. However I am glad to see him back in his place. Perhaps he will understand my annoyance because I am sure he agrees that there have been an enormous number of bogus points of order since the television cameras arrived. It is most annoying to have to sit here from 3.30 until 4 o'clock every day listening to bogus points of order.

Mr. Deputy Speaker

Order. This is not a debate on procedure. Let us return to consideration of the Bill that is before the House.

Mr. Ashdown

I congratulate the hon. Gentleman, not on raising a bogus point of order but on making an imaginative point in an imaginative way. I am grateful to him for the courtesy of his correction.

I congratulate the hon. Member for Hampshire, East on preseting the Bill and on deploying a most powerful case in its favour. He has left others of us who would like to comment in favour of the Bill with little to say, so I shall be brief. As I think the hon. Gentleman knows, my presence here is not just in relation to the importance that my party attaches to the Bill and to the whole matter of assisting small businesses. My interest dates back to the time when I was trade and industry spokesman for my party in the 1983 Parliament.

At that time I conducted a long debate with the then Minister with responsibility for small businesses, the hon. Member for Rossendale and Darwen (Mr. Trippier) who is now the Minister for the Environment and Countryside, about the importance of doing something about the problem of late payment. That is part of a problem, referred to tangentially by some Members, which is a big problem in its own right. That problem is the power of the buyer in the marketplace. We all know about the problem of the monopoly seller but the problem related to the buyer has grown to an extent that should concern those who, like me and the Government, are interested in a competitive free market. The word that describes the power of the buyer, monopsony is a fairly new one. Such buyers have power to effect discriminatory discounts. That should be looked at because it is one side of the problem. Late payment is another.

At the time when I took the matter up with the hon. Member for Rossendale and Darwen he shared all my concerns. I do not pretend to have been instrumental in anything other than a minor way in getting the Government to act on a code of practice. We had a long debate about whether legislation would be better than a code. At that time I took the view that legislation would be better, but I was persuaded by the Government that as a first step at least a code of practice would be more appropriate.

The debates on those matters sometimes took place in the House and sometimes they were carried out in correspondence with the hon. Member for Rossendale and Darwen. He told me that he thought that a code of practice would be right in the first instance, but that if it did not work the Government should consider further action. For that reason this is an appropriate time for the Bill to be brought before the House. It is evident beyond any misunderstanding that although the code of practice may have been right as a first step and was put forward in a manner with which I agreed, it has not had the effect that the Government must have hoped it would have.

I remind the House that the figure for late payments is £57 billion. The Dun and Bradstreet report referred to by the hon. Member for Hampshire, East clearly indicated that the code of practice is not working. If I were to be overly critical I would say that the Government have not done much to publicise the code beyond its initial launch. The code has not worked to achieve what the hon. Member for Rossendale and Darwen hoped for as recently as 1987.

Mr. Arbuthnot

Is not the right hon. Gentleman being a little restrictive in his answers to the problem? He referred first to legislation and then to a code of practice about debtors. Does he agree that there is a third action that creditors could take by improving credit control? Would the right hon. Gentleman like to explore that?

Mr. Ashdown

That is a perfectly fair point with which I agree. I do not think that we will solve the problem overnight by a code of practice or by any single Act. It will require a combination of Acts. However, the case is clearly proved that part of the armoury that will solve the problem of late payments—which, as the hon. Member for Hampshire, East said, is borne disproportionately by the small business sector—is a decent framework of legislation. That is not the only instrument to solve the problem, but it is a major weapon.

Three questions need to be answered. The problem has persisted, indeed grown, according to figures that are available to us. The first question is whether the means that we have available to solve the problem are sufficient. The conclusion that we must draw is that they are not, because the code of practice has not worked. Secondly, should we go further and, thirdly, will the Bill help? The legislation will assist.

I accept the case made so well by the Minister on the "Today" programme that in the last analysis the Bill is probably not enforceable. Many of our laws are not perfectly enforceable but nevertheless they perform a reasonable and useful function. The law on speed limits is an example. We know that all speed limits cannot be enforced because there is not the ability to do so. However, that is not to say that a speed limit does not have a prophylactic effect on people driving through towns and villages. The success of a law cannot be judged simply by the number of successful prosecutions; it must also be judged on the basis of the number of infringements that it has prevented, and that, surely, is the major argument for the legislation.

I am delighted that the hon. Member for Hampshire, East has presented the Bill. I do not consider that it is perfect; the hon. Member for Stockport made a good case for the opting-out procedures. On Second Reading, however, we are dealing with a principle. Amendments can always be made later.

The time has come for the Government to put into effect their rhetoric on small businesses. They should seize the opportunity to legislate. The legislation will not distort the free market; if anything, it will help to create competition and to shore up that market. Many small businesses, at least in the south, are soon to be faced with the burden of the uniform business rate in addition to the current extraordinarily high interest rates: no doubt Conservative Members, like us, have received many representations about the effect of that. Now, however, the Government have to hand a sensible piece of legislation that will carry forward their original moves to establish a code of practice, help to create a framework of competition in the free market and assist small businesses. Why do they not wish to take up that opportunity?

Mr. Jeremy Hanley (Richmond and Barnes)

The right hon. Gentleman cannot have it both ways. At the last general election it was his party's candidates who called on the Government to redress the north-south divide, and that is the specific aim of the uniform business rate. Do we gather that he cannot follow the Liberal path when it has to be paid for?

Mr. Ashdown

We have strayed slightly from the subject of the Bill, but the hon. Gentleman's question deserves an answer. He ought to recognise that correcting the widening north-south divide is the Government's problem, involving general taxation. There is no earthly reason why small businesses, especially retail outlets in the south of England, should pay the whole price for the economic regeneration of the north, as they are being asked to do. The uniform business rate may well achieve an aim that I would support, but it will do so through a mechanism that I consider utterly impractical and extremely damaging. Britain needs a proper regional policy, rather than an inadequate spatchcock system like the uniform business rate.

The Minister and the Government now face the danger that their policy of encouraging enterprise, small businesses and self-employment—a policy with which I wholly agree; if I have a criticism, it is that they have not gone far enough or fast enough—will be subjected to close scrutiny. To avoid that, the Minister must be prepared to show the public and the House that he at least accepts the principle of the Bill, and is prepared to take it into Committee and make such amendments as are practical and necessary, so that we can implement legislation that is not only properly balanced and well-timed, but, in my view, extremely necessary.

11.13 am
Mr. Jacques Arnold (Gravesham)

I fully support the Bill, which will have the important effect of redressing a balance. Over the past few years the burden of delayed payments borne by smaller businesses—indeed, by industry in general—has risen from £45 billion to £57 billion, and all the current developments in the economic world militate in favour of an increase in the level of unpaid debt. Higher inflation, higher interest rates and greater financial sophistication all contribute to that effect.

Large firms gain a decided advantage from delayed payments: the transgressors are smart-aleck company treasurers who fully understand the importance of free balances and increased funds. They are the adepts of financial engineering. Equally guilty are incompetent administrators in the payments departments of large companies, and it is ludicrous that we should give them an incentive to be inefficient. Apart from major companies, the principal transgressors are central Government and local authorities, and I appreciate the way in which the Bill concentrates on them.

Delayed payment of suppliers, especially small suppliers, has added unplanned and uncosted pressures. Not a few of the bankruptcies of recent years have been caused by insolvency that has not been financed by banks, which will not extend overdrafts to deal with this problem.

There have been a number of unlikely spin-offs from delayed payment by Government. One of the strongest cases for it is the comparative advantage that it gives local financial management in schools. County councils have been among the worst offenders. Now they finance the schools and provide them with chequebooks to pay suppliers of services, books and so forth. Many suppliers had stopped doing business with the councils because of the delays in payment. Now schools have been able to go to suppliers and say, "Deliver today, at a good price, and we will pay today."

11.17 am
Mr. James Couchman (Gillingham)

My hon. Friend the Member for Hampshire, East (Mr. Mates) and I had an agreeable discussion over supper about the merits and otherwise of his Bill. I told him that I intended to be here this morning, and that I was generally fairly hostile to the intent of the Bill. He asked, "Have you read it?" I blushed a little and said, "No." He said, "Go and read it." He then proceeded to give me a fairly full trailer for his speech this morning.

Mr. Mates

It was a very good dinner.

Mr. Couchman

At the end of his trailer my hon. Friend said, "I have a convert." I said, "Not a convert, but a waverer."

My hon. Friend should have held on to his first piece of advice, which was that I should go and read the Bill. When I did just that, I found that my wavering had stopped, and I am afraid that I am still generally hostile towards its intent. Its aim is laudable: there are some legendary bad payers, who have been named and who include national Government. My hon. Friend has said, from a sedentary position, that the Ministry of Defence is notorious in this regard, and my hon. Friend and near neighbour the Member for Gravesham (Mr. Arnold) mentioned local government. I can never understand why small builders and others in the building trades wish to get on to local government lists. They carry out contracts, probably in innocence, not realising that payment will be delayed, and in the end far too many of them go bust.

My hon. Friend has mentioned some large public limited companies with very bad payment records. I must be careful when I mention GEC as it is the largest employer in my constituency. By virtue of that it is the largest contractor to small firms in my constituency. GEC is important to the local economy and has supported the local community. It has supported the Medway towns through some extremely difficult times since Her Majesty's naval base and dockyard at Chatham closed in 1984. Therefore, I shall be soft on GEC and support it to the extent of pointing out to my hon. Friend that GEC is an enormous supplier to the MOD which, as my hon. Friend has said, is a notoriously bad payer. It may well be that GEC's bad paying is the result of contracting to the Ministry of Defence for many large contracts.

Mr. Mates

In that case, would my hon. Friend consider supporting that part of the Bill which applies to central and local government?

Mr. Couchman

I am very sympathtic to that, but the Bill that he has introduced includes large companies.

Large companies are increasingly outsourcing for components for their products to many small suppliers. I had the opportunity to visit General Electric in America to watch the manufacture of expensive medical diagnostic equipment. I asked what the proportion of outsourcing was. In terms of components it was virtually 100 per cent. The expertise that the large company brings to the product involves putting together components, testing them and bringing them up to a working specification.

It is the nature of business today that large companies buy in many of their components from small suppliers. Putting aside the question of naivety, small companies generally understand their credit relationship with large companies. In the light of its settlement record, those who contract with GEC will build into their contract prices a component for that difficulty. Small companies appreciate that large companies are, in effect, sucking in small companies' credit lines.

Mr. Matthew Carrington (Fulham)

That is an important point in understanding the relationship between the small company and the big purchaser. If a small supplier has the opportunity to build it into his price, he will do so, but only if other suppliers do the same. However, he is taking a gamble because he will build in an expected payment date which, in the case of GEC, may be 100 days. GEC may pay in 130 days and that adds unreasonable uncertainty to the payments.

Mr. Couchman

Perhaps the greatest merit of my hon. Friend's Bill is that it will produce more certain credit dates.

The House will know because I have declared my vested interest frequently that I run a small business. However, I admit that my situation is very different from those whom my hon. Friend seeks to help. My major supplier is my own landlord, so I am not in much of a position to place long credit terms on my supplier. My supplier is much bigger than my own company and grants me but short credit and expects payment by direct debit—an increasing habit among large companies when they are selling as opposed to buying. Because mine is a retail business, so long as I keep my stocks right, my products are sold before I pay for them even by fortnightly direct debit. So I understand that there is a difference.

However, 25 years ago when I was a representative for the Regent oil company, now Texaco, I was expected to spend a large proportion of my time each month chasing up small customers for payments for products that were sold on a retail basis very rapidly after delivery. Therefore the question of late settlement of debt is not confined purely to national Government, local government and big plcs. It is almost endemic throughout the business world.

Apart from the fact that my hon. Friend's Bill runs against two of the 1978 Law Commission recommendations on contracting out and universality, my major disagreement is that it will distort adversely the relationship between contractors and suppliers. It represents an intervention in the market, and that is what concerns me. I believe that the market is best left to its own devices with regard to credit.

My local chamber of commerce somewhat belatedly asked me to telephone yesterday afternoon and put across rather a weak case on behalf of the Association of British Chambers of Commerce. I suspect that my hon. Friend the Member for Hampshire, East is smiling because GEC may well be the largest contributor to that chamber of commerce. The chamber of commerce has come out against the Bill, not because GEC may be a major contributor, but because it envisages the relationship between contractor and supplier breaking down to the extent that those small companies that have the effrontery to ask for interest—my hon. Friend has said that they may opt out of taking the interest, but there is a fine line between that and having a contract which excludes statutory interest—are likely not to gain repeat orders from their substantial contractors.

Mr. Favell

I understand my hon. Friend's desire to represent his local chamber of commerce to which he says GEC may be a large contributor. If I were in his shoes I would probably take the same line. However, does he find it surprising that chambers of commerce and other organisations are ambivalent about the proposal simply because they represent good boys and bad boys? Late payers and quick payers are members of chambers of commerce, the CBI and the Institute of Directors, so it is not surprising that they cannot make up their minds. Does it surprise my hon. Friend to know that my local chamber of commerce in Stockport is in favour of prompt payment so long as the same rules apply to everyone. Maybe in the north we have different ideas about these things than they do in the south.

Mr. Couchman

My hon. Friend refers to a central feature of the Bill. His chamber of commerce would favour the Bill so long as it applied to large and small companies.

My last point relates to the size of companies. I think that is arbitrary. I accept that it is defined by the Companies Act 1985 which includes quite definite terms for capital, turnover and staff. I cannot remember the capital or the turnover term for a medium company, which is defined as one employing 250 people or more, but they are substantial compared with my company which employs 30 or 40 people and has a turnover of about £1.5 million.

Mr. Mates

My hon. Friend is absolutely right to raise that point as it causes me some concern. I should be happy to discuss in Committee whether there is another difinition that would exclude some of the larger medium-sized companies. The reason that I have not included it in the Bill as drafted is that I did not want to make more complicated bits of law and thus give my hon. Friend even more reason to object to the measure. The virtue of that is that it is implicit in the Companies Act. If that is one of the reasons why my hon. Friend the Minister of State is unhappy about the Bill, let him say so and let us debate it in Committee, because that is what I am longing to do.

Mr. Couchman

I am grateful to my hon. Friend for that offer, which I am sure my hon. Friend the Minister will consider most carefully.

The problem with a medium-sized company employing 250 people, given the limits on capital and turnover applied to them, is that they may be the United Kingdom subsidiaries of large overseas corporations. Under the Bill, they would be drawn into the net of medium-sized companies, although they are representatives of vast corporations.

Mr. Arbuthnot

Will my hon. Friend accept that the problem is not precisely where the line is drawn but the fact that there is a line at all?

Mr. Couchman

I accept what my hon. Friend the Member for Stockport (Mr. Favell) said earlier. If the Bill applied to large, medium and small companies—the good boys and the bad boys—I would have more enthusiasm for it. The alternative is to limit it strictly to the public sector—central Government, local government and health authorities.

The Government want it both ways. I must pay value added tax. I know well that if I do not complete my return and send a cheque this month the clock will start pretty smartly, and the master of my hon. Friend the Member for Stockport will want some interest. Clearly, the Treasury has one law for itself but another for everyone else.

I have some sympathy for the Bill and hope that it can be made workable in Committee. I am not sure that the changes that it proposes should be made by a private Members' Bill. Such initiatives should come from Government, wth the full panoply of Government draftsmen to work them out properly.

Mr. Hanley

Such as on abortion?

Mr. Couchman

My hon. Friend should not tempt me down that road.

The Bill is complex and contains issues which, as my hon. Friend the Member for Hampshire, East (Mr. Mates) has freely admitted, he has been unable to address completely and to the satisfaction of all hon. Members.

I hope that my hon. Friend the Minister will say that the Government will consider this proposition to see whether the Department can do something more than the issuing of pamphlets, which my hon. Friend the Minister for Hampshire, East praised faintly.

I have sympathy for the aims and intentions of the Bill, but it is imperfect because of the two exclusions that I mentioned. I wish my hon. Friend the Member for Hampshire, East luck, but I am afraid that I will be unable to stay until 2.30 pm; he may see that as an advantage rather than as a disadvantage. I hope that this interesting debate will continue, because the House should be more enthusiastic about it and consider it more often.

11.34 am
Mr. Ronnie Fearn (Southport)

I shall not detain the House long because much has been said already.

Before becoming an hon. Member, I was in the banking business. I was responsible for lending not only to big and medium businesses but to small businesses. Much has been said about the small business man, but I should like to include in the debate the small business woman. The Government have encouraged many young people to start their own businesses. In the north-west, especially on Merseyside and definitely in Southport, many young men and women have set up their own businesses.

I have seen quite a few bankruptcies and many small businesses fold. The main reason for their doing so was delayed payment not by the Treasury but by business or local government.

I remember when bills were paid within 14 to 21 days, but we are aware, not only from what has been said this morning but from correspondence sent to us, that on average that limit has been extended to 75 days, which is far too long for new businesses and small businesses. In the past year, an almost record number of bankruptcies were recorded; I have received correspondence endorsing that point.

The Bill offers some help not only to the small business man but to the medium business man. Delayed payment is the illness of business. To exist, a medium-sized building company must deal with local authorities. Large contracts from housing associations are rarely available, so those building companies look to local government to provide large contracts, which used to be so profitable for them.

Having to wait three months for payment places pressure on those business people. I have seen many small business men ask banks for help when they are in difficulties. The banks are prepared to go only so far to help because usually they have the security of a private house. In the end, when delayed payments cause too much trouble, the banks must decide what to do with the deeds that they hold. Banks are not as soft as they used to be, and nowadays they must foreclose on properties. That leads to family disruption, and as a banker I saw quite a few divorces because of payments being delayed to small businesses. The Bill may cause the Government to consider the plight of small businesses, especially the plight of young people who have started their own companies.

Many small businesses would like to continue, would like the help that banks offered in the past and would like the help of local finance. That involves the Government's scheme of letting businesses help themselves through themselves, but it does not happen when large concerns that have large amounts of capital demand credit. I hope that we can encourage local government, which faces squeezes, and big businessmen to read Hansard, look at the Bill and examine the Government's response. I hope that the Government will not try to talk out the Bill but will do something positive.

The Liberal Democrats initiated the discussion on small businesses in the House on Wednesday. It had been some time since that matter had been debated and I was pleased to hear hon. Members' contributions. There are many small businesses in all our constituencies. The Forum of Private Business is taking a grip on what business people are saying. It sends us queries on all aspects of small business so that we can ask questions and find out what can be done to help.

I hope that the Bill will be given a Second Reading and proceed to its Committee stage. The theories that are discussed in Committee will expose some of the base practices imposed on the small business man by those in power. I hope that the Bill will be successful.

11.41 am
The Minister of State, Department of Employment (Mr. Tim Eggar)

My hon. Friend the Member for Hampshire, East (Mr. Mates) has raised an important issue. I congratulate him on choosing this topic and on his argument and the great care that he has taken to discuss the Bill's implications with small business organisations and individual small companies and with the Government and other interested parties. That is typical of the way in which my hon. Friend tackles these issues. I regret that I shall not be able to stay for the whole debate—I gave my hon. Friend notice of that earlier. I have made arrangements to be here as long as I can.

As the Minister with responsibility for small firms, I appreciate my hon. Friend's intention in the Bill to assist small businesses and the small business community. That community is vital to our economy and has been remarkably successful over the past decade. I shall not rehearse the arguments that we heard in the debate on Wednesday on the small firms sector. In 1988, there was a net increase in VAT registrations of 1,200 firms every week. The latest figures indicate that in 1989 there was a net increase of 1,500 firms every week. That shows the vibrancy and strength of the small business sector, despite the slightly more difficult economic climate, to which a number of hon. Members have referred, in which small businesses operate.

Mr. Page

No doubt, we all take great pleasure in the 1,500 new businesses created every week, but I urge my hon. Friend to be cautious about his pride in that figure in case other people fasten on to it. Logically, we cannot have millions and millions of small businesses—there must be a finite number. Eventually, the number of small businesses created will decrease. I should hate anyone to use that as an argument that the Government are failing in their duty to small businesses.

Mr. Eggar

I understand my hon. Friend's point. I was making a point not about the absolute number of new businesses created—1,500 a week—but about the trend. As I pointed out in the debate on Wednesday night, early indications show that there were 80,000 new VAT registrations in 1989, compared with a net increase of 85,000 VAT registrations between 1974 and 1979. I was trying to show the strength of the small business sector in comparative terms. As my hon. Friend the Member for Hertfordshire, South-West (Mr. Page) knows, there has been a sharp increase in the number of self-employed people, from 2 million in 1980 to 3 million now. It has been a strong sector.

In previous debates on this topic, a number of my hon. Friends have referred to the major role played by the former Member for Nottingham, North, Richard Ottaway. I pay tribute to him for the way in which he raised the profile of this issue and gained much support throughout the House for his campaign. In debates that he initiated, the Government made it clear that we recognised that the late payment of bills was a problem for companies of all sizes in the United Kingdom, but one that particularly affected small businesses.

Mr. Hanley

My hon. Friend may recall, if he has read the two major debates that Richard Ottaway initiated on this subject, that on 24 July 1986, the then Under-Secretary of State for Employment—my hon. Friend the Member for Rossendale and Darwen (Mr. Trippier)—stated that legislation would be introduced if the voluntary code did not work. The debate and the Bill show that, in spite of the excellent voluntary code, the system is not working. It is four years since the then Minister made that suggestion, yet my hon. Friend the present Minister seems to be saying that now is still not the time. Will he comment?

Mr. Eggar

My hon. Friend obviously has a crystal ball. I did not think that I had revealed the Government's attitude to the Bill during this debate.

Mr. Hanley

I happened to hear on the radio this morning an indication from my hon. Friend's own lips of what he might say.

Mr. Eggar

I understand my hon. Friend's point. I just wanted to make it clear that I was not aware that I had stated the Government's position from the Dispatch Box.

Mr. Arbuthnot

Might my hon. Friend say when he comes to it, not that now is not the time but that this is not the Bill?

Mr. Eggar

I am afraid that my hon. Friend will have to wait, and I hope that the suspense will not harm his health, as I develop my arguments and explain the Government's position. He has made a valid point.

To revert to the point made by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley), I have, of course, read the debates to which he refers. It is clear, as the right hon. Member for Yeovil (Mr. Ashdown) said, that there was a feeling that as a first step, we should consider issuing "Prompt Payment Please!" and other documents to try to influence the climate of opinion. The Government have never completely ruled out legislation in this area. If my hon. Friend listens to what I have to say, he will find that my policy is not unlike that of my predecessor, my hon. Friend the Member for Rossendale and Darwen (Mr. Trippier).

We have always recognised that the late payment of bills is a widespread problem. By definition, it affects small businesses more than larger businesses, for reasons that we all understand. Cash flow is a more critical element in the survival of smaller companies than it is, generally, for larger firms. I know that late payment causes some small firms real hardship.

Mr. John Butterfill (Bournemouth, West)

Does my hon. Friend accept that it is not always late payment of bills that have been demanded which causes the problem, but a reluctance by some firms to submit an account at all when they know that it is likely to be disputed? Although we have introduced in VAT regulations a threshold for firms with a turnover of £250,000—below that level people can account on the basis or receipts rather than invoices—there are many firms that he and I would not regard as large which have a turnover in excess of £250,000. The average solicitors' practice with two partners would qualify, although neither of us would call such a firm, or any small professional firm, "large". Their difficulty is that they are deterred from submitting an account if they know that it is likely to be disputed because they know that they will have to pay 15 per cent. VAT. In many cases, they choose to negotiate rather than—

Mr. Deputy Speaker

Order. Interventions should be brief. I call Mr. Eggar.

Mr. Eggar

My hon. Friend has raised a technical point which is properly for my right hon. Friend the Chancellor of the Exchequer. There are several other reasons why small companies are reluctant or simply fail to submit bills. One reason is a less than perfect credit control system. One of the most interesting events that I attended recently was the launch of an open learning package which was devised, with financial help from my Department, by the Cranfield institute of technology and the Open university among others. It was a modular system specifically geared towards providing specialist training for small businesses and it was especially designed for small but growing businesses. A large element of that package was designed for accounting and credit control, which are recognised to be weaknesses of many small businesses.

Mr. Couchman

Does my hon. Friend agree that a problem with many building firms and building trades firms that find themselves in difficulties and eventually founder is that their accounting is dreadful? I frequently find myself having to push people into giving me invoices for work done on my business premises.

Mr. Eggar

I hear what my hon. Friend says. I remember having had some work done in my home and receiving effusive thanks from the builder who had done the work when I paid almost on receipt of the bill. I suspect that he was as surprised as I was naive. My hon. Friend's point is understandable. It is not only in the building industry that that problem arises. There are several other areas in which small companies are not geared up to a proper system for submitting bills, which surprises me. With the present relatively low price of computers and software packages that have an automatic follow-up system, there is less reason for not being up to date with credit control than there once was.

No hon. Member would deny that there is a real problem in late payment. However, the real question is how we deal with that problem, which goes to the heart of the issue. That is recognised not only in the House, but by the small firms' organisations, many of which, as my hon. Friend the Member for Hampshire, East mentioned, have severe misgivings about the Bill. My hon. Friend will recall that when he first came to me with the suggestion that he might introduce a Bill on late payment, I approached the proposal with a completely open mind. I had not formed a view on whether that would be the right way forward. His proposal prompted me to look into the matter carefully. I have given it much consideration and I have tried to examine whether my hon. Friend's detailed proposal would have an effect on late payment, and what effect that would be.

I have reached the same conclusion as my two predecessors, and I have talked to them about this. Each of them went into the issue in considerable detail and tried to weigh up the conflicting arguments. I have come to the conclusion that the Bill is not the way forward at this time. One factor that has weighed heavily with me is that we are a Government who are rightly committed to less regulation. We believe that the best way to achieve economic growth is to create the general framework within which businesses, large and small, are free to go out into the marketplace, and to create jobs and wealth in the way that they think best, subject always to a general framework in areas such as health and safety. I believe that I carry my hon. Friend with me when I say that if we are to introduce legislation in this area, there must be an overwhelming and clear-cut case for doing so. Small firms' organisations have said that they also attach importance to that.

Mr. Mates

My hon. Friend carries me all the way with him. First, in his analysis, he has acknowledged that there is a problem and that the problem is growing. Secondly, he has said that he approached the matter with an open mind and I accept that absolutely, as I remember our first conversation. Thirdly, I do not think that I am betraying a confidence in saying that he said that he would be very much influenced by the attitude of the representatives of small firms.

I hope that my hon. Friend will comment on the fact that at that stage, there was only one such organisation in favour, but that now, after a relatively short time, there are five of six in favour. The mood is changing as quickly as those small firms are appreciating the difference between this Bill and the previous Bill. The one question that I hope that my hon. Friend will address is, as the Government said that something must be done, what are they going to do if they do not accept the Bill?

Mr. Eggar

I shall come to all the points that my hon. Friend has raised, and if he feels that I have not addressed any of his arguments as I proceed, I hope that he will intervene on me. I shall certainly be willing to give way.

I would not claim for one moment that the issue is clear cut; indeed, it is not. As my hon. Friend said, the fact that a number of small firms organisations continue to oppose the Bill, whereas the Forum for Private Business has argued for it through thick and thin, is testimony to the balanced nature of the argument. When I was first appointed to my present job I spent a great deal of time meeting all the small firms organisations to give them an opportunity to raise issues of concern to them. The only organisation that chose to raise this issue, when it could have raised anything at all, was the Forum for Private Business. Other organisations raised different issues but not this one.

Mr. Leigh

I am sure that my hon. Friend the Minister will say that the Association of British Chambers of Commerce also opposes the Bill. That organisation said that companies could be inclined to stipulate in the contract a much later date for payment, and that is the main objection to the Bill. But will the Minister consider a suggestion that I made earlier in an intervention—that the Bill should apply solely to Government Departments? Would my hon. Friend then consider dropping his objection to the Bill?

Mr. Eggar

As I shall say later, we believe that much of the concern about late payment by Government Departments is not well founded. My hon. Friend the Member for Hampshire, East has said that he is open to persuasion over the contents and final form of the Bill, and I should have to consider what my attitude to a revised Bill should be. For the moment, however, I can comment only on the Bill that is before me.

Mr. Mates

Would not a Standing Committee be precisely the forum for the Government to make that decison?

Mr. Eggar

We are now discussing the Second Reading of the Bill.

Mr. Mates

The principle.

Mr. Eggar

Absolutely, and I am trying to explain the Government's attitude to it. If the Bill goes into Committee we shall have the opportunity to discuss this and many other issues, such as the division between small and medium-sized firms and whether the Bill should cover all firms. It is, of course, for the House to decide whether the Bill should have a Committee stage.

Let me follow the lead given by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) and point to a few of the Bill's drawbacks. Most importantly, I believe that the Bill will in practice make little difference to small firms' ability to obtain prompt payment of debts owed to them. As my hon. Friend implied, the problem stems from an imbalance of negotiating strength between small and large businesses. The Bill would have little impact on that fact of commercial life. There is an imbalance of power between contracting parties in many commercial contracts.

Mr. Gill

Does my hon. Friend accept that customers weigh up the cost of paying their suppliers against the cost of not paying them? The purpose of the Bill is to ensure that the cost will be equal. The cost of not paying will be as great as the cost of paying. There will be no decision to make and the incentive will be to settle promptly for the sake of good relations between customers and suppliers.

Mr. Eggar

I should be more persuaded by that argument if my hon. Friend had used it in the context of present contractual terms. At the moment, standard business practice is to request payment on 30 days, although sometimes the period is longer and sometimes it is shorter. Some firms pay regularly on 30 days; some pay earlier and some later. I am not convinced that the fact that interest would be borne past the contracted date would make any substantive difference. It seems to me more likely that either the contract terms would be elongated beyond the present 30-day period, or price calculations would take account of statutory interest that may have to be paid if there is deliberate late payment. I think that the market would simply take account of the new legislation, which would not, therefore, make much difference.

Mr. Gill

Would my hon. Friend care to consider an analogy with Japanese industry? I understand that it is axiomatic that Japanese customers pay their suppliers promptly as a matter of honour. If they do not pay promptly, the manager will be hauled over the coals. Is it not significant that the small and medium-sized sector in the Japanese economy is far stronger than it is in the British economy? The longer we delay in acting on the proposals in the Bill, the more we shall prejudice the medium-sized company sector, and we shall do that to our great disadvantage.

Mr. Eggar

I completely agree with my hon. Friend's basic point, and I think that most British firms would do well to look at the practice that has been developed in Japan and the relationship between large companies and their small company suppliers, just as they would do well to observe the similar practice of a number of their British counterparts, most of which would accept they have adopted Japanese practice.

The importance of a long-term stable relationship between a large company and its supplying companies is vastly underrated. If that relationship simply depends on an annual or even more frequent contract price negotiation—1 am talking mainly about the manufacturing sector—there is at least a case for saying that the large company suffers as much as the small company from that uncertainty and lack of mutual loyalty.

I join my hon. Friend in hoping that British industry will look at the lessons that can be learned from Japan. I recently had an interesting discussion with the managing diector of Unipart, a company which, I understand is benefiting very much from that kind of supplier-producer relationship with the Japanese motor company Nissan, in the north-east and is seeking to develop exactly the same kind of relationship with its own suppliers. Therefore, I join my hon. Friend in hoping that that trend will increase. However, we cannot legislate for that kind of relationship and I do not believe that the Bill would effect such a relationship.

Mr. Butterfill

Does my hon. Friend also agree that the history of what has happened in the construction industry is not very encouraging? A system of liquidating ascertained damages has built up and is now used to enhance disputes between companies. Does my hon. Friend agree that a Bill such as this would be inclined to lead people to dispute that a bill was due and payable, which might ultimately operate to the disadvantage of small firms, rather than to their advantage, as has already happened in the construction industry?

Mr. Eggar

I was about to come to a number of the key points that are now being raised. The short answer—I shall, of course, develop it— is—

Mr. Deputy Speaker

Order. I apologise for interrupting the Minister, but he should not turn his back on the Chair so frequently.

Mr. Eggar

I apologise, Mr. Deputy Speaker.

There is a lot in what my hon. Friend has said. One of my concerns about the Bill is that people who do not want to pay will find other reasons for not paying. They will ask, "Were the goods actually delivered at the time that it is alleged that they were delivered? Were they properly packaged? Was a smaller number delivered than was shown on the documentation? If that happened, it would bear disproportionately on small businesses which lack large numbers of people to follow through such practical problems. Larger businesses probably employ people to do just that. I believe that the Bill would tend to increase the number of disputed contracts.

Mr. Arbuthnot

I have been following what my hon. Friend has been saying and entirely agree with him, so what I am about to say goes slightly against my own conclusions. My hon. Friend referred to Japan, but I believe that Japan is one of the very few countries—if not the only country—to have had some legislative success in this area. It introduced the Law for Prevention of Slow Payment to Small Sub-contracting Firms in 1956. I do not know whether that legislation has been part of Japan's build-up of success in creating good practices in its firms. Would my hon. Friend care to comment on that?

Mr. Eggar

I am about to come to this point, not only in relation to Japan but more particularly as it applies to the rest of the European Community. The Commission's conclusion is that the differences in payment practices within the Community have not been brought about by the different legislative position, but by different cultural attitudes towards payment and the relationships between different businesses.

Existing provisions allow firms to sue for debts and for interest. As small firms do not tend to go to court at present to recover the principal debt owed to them, not least for fear of losing future business, they are even less likely to do so if the Bill becomes law, simply to obtain the interest element. In most cases, the interest owed would be a comparatively small sum in relation to the principal outstanding. Another reason for the reluctance of small firms to use the courts is that the process is inevitably costly, especially in time, which is a precious commodity for small firms. Debtors know that only too well. As they take advantage of it now, I suggest that they would continue to take such advantage if the Bill were on the statute book.

Mr. Mates

I am sorry to keep interrupting my hon. Friend, but those two arguments are strong arguments in favour of the Bill. If he makes it clear that the force of those arguments goes against his conviction, that is fine. Of course, no firm will go to court simply for the interest when the principal is owned in any case. Therefore, the situation would be no different from now. A small business man will not seek to go to court. He will show the same reluctance to go to court as now because of his contractual relationships. However, if he has to go to court, interest will be running from the date on which the debt was owing, so he will be that much better off.

Mr. Eggar

My point is that small firms do not go to court at the moment for commercial and time reasons, so why on earth do we think that they would go to court because they have a Bill that entitles them to the interest accruing on the principal? My objection—my difficulty with the Bill—is whether it will address the problem. I do not dispute that there is a problem, but I do not believe that the Bill will meet it.

My hon. Friend questioned whether the business atmosphere would be affected by the enactment of the Bill. Of course, I hope that the passing of the Bill—if it were to be passed—would have a marginal effect on the atmosphere. However, it is unlikely to have a major impact on the way in which the majority of firms operate in this country. We need a change in attitude and a recognition that there is a mutual relationship between small and large suppliers and, indeed, between small suppliers and small companies. Indeed, much has been made of the fact that small companies are excluded from the provisions, except in so far as they might benefit from them.

In answer to an intervention, I said that, like a number of small business organisations, I feel that one of the effects of the Bill would be an inevitable lengthening of the credit terms that large customers would seek to extract from their smaller suppliers. Firms in a weaker market position—in other words, generally small firms—would have to agree to those longer credit terms if they wanted to retain that business. I have read that some of the Bill's supporters have conceded that argument and that although they believe that a longer credit period could result from the Bill, they feel that that would be a price worth paying for a gain in certainty. However, I wonder whether that is really in the interest of small firms as a whole. A longer credit period would apply to many small firms, but the certainty would probably benefit only a few small firms. I raise that question. It must be borne in mind.

Mr. Gill

I appreciate what a difficult task my hon. Friend has to persuade the House that his case is right. He should not make the assumption that there is any certainty in the terms that small companies enjoy with large customers at present. My hon. Friend the Member for Hampshire, East (Mr. Mates) has instanced one large public company, well know to us all, which agrees to pay its suppliers in 90 days but takes 150 days to pay. What certainty is that?

Mr. Eggar

My hon. Friend make a good point, but if there is a lack of certainty around 30 days now, would he rather that there was a lack of certainty over 90 days in future? We cannot be certain that the Bill will introduce the change in attitude that many of my hon. Friends seem to assume. All my hon. Friends, even my hon. Friend the Member for Hampshire, East, recognise that in practice few small firms will go to the courts in order to obtain the amount due to them with the accrued interest that would apply under the Bill.

Mr. Ian Taylor

I think that we are missing one major point. If a small companies wishes to have certainty above all else, it can factor the debts because large companies are good collateral. That is the way in which companies create certainty, not through legislation.

Mr. Eggar

With his financial expertise, my hon. Friend points out one way to proceed. That point was made to me by the Association of British Factors when it came to see me recently. I would not want to appear to support one particular commercial way of proceeding on debt collection.

Mr. Hind

As a director of a company that does a large amount of factoring, I know that it is an expensive way of dealing with the problem, though it provides one with certainty, providing that the proper credit checks are made on the company. Will my hon. Friend consider that there is a better way of dealing with the matter which, as a lawyer, I know is not followed by companies? That is simply to put in a statutory demand which would cause payment within 14 days. If it is not paid within 14 days, a wind-up petition automatically follows. In my experience, that is the best way to obtain one's money. Never mind the interest, a company is interested in being paid.

Mr. Eggar

I assume that my hon. Friend's businesses are extremely prosperous.

Mr. Hind

They have no customers!

Mr. Eggar

I am sure that they go from strength to strength. I listened with considerable interest to what he said. I look forward to hearing the reports of what my other hon. Friends have said about my hon. Friend's suggestions.

Mr. Hind

I make that point because I recognise that it is difficult to obtain money from large businesses with which one is doing business. I accept that, but the majority of cases of which I have had experience are companies where there are lengthy gaps and where the suppliers of services have decided that they will not do business with that company again. Those are the circumstances in which one would use a statutory demand. It is effective and it is not used enough. The ignorance about it is remarkable.

Mr. Eggar

I am grateful for that advice. I am sure that several commentators will take note of it when they read the Official Report.

I have already said that I am worried that a provision such as that in the Bill might cause an increased number of disputes over contracts. I have given examples of what I think might happen. If there were an increase in disputes as a result of the Bill, small companies would suffer most.

My hon. Friend the Member for Hampshire, East and several other of my hon. Friends have commented on the payment practices of several large companies. I am not aware of the precise details, but it worries me to hear about large companies that abuse their powers and deliberately delay payment to suppliers. That is not a reasonable way to behave and it is not the way in which I believe that the majority of responsible large companies behave. I hope that those large companies mentioned in the debate will examine their payment practices and consider whether in all conscience they act in a way that is not only fair to their suppliers, but is in their own interests. That was the point that I was developing in response to my hon. Friend the Member for Ludlow (Mr. Gill). I referred to the practices of business in Japan and to what is happening among a considerable number of British companies.

Mr. John Marshall (Hendon, South)

Does my hon. Friend agree that many large firms such as Marks and Spencer recognise that the prosperity of their suppliers is very much in their own interests? They play a major part in ensuring that their suppliers are prosperous and they help them as they expand.

Mr. Eggar

My hon. Friend refers to Marks and Spencer, as did my hon. Friend the Member for Hampshire, East. There are other similar examples. One must be realistic about the diversity of attitudes among large companies towards their small company suppliers. In general, large companies do not take account of their suppliers' position in the long term. It is not for me to make a judgment, it is for the management of the companies but they probably do themselves harm, as well as harming their small suppliers.

It should be remembered that small firms have a responsibility to their customers and to other small firms. I have already said that several studies have shown that there is a lack of management expertise in many small companies. One of the areas in which there is such a lack, as my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) said, is in the collection of bills and the system that each small company operates. I hope that small firms will examine their own systems and will use available methodology to the best effect in making their cash flow as good as it can be.

I have referred already to some interesting open learning programmes of which I hope small firms will take advantage. From time to time, they do not take action that is within their own control and occasionally they could do more to help themselves, rather than always seeing problems with large companies as the cause of their cash flow difficulties.

My hon. Friend the Member for Hampshire, East pointed to the example of other European Community member states who have legislation on late payment. A recent report prepared for the Commission shows that there is no direct correlation between good payment practice and the existence of legislation. The experience of countries having late payment legislation ranges from that of Spain and Portugal, who still regard late payment as a problem, to West Germany, where there appears to be no problem at all.

Mr. Mates

Perhaps I should not make this point, for fear of increasing my hon. Friend's opposition, but in Germany late payment is a criminal offence—"Ve haf vays of making you pay."

Mr. Eggar

I am not sure that my hon. Friend's supporters would appreciate the implications of making late payment a crime. If his Bill goes to Committee and he moves an amendment to make late payment a criminal offence, I doubt whether many of our right hon. and hon. Friends will support him. The Commission's report appears to make the point that the existence or otherwise of late payment does not depend on legislation but on cultural and business practices. The report states: The effectiveness of specific legislation as an aid to small and medium sized enterprises in collecting payment must…be questioned. It states also: Our understanding is that there is a common frustration in member states where there is specific legislation covering late payment to small and medium sized enterprises that the process involved in pursuing the legislation is slow and sometimes costly. Small and medium sized enterprises are often reluctant to pursue major customers through the legal process as they believe, not unnaturally, that it may prejudice the business opportunities which they are pursuing. The Commission's objective report points out that the late payments we experience in this country are exactly the same as those that continue to exist elsewhere in the Community in countries having late payment legislation, with the exception of West Germany.

My Department has launched initiatives and published the booklets "Payment on Time" and "Prompt Payment Please!", which give guidance to small firms on credit management and correct invoicing and to large firms on their responsibilities to suppliers, particularly small firms. Those booklets were prepared in conjunction with a number of organisations representing both small and large businesses. We have also written to all Government Departments, county and local councils, health authorities, banks, small firms organisations and accountancy bodies offering copies of both publications and making it clear that the Government believe that measures should be taken to improve Britain's record of payment on time.

I do not say for one moment that during the past three or four years we have succeeded in achieving a dramatic change in attitude, but we have got an improvement. There is more of an awareness from large companies, and certainly from Government, at both local and national level, of the need to pay promptly.

Mrs. Edwina Currie (Derbyshire, South)

My hon. Friend mentioned the increasing awareness of the Government. When I was at the Department of Health and health authorities were beginning to run up large debts towards the end of the financial year, the strong view was taken in my Department that that was inflationary and inimical to the public interest. It was thought that if the suppliers came to believe as a matter of practice that Government Departments were delaying payments they would tend to puts up their prices. We took a strong view on that and an allocation of money was made so that the health authorities could meet their debts and reduce their credit lines in that way.

Mr. Eggar

My hon. Friend is absolutely right. One of the major arguments for being a good and prompt payer is that one gets a keen price. There is no built-in effect making people think, "Well, they may not pay for 30 or 90 days and therefore we had better put in another margin." If my hon. Friend remains I shall assure her that the good work in which she was involved during her time at the Department of Health lives after her. I shall comment on the health authorities' present payment practices.

As time is pressing I shall turn to the Government's record as a major purchaser. Central Government are directly responsible for a purchasing sum of about £15 billion per year. As everyone knows, the proposed legislation would cover not just large companies, but Government Departments.

In preparing for the debate I checked with all the major Government Departments about their policy on payment. Without exception their clear and unequivocal response was that payments should be made promptly. That is how it should be. It is only fair and right that Governments should set a good example on payment practice. Therefore, I am worried when suggestions are made by my hon. Friend the Member for Hampshire, East and other hon. Friends that in some way Government Departments have a particularly bad payment record.

Mr. Leigh

If the Government have taken this issue on board, why do they object to the Bill applying to them?

Mr. Eggar

I shall come to that point in a moment.

Government Departments are an easy target at which to aim, but there is little firm evidence to suggest that they are bad payers. During the past 10 years departmental payment procedures have been enormously improved and streamlined. I stress that it is our firm policy that all payments are to be made on time.

My hon. Friend the Member for Hampshire, East referred to the Ministry of Defence. It spends more than £8 billion a year on equipment and its major bill-paying centre in Liverpool handles no less than 1.3 million bills a year. The Ministry is often quoted as being a later payer, but I shall explain how the payment procedure works because that is part of the reason for the confusion over the Ministry of Defence. Contractors are paid by a monthly billing system by which they submit bills at four-weekly intervals and are normally paid within five or six working days of those bills being submitted. Other miscellaneous bills are submitted randomly and payments are usually paid within two weeks of the receipt of authorisation.

I know that anxiety has been expressed about Ministry of Defence sub-contractors—companies that have no direct contractual relationship with MOD but which rely on its main contractors. As a result of the concern voiced by these sub-contractors, the MOD has agreed a code of practice with the trade associations which provides that payment terms for sub-contractors should, in general, be as good as those enjoyed by the Ministry's main contractors. Of course, because the MOD is not in a contractual relationship with its contractors' sub-contractors it cannot enforce the code itself, but it has done everything that it is reasonable to expect it to do for sub-contractors.

Mr. Mates

When I said that the MOD was one of the worst offenders, I should have added that it is also one of the biggest spenders, so proportionately it is probably no better or worse than any other Government Department. I am happy to make that plain; I have a great many dealings with the Department in another capacity.

My hon. Fried is in danger of arguing against himself. He is saying that the MOD has a code of practice, but nothing with which to enforce it. That is precisely the problem that I have outlined about the large companies that do not pay on time. But the MOD does have a way of enforcing the code: it can refuse to deal with main contractors who do not pass on the benefits of prompt payment to sub-contractors. If my hon. Friend will acknowledge that, it is yet another reason why the small man should be given a lever against the big man such as that which MOD has tried to produce.

Mr. Eggar

I am not sure of the point my hon. Friend is trying to make. Is he saying that any company, however direct or indirect its relationship with Government Departments, should benefit from what amounts to strict contractual terms of payment? Does he want to intervene in the commercial relationship between companies to the extent that his question implied? I thought that my hon. Friend's main argument for one of the changes in the Bill was that he wanted to leave it to the market to decide the contractual terms in the way that it thought best.

Mr. Mates

I am certainly not trying to say that, and I am happy to put my hon. Friend right. Let us take the example of GEC, a major defence contractor. My hon. Friend's argument that he cannot make GEC carry out the MOD's code of practice because that must be left to the market is the very reason why we must approach the problem from the other end. If the MOD can do nothing about one of the worst offenders to which it gives major contracts, why should not we help the little man?

Mr. Eggar

That is predicated on the assumption—if my hon. Friend's Bill became law—that a small company would automaticaly and suddenly find that GEC, to use my hon. Friend's example, would pay promptly which it has not done before.

Mr. Mates

Yes, because it would cost the company not to.

Mr. Eggar

Not necessarily. The only way in which that would happen would be if the small company took the large company to court.

Mr. Mates


Mr. Eggar

The debt has to be collected. Small companies will face exactly the same decision as they face now—whether to imperil their relationship with their major customer by taking action to recover their debt.

Several hon. Members have referred to the "Today" programme this morning. My hon. Friend must accept that it was significant that the representatives of both the small companies interviewed had doubts about whether his Bill would have the impact that my hon. Friend thinks it will have. The first point that I made in the debate was about the contractual balance of power in the relationship between small and large companies. I do not think that the Bill will make enough of a difference to that balance to justify adding to the legislative burden in this area. As I also said earlier, the Government are committed to less regulation and intervention and, therefore, the onus is on those who support the Bill to show conclusively that it will have an impact on the late payment problem.

My hon. Friend the Member for Derbyshire, South (Mrs. Currie) spoke about payment delays in the National Health Service. That was drawn to her attention when she was a Minister in the Department of Health and it has also been mentioned in a recent report by the National Audit Office. As a result of that report and my hon. Friend's efforts, we have been tackling that problem. Regional health authorities have been instructed to reduce unacceptable delays and this will be followed up by performance reviews of those authorities. They will also discuss with districts how best to move towards the target of payment within a normal commercial time frame.

Hon. Members have spoken about local authorities. It may interest the House to know that in 1986 an Audit Commission report almost suggested that some local authorities were too good at paying their bills early and that they should consider adopting more commercial practices. Other local authorities are not good payers. We are doing everything that we can to get central Government's record right. We have identified the problem with health authorities and have taken action to deal with it. Local authorities have what could be described as a mixed record.

I was surprised by the way in which my hon. Friend the Member for Hampshire, East sought to cast doubts on the representative nature of the bodies that have put forward arguments against his Bill. I do not think that anybody has tried to enter into an argument about the representative nature or otherwise of the Forum of Private Business or to look in detail at the consultation the Institute of Directors has carried out with its members. The House accepts that representative bodies put forward their proposals in a way that they think best represents the interests of their members. That is the best way to conduct the debate.

I shall quote to the House the view of the Association of British Chambers of Commerce. It says: every effort must be made to reduce, and not to increase, the extent to which legislation interferes in the normal commercial relationship between businesses. In reference to the Bill the association says: we fear…that large businesses will adopt much longer payment terms, ensuring that they do not become liable for interest…the Bill could lead to a worsening of the prompt payment situation. The association's views are supported by the Association of Scottish Chambers of Commerce.

Mr. Hind

Will my hon. Friend give way?

Mr. Eggar

I have given way to many hon. Members and it is not fair to the House for me to continue with my speech for longer than is necessary.

The National Federation of Self Employed and Small Businesses has said: We believe that legislation could be self-defeating…Larger companies would alter their contract conditions to circumnavigate the measures…". The federation goes on to mention the need for small businesses to be trained in credit monitoring and collection, and adds: Too often it is the businessman him/herself who is to blame. That is an interesting reflection. On the evidence of its smaller firms council, the CBI has also made clear its opposition to the Bill.

I have always believed that the Government should pay considerable attention to small firms' organisations and should be influenced by their attitudes, and I hear what my hon. Friend the Member for Hampshire, East says about some organisations changing their views. I had the impression from an IOD document that I read this morning that some had changed their minds because of the alterations that my hon. Friend had made in the Bill—alterations about which my hon. Friends the Members for Stockport (Mr. Favell) and for Gillingham (Mr. Couchman), among others, expressed concern.

I suggest that the onus is on the Bill's sponsor to make an overwhelming case for putting it on the statute book. No one would deny for a moment that late payment of bills is a problem for many small businesses; the question is whether my hon. Friend's Bill would alleviate that problem. The Government are not convinced that it is the right way forward and our doubts are shared by many small firms' organisations. I therefore cannot commend it to the House.

12.51 pm
Mr. Richard Page (Hertfordshire, South-West)

I join other hon. Members in congratulating my hon. Friend the Member for Hampshire, East (Mr. Mates) on his success in the ballot, and on having aired an important subject. I have been in the House for some 13 years, but have never come higher than 50th in the ballot. Let me use this opportunity to ask the Clerks to shuffle the applications about a bit in the next ballot, so that Mr. Speaker can make a sensible and logical choice from the top of the pile.

I am attracted to the idea of the Bill, but any law that is introduced must be practical. If it does not work, the subsequent chaos and confusion will make matters very much worse than they are now—and we have already heard about the problems facing the courts at present.

I feel rather like the wishbone on the traditional Christmas turkey. One half of me is being pulled towards the Bill because its spirit is right, while the other half is pulled in the opposite direction because of the practical difficulties that it involves. My hon. Friend the Minister—who spoke for over an hour, and generously answered interventions—said the same. He approves of the spirit of the measure, as he wants people to honour their debts, but he sees practical problems in the way, and I agree that those objections must be overcome before we can proceed further.

I would hate hon. Members to go away with the idea that my hon. Friend the Minister is against small businesses. The right hon. Member for Yeovil (Mr. Ashdown)—who was here for the first few minutes of the debate, but has now vanished into thin air—was entirely wrong to say that the Government must now back up their rhetoric on small businesses by supporting the Bill. The list of the Government's achievements for small businesses is exceedingly long, and the right hon. Gentleman should not try to extrapolate an objection to small businesses from the Government's objection to the Bill.

I have a substantial list of what the Government have done for small businesses, but in view of the time I shall not read it out. We can oppose the Bill without saying that the Government are abandoning small businesses. I am almost a founder member of the small band of pilgrims that has done everything possible to help small businesses. We have seen a shrunken small business sector grow rapidly. The fact that there are now 1,500 net registrations every month shows how fast that sector is expanding.

In the past we have examined the problem, but we have failed to crack it. I hope we can crack it this time, but I do not think that the Bill will improve the present position. Unless there are some significant changes, I do not believe that it will gain the support of the House.

I recall what my hon. Friend the Minister for the Environment and Countryside said when he was Under-Secretary of State—I understand that he has now been given an extra job of recycling fridges—in reply to a temporarily estranged colleague, Mr. Richard Ottaway when referring to the debt code on payment on time. I was shattered and shocked at what my hon. Friend the Member for Hampshire, East said about the cynical attitude adopted by certain large British companies that are signatories to that code. The condemnations have been savage, particularly of GEC. Such an attitude is not in keeping with the approach and management that one expects from a flagship company of Great Britain. Quite bluntly, those condemnations should not be ignored. They should be answered. Either they should be challenged and denied or rebutted, or, if they are true, there should be a response and a change. If there is silence and the condemnations are ignored, the House will draw its own conclusions about the truth.

My hon. Friend the Minister has taken most of my points from under me, as one would expect. Before I turn to the workable parts of the Bill, I shall touch on an important fringe matter. There is no reason whatsoever why small businesses should be exempt from any measure of debt repayment. Where should we draw the line? We all know the problems of trying to define a small business—whether it should be 50 employees, 100 employees or a certain turnover. Why should we deal with only public companies? Why should private companies be exempt? Private companies supply public companies and public companies supply private companies, so why should there be any difference? We have worked quite hard and we have yet to succeed in getting a set-aside in Government purchases so that Government Departments purchase from small businesses. I do not see why there should be any such exemptions.

All I need to say about the interest rate is that it must be relatively penal. I shall not go into the legal aspect of when a penal interest rate becomes extortionate, but it has to be penal to make it work. It would be very unfair to leave it at a break-even figure. The invoice that a small company sends to a large company contains more than the payment and the interest—it contains an element of profit. A small company needs that profit element because it represents its growth factor for the future. It needs that money to expand and develop, otherwise it will simply mark time.

I have some experience in the business sector and have heard most of the variants on the "cheque is in the post" syndrome. Unless we are careful, the Bill will create a shoal of new reasons for delay. I can foresee all the examples for setting aside the statutory payment period. My hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh), in his characteristically robust way, made the views of the Coventry chamber of commerce fairly clear and showed how such problems can develop. A series of standard letters will be written complaining that the quality, delivery or paperwork was not up to scratch in order to extend the time for payment. It will become a lawyer's paradise.

Mr. Timothy Wood (Stevenage)

I should like to pursue that point, because in many instances of delayed payment there has usually been a dispute about the quality of the goods or service provided. In reality the Bill may generate a raft of correspondence to justify delays in payment, thereby leading to additional costs that are being avoided at present.

Mr. Page

With such a raft of artificial reasons, the real reasons for the delay will become muddled, and confusion will be added to the existing problems.

My hon. Friend the Member for Hampshire, East said that enforcement will be voluntary. He therefore plunged the argument back to where we are today, whereby a big company can be taken to court. As my hon. Friend the Member for Lancashire, West (Mr. Hind) said, it can brutally be taken to court, especially if a small business does not want to do business with it again. But small businesses do not do that because they do not want to lose future business. Will small businesses slap an interest charge on large companies, or for the purpose of good relations will they say, "Let us hold back and let it go"?

Mr. Gill

Is my hon. Friend seriously suggesting that every time responsible public companies are faced with paying interest on debts that they have not paid on time they will take court action? That is not the object of the Bill. Its object is to make it clear, beyond peradventure, that it is no longer acceptable to spin out payment of debt by offering all the excuses of which the House is well aware.

Mr. Page

I am saying that a small company will not take a large company to court. It will say, "We will waive the interest rate because we do not want to upset the big company and lose its business."

Mr. Mates

What does my hon. Friend say about the Rolls-Royce director who said to me, "Of course, we would not pay late; there would be no point in us doing so." He would pay on time.

Mr. Page

I appreciate that, but what about the example of the purchasing manager of a large company persuading smaller companies to be more tolerant?

I fear that if the Bill is enacted companies will write terms of contracts covering any possible extension or delay in payment. A cheque may genuinely be in the post, but be delayed because of a problem with the post; there may be a delay because the computer has genuinely broken down; and there may be a delay because of holidays. However, we will find that contracts, instead of offering the normal contract period, will offer a "comfort" period. That will become the norm, rather than the standards that we should like to be achieved.

I finish as I began. I am with the Bill in spirit, but I am doubtful about it in practice. I should like to see the problems overcome. Despite my doubts, I echo the sentiments expressed by my hon. Friend the Member for Chichester (Mr. Nelson), when he said that the House should make a decision and not use a device to halt that process.

1.5 pm

Mr. Christopher Gill (Ludlow)

It will come as no surprise to the House to hear that I shall support the Bill. My remarks will be brief because the House has been so tolerant of my interventions. There will be considerable relief in Wolverhampton today because I am here harassing my hon. Friend the Minister about this problem rather than harassing my credit controllers in my medium-sized business.

I compliment my hon. Friend the Member for Hampshire, East (Mr. Mates) on his initiative in introducing the Bill and on the excellent and comprehensive way in which he put the case. I entirely agreed with every word that he said, but I find myself in a position that I would rather not be in. As an ardent supporter of a free and deregulated market and as one who believes that the best thing that the Government can, do is to keep out of the business arena, I am arguing for a measure of regulation.

As my hon. Friend the Member for Hampshire, East made clear, the voluntary code—the appeal to people to take a responsible attitude in this important matter—has failed. Payment on time has been torpedoed, principally by the big battalions of Government, local government and big business. Often, the enterprises that have positive cash flow and are cash-rich have operated to the grave disadvantage of their small and medium-sized suppliers.

I am sorry that my hon. Friend the Member for Romsey and Waterside (Mr. Colvin) is not here to hear me refer to farming, which he broached. It provides a classic example. Until recently, it was the practice in the livestock industry for auctioneers to pay livestock producers on the day that they sold their produce in the markets. Sadly, that no longer happens. The wholesaler does not pay the livestock auctioneer because he is not paid by the retailer.

Five major retailers account for 75 per cent. of all packaged groceries sold, so they have enormous power and, more to the point, are cash-rich. A serious chain reaction has been set in motion by the very people whom the Bill is designed to bring to order, because they are the people who could release a torrent of cash to small and medium-sized businesses. Thirty years ago, there was not a problem but, as many hon. Members have said, there is now an enormous one. My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) referred to the morality that should apply, but there is no morality today. In the past, a supplier would expect and get prompt payment from his customer, but that morality no longer exists.

Mr. Arbuthnot

Will my hon. Friend give way?

Mr. Gill

I shall not give way because I am anxious to give other hon. Members an opportunity to speak.

Other Conservative Members have mentioned factors. Thirty years ago, there was no such thing as a "factor" because there was no need for it. It is a phenomenon of our age. These things have sprung up out of this totally unacceptable phenomenon. The worst offenders are indisputably the big companies. They exploit their power ruthlessly in the market not only by dictating the specifications and the prices of the goods and services that they buy—which is perfectly legitimate—but by setting terms that they themselves break. I have no doubt that extended credit and the effect that that has on the cash flows of smaller businesses can be catastrophic.

At present, that predicament is exacerbated by higher interest rates and we see small and medium businesses caught in a vicious circle of paying more to their bankers to borrow more and to finance the debts of their cash-rich customers who, at the same time, are themselves profiting by investing the money that rightly belongs to their suppliers on the money market to earn additional profit. When we talk in terms of morality, there is a big question mark about whether that is acceptable. My hon. Friend the Member for Stockport (Mr. Favell) has said that there is big money in paying late and I am sure that he is right.

The Bill is vital for the future well-being of a highly important sector of the British economy which now finds itself caught between the hammer of high interest rates and the anvil of extended credit.

1.11 pm
Mr. Edward Leigh (Gainsborough and Horncastle)

My hon. Friend the Member for Hampshire, East (Mr. Mates) will be relieved to hear that I do not intend to speak at length not least, if it is not too poor a pun, because my hon. Friend is a good mate of mine. As I have listened to the argument this morning, I have realised that a consensus has developed. As my hon. Friends will know, I am very much a consensus politician, but I do not know whether it will be possible for us to achieve that consensus by 2.30 pm. I wish that it were.

I want to outline what I see as some of the problems with the Bill. I shall summarise the main arguments in favour of the Bill. It is said that it would be a deterrent to late payment, which is said to be an increasing problem because of the current high level of interest rates. It is said that this is a moral issue and that companies awaiting payment of sizeable debts by larger companies should have some automatic legal redress. My hon. Friend the Member for Hampshire, East put forward the argument that that is a common practice in the European Community. Another argument is that a major small business organisation, the Forum of Private Business—and I pay tribute to its work, because it also operates in my constituency—supports the Bill. A point that has not yet been made is that the Government have already acted on payment of VAT receipts, so in that sense they have set a precedent. How do those arguments measure up to reality?

The problem has undoubtedly been recognised for some time. Lord Denning, in characteristically effective language in Harbutt's "Plasticine" Ltd. v. the Wayne Tank and Pump Co. Ltd. in 1970, said: It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money; and the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly. The principle has been recognised equally by Lord Roskill who, in President of India v. La Pintada, said: My Lords, it would be idle to affect ignorance of the fact that the present state of the law in relation to this case places the small creditor at a grave disadvantage vis-à-vis his substantial and influential debtor. The former may fear to offend the latter by instituting legal proceedings either swiftly or indeed at all and it is notorious that some substantial and influential debtors are not slow to take advantage of this tactical strength, especially in time of financial stringency. It has taken two pieces of legislation, one some 50 years after 1893 and the other almost another half-century later, to remedy the injustices of the case.

Some of our most eminent legal minds have addressed themselves to the problem, which my hon. Friend the Member for Hampshire, East was undoubtedly right to raise. We must ask ourselves not whether there is a problem—that is accepted—but whether the Bill would provide an efffective deterrent, a question on which I have my doubts. The efectiveness of the Bill will depend critically on whether creditors would enforce their rights under it, and I am not convinced that my hon. Friend the Member for Hampshire, East, in his fairly long speech, has made a convincing case that they would. Legal redress for small companies facing late payment is already provided in the Administration of Justice Act 1982 and the County Court Act 1984. As my hon. Friend the Minister said, the real problem—and it is more a question of commonsense than anything else—is that small firms have been reluctant to use existing legislation, which makes it unlikely that they would use the Bill. As my hon. Friend the Minister also said, there is a fundamental imbalance in negotiating strength between small and large businesses and legislation alone will not solve that.

Mr. Arbuthnot

My hon. Friend may remember that in an intervention my hon. Friend the Member for Hampshire, East (Mr. Mates) explained that the main purpose of the Bill was to provide for interest to be chargeable between the date of contract and the date on which the writ was issued. My hon. Friend has just referred to the Administration of Justice Act 1982 which extended the payment of interest backwards, whether or not there was a judgment under the Law Reform (Miscellaneous Provisions) Act 1934. Does my hon. Friend agree that simply to extend interest back to the date of the contract is not a great improvement on the present position?

Mr. Leigh

I agree with my hon. Friend. Those who share my opinion of the Bill believe that the fundamental problem is not interest payments. It goes much deeper than that, and I am not sure that the Bill would go to the root of the problem.

The second argument advanced by my hon. Friend the Member for Hampshire, East in favour of the Bill is that the problem is becoming increasingly severe, that it now needs to be addressed and that the Bill would address it. I am not sure that that is entirely right. There can be many other reasons for delay in payment, such as bureaucratic inertia, a cumbersome payments system, or disputes over contract performance. I think that the European precedent argument was dealt with adequately by my hon. Friend the Minister, and I am not sure in any case that the Bill would make any difference.

The next question is whether small firms support the proposals. There was one part of the speech made by my hon. Friend the Member for Hampshire, East which I did not think was fair. He doubted the credibility of the Association of British Chambers of Commerce. I ought to remind the House of what the association's head office said. My hon. Friend's suggestion that the association—a body that is intimately interested in the Bill—has not read the Bill and is not aware of its contents is unsustainable and ludicrous. The association made its position clear when it said: It is the Association's general view that every effort must be made to reduce, and not to increase, the extent to which legislation interferes in the commercial relationship between businesses. Beyond this point of principle, we have further concerns about the practical effect of the Bill. The key question is whether or not the Bill will lead to major changes in the payment practices of larger businesses. It is possible that it would, but serious doubts remain. More likely, we fear, is that larger businesses will adopt much longer payment terms, ensuring that they do not become liable for interest on amounts outstanding,

That is a point that my hon. Friend the Member for Hampshire, East and his supporters have not adequately addressed. It is a point that the Association of British Chambers of Commerce made clearly and explicitly in its letter. If the Bill were given a Second Reading today and ultimately passed, not only might it not be an effective deterrent to late payment, it might also have a deleterious effect on small businesses.

Mr. Hind

I am the vice-president of the Merseyside chamber of commerce which, as my hon. Friend well knows, supports the Bill. Does he agree that if we are to introduce into our enterprise culture a difficult concept, such as interest, we should follow the view of the Law Commission and accept that if the provision is to be workable it should go right the way through business, from the smallest company to the biggest, so that it then becomes an accepted part of our culture? The problem with the Bill is that it selects two sectors of the market, large companies and Government, and ignores the rest. In time I suspect that we would be forced to return to the House to include the other sectors in the legislation.

Mr. Leigh

I am grateful to my hon. Friend. I hope that he will forgive me if I do not deal with his point at any length. I believe that I made it clear earlier in the debate when I read the letter from the Coventry chamber of commerce. My hon. Friend the Member for Hampshire, East suggested that the Coventry chamber of commerce did not understand the Bill. To say that this is a problem of big business alone is to simplify a far more complex problem. Late payment is just as much a problem of small businesses dealing with other small businesses as it is of big businesses trying to throtle small businesses. The problem is far more complex and we do not take the debate much further forward by suggesting that.

I promised to make a short speech to allow other hon. Members to contribute. My last point, therefore, relates to Government example. There is no doubt that the Government have taken considerable steps in this regard and I pay tribute to my hon. Friends on the Treasury Bench for what they have done. However, I do not understand the reaction of my hon. Friend the Minister to a question that I have now put to him no fewer than four times this morning. If the Government have been so successful in tackling the problem and have given so much advice to businesses about how they should address it—and we accept that Government have so done—why have they not admitted so far that if the Bill applied solely to Government, they would support it? That seems an entirely logical point of view. I do not want to put words into my hon. Friend's mouth, but I suspect that had my hon. Friend the Member for Hampshire, East introduced a Bill that applied only to Government, the Government might have accepted it. Had that been the case, it would have sent out a powerful message, which would have been far more powerful than any of the leaflets—good though they are.

Mr. David Ashby (Leicestershire, North-West)

My hon. Friend is a member of a most distinguished profession in relation to which the Government can provide an example. In setting an example, would it not be a good idea for the Government to pay members of the Bar within a month of the completion of a case, instead of barristers having to wait for four, five, six or seven years for payment by the Government for work that they have done? Should not the Government set an example and pay interest on those outstanding fees?

Mr. Leigh

I fear, Madam Deputy Speaker, that you might pull me up if I were to wander too far down that path which, I must admit, is of great interest to me. I had been a Member of the House for six years when I received the payment of £15 for a case in which I was involved as a pupil 10 years earlier. It was not much use to me.

Mr. John Marshall

No doubt my hon. Friend will have read the report of the Top Salaries Review Body, which points out that half the barristers in the land earn over £120,000 per year. Does he accept that there is little sympathy for the Bar in this House or across the country?

Madam Deputy Speaker (Miss Betty Boothroyd)

I am sure that the hon. Member for Gainsborough and Horncastle (Mr. Leigh) can show that sympathy or lack of it by referring to the Bill.

Mr. Leigh

I apologise, Madam Deputy Speaker. I did not want to be taken up the highways and byways of the legal profession.

Mr. Arbuthnot

Does my hon. Friend suggest that the Bill should make the Government a unique debtor and that they alone should bear some form of statutory interest burden that no other business or individual bears? If so, what does he have against the Government?

Mr. Leigh

I have nothing against the Government apart from the fact that I am a member of it. The Government are in a unique position. My objection to the Bill and that of some of my hon. Friends is that if it were passed, big business might simply extend credit periods. We would not accuse the Government of doing that. If the Bill applied merely to Government, it could not be argued that it would have a harmful effect on small businesses. The Government claim that they have instituted such practices already. If so, why do they refuse legislation that would apply to them?

Mr. Hind

My hon. Friend raises an interesting point. If his proposal were accepted, only the Government would be liable for interest. Let us take the Ministry of Defence as an example. It has an £8 billion or £9 billion procurement budget. It would pay its suppliers on time but the large companies with which it predominantly does business would not have to pass on the money that they receive to smaller businesses from which they have bought goods and services. If the Bill applied only to the Government, it would not help the small businesses that it seeks to assist. Perhaps my hon. Friend will reconsider if he looks at the matter in that way.

Mr. Leigh

My hon. Friend's argument is not logical. He takes us back to the roots of the argument about the Bill. The trouble is that one cannot trust big business not to get around the Bill by extending the periods of payment. However, one can trust Government. What I suggest is not an ideal solution, but a halfway house. It is a practical suggestion of a way forward. The Government could set an example which would be a good example to everyone else.

I urge the sponsors of the Bill and the Government to see whether it is possible in the next hour or the next five minutes to get their heads together. It would be a great pity if the Bill were to sink into the sand and an example were not set. Clearly, an example needs to be given.

1.26 pm
Mr. Matthew Carrington (Fulham)

There is an enormous amount of sympathy throughout the House for the Bill. Everyone recognises that late payment is a serious problem which particularly affects small companies, which are least able to bear the increased burden of debt that it forces on them. The difficulty with the Bill as drafted is that it is not certain that it would work. It must be judged precisely on whether it will change the attitude of large companies towards their responsibilities to the small companies who supply them.

The relationship between large and small firms is by no means a simple one. It varies enormously, depending on the type of industry and small firm. Broadly speaking, small firms can be split into two major categories. One is the regular supplier to a company. We have already had the example of Marks and Spencer, which looks after its small suppliers extremely well. The great characteristic of Marks and Spencer is that frequently it is not simply the major customer but the only customer of a supplier. It also imposes tight quality controls and financial regulations on its suppliers and looks after them as unconnected subsidiaries, if such a concept is possible in an informal industrial framework.

Many large companies probably have a similar relationship with their suppliers. In those cases, difficulties do not usually occur and certainly they are not caused deliberately. Difficulties arise when a company is an infrequent or irregular supplier to a large firm. That may be because many small companies are competing to supply one large firm. A typical example is the automotive industry, where small companies undertake component work for manufacturers of large assemblies. Those small suppliers are always competing with others who are equally capable of doing that work, and competition can be extremely tough.

Why do big companies not look after small suppliers and pay their bills promptly? There are a number of reasons. We have heard today examples of deliberately bloody-minded policy on the part of big companies, possibly because they want to enhance their cash flow by borrowing money. There may be companies that deliberately withhold payment to suppliers for that purpose and use their suppliers as an alternative means of borrowing. However, I suspect that that practice is much less common than is usually supposed—principally because the individual debts owed to small suppliers are in themselves quite small and also because the majority of large companies are cash-rich and do not need an alternative form of additional borrowing. The individual credit control officer or purchasing manager may use such a tactic to enhance his individual performance, but it is unlikely to be part of deliberate company policy laid down by the directors. I suspect that that is the case with GEC.

Mr. Arbuthnot

My hon. Friend refers only to big suppliers making late payments, but the Association of British Chambers of Commerce may be right when it says: it must be remembered also that small firms are amongst the worst offenders for late payment.

Mr. Carrington

I entirely agree, but I shall confine my remarks to the problems addressed by the Bill. I agree also that the Bill should perhaps be broadened, but I was addressing the particular problem of late payments by large firms to small suppliers.

I suspect that frequently the reason why large purchasers tend not to pay small companies is sheer incompetence in their own payment systems—which is, I suspect, more common than many of them care to admit. I believe that there are often real doubts about the completion of contracts. Although such doubts may sometimes be used as an excuse for non-payment, in many cases that is not so and genuine doubts are raised about the quality of supplies and whether payment for them should be made.

I suspect that the real reason for late payment is that large companies do not really care about their suppliers and that it is irrelevant to them whether their small suppliers suffer. It probably does not matter to the large company whether it pays its bills on time, as that is not a high priority among all the other considerations that it must take into account when trying to run its business.

The small company can do very little. It can go to court now, and could do so on a different basis if the Bill became law and was enforceable. However, the reality is that small companies do not take big companies to court because the moment they do so, they cease to be suppliers to the big companies. One of the arguments in favour of the Bill is that it would alleviate the necessity for a small company to go to court because it would be so obvious that summary judgment would be made in its favour.

Mrs. Currie

My hon. Friend knows that I am not a lawyer, but it seems to me that there is a little bit of sophistry flying around. If small businesses will not use existing legislation that gives them the right to go to court and claim damages and interest, why in heaven's name will they be inclined to use any additional legislation for the same purpose?

Mr. Carrington

I entirely agree with my hon. Friend. The reality is that whatever happens a small supplier that wishes to continue doing business with a large purchaser will never use the courts, except as a final resort. As I understand it, my hon. Friend the Member for Hampshire, East said that the Bill was designed to alleviate the necessity of going to court. Hon. Members can make their own judgment about whether that is likely.

The relationship that has to exist between a big company and a small company must be based on the concept of mutual need and self-interest. Big companies receive a considerable service from small companies and a big company that does not recognise that is not running its business efficiently. If it does not recognise the benefits that a small company provides in terms of convenience and flexibility in purchasing, the cheapness of its supply and control on costs, the big company should seriously consider providing in-house the services that it was buying in from by the small company. A small company should ensure that when it supplies a big company it clearly understands the advantage to the big company of having it as a supplier.

As has been rightly said, large companies always have the whip hand. I can give a related example from my own experience when I used to be a banker. Banks, as a matter of course, always write into their loan agreements a clause saying that if payment is late under the loan agreement, penalty interest will be charged. That is a similar effect to the one that the Bill would have—if payment is not received on the due date, penalty interest will accrue from that date. There is a good body of law to support that and it is easily enforceable.

As a banker, I would always enforce the law against a small company, but if I had a big customer I would never enforce the penalty clause because that would damage the relationship. Large companies have always had, and will almost certainly always have, the whip hand. It is unrealistic to think that legislation will change that.

If legislation will not solve the problem how can we tackle it? How can we make a change in the business environment in this country to benefit small businesses? As has been said, one of the major changes would be for the Government to ensure that, as a matter of principle, they start to pay their bills promptly and without contest on the due date. That does not require primary legislation; it merely needs a directive to go to the relevant Civil Service Departments stating that that should happen. From the Civil Service it should go to governmentally controlled bodies. If such good business practice was established in governmental purchasing and worked its way down so that governmental purchasers made it clear that they expected their suppliers, in turn, to pay their suppliers on time, that would do more good than any amount of legislation.

On the issue of the extended contract period, it has been said that, at present, payment terms will go up from 30 to 90 days as a matter of course, and that is so. I suspect that that is less a reflection of incompetence in business than a reflection of the dramatic rise in interest rates. A fundamental solution to the problem would be to reduce interest rates and the cost of money. People would then pay their bills on time because the commercial disadvantages of not paying their bills on time would be vastly greater than the financial benefits.

1.38 pm
Mr. Martin M. Brandon-Bravo (Nottingham, South)

I am very much in favour of this modest measure and would be happy if the House gave it a Second Reading. I am certainly in favour of it in spirit because to block it or vote against it would be like voting against fairness and good practice and Conservatives should not be seen to be doing that.

I am with it in spirit due to many years of practical experience. For my sins, I spent 31 years in manufacturing before coming to this place. For a large number of those 31 years I experienced the joy and sorrow of trying to find a balance between the debtors and creditors of the company of which I was chief executive. So I know about the commercial world that many of my hon. Friends have discussed so sensibly this morning.

It is perfectly true that in business we have to make difficult commercial judgments. If we deal with an old and valued account, we compromise. We pick up the phone and try to find out what the problem is. We try to discover exactly how long we shall be kept waiting for our money. With old and valued accounts we get by without falling out, because that is the way of the world.

With a new account, however, it is a different ball game. This Bill would provide a little more strength for the new supplier who has tried out a new customer and does not like what he sees. A new supplier cannot pick the phone and say, "George, we have done business for years—what is going wrong?" He is dealing with a stranger, but this piece of legislation would help him if he felt that the new customer was bound by it.

A new supplier does not have to ask himself whether to take his new customer to court for his money. It is often a sensible decision to decide to do without an account—there are accounts that every business can do without. At least the new supplier will know that between taking the decision to recover his money and the time when he receives it he will not be at a financial disadvantage; he will receive interest on the debt, and rightly so.

The Minister was right: it is not for Government to put themselves between the supplier and the supplied. However, the Government are in the business of encouraging a good commercial climate in which business can flourish. It is up to Government to establish a reasonable and unoppressive framework within which business men can get on with the job of running their businesses, with minimum regulation and interference.

The objectives behind this Bill do not amount to interference or oppressive regulation, as my hon. Friend the Member for Ludlow (Mr. Gill) called it. The word "regulation" does not apply. The legislation merely provides a statutory right to interest when a debt is unpaid.

The Government should only be in the business of maintaining the right climate. We have been told at Question Time and in press releases in recent months of our success with start-up businesses. Twelve years ago, under a different Administration, closures exceeded start-ups by a frightening proportion. The last published figures, for 1988–89, show that recent comparative figures for closures and start-ups exceed our wildest dreams of only a few years ago. Conservatives would be doing ourselves less than justice if we were not realistic when trumpeting these figures. For very good reasons the Government seek to take the economy off the boil. I hope that the Chancellor has good anti-skid brakes.

The figures for the past few months certainly show a reduction in the exciting figures published for 1988–89. However, we should be cautious about trumpeting the figures of 12 months ago. The Chancellor has rightly put a damper on the economy but we must accept that that policy has some adverse effects. Although I cannot present firm evidence to the House, I know that some small businesses are suffering a great deal of pain. I hope that we do not have to apply the brakes too hard for too long.

When we talk about small business we are also talking about the self-employed. We took great pride in announcing that finally the number of registered self-employed has exceeded 3 million. That figure is beyond our wildest dreams of a few years ago. Italy's economy was once far behind ours, but I think I am right in saying that it now has about 6 million self-employed people. We have a long way to go before we match some of our continental partners in providing the seed corn of a strong economy. The population of Italy is much the same as ours yet it has 6 million people working for themselves. Those businesses are small but they will become the medium and large businesses of the future.

I entirely agree with my hon. Friends and the Minister who spoke about how much we have done to help small businesses. That is not in dispute. We have reduced the level of taxation and have kept a tight lid on inflation, and those things are good for all businesses, small and large. We have reformed the employment laws and that has helped small businesses. However, we are now dealing with basic economics, the money side of running a small business, at a time when we are also damping down the economy.

The Government and the public sector are certainly leaning on the business community, and especially on our small businesses. As a manufacturer controlling a company's cash flow I did not pay VAT, PAYE or national insurance until I had to. No firm in the country pays its dues before it needs to do so. Every small business man will confirm that the Government insist on the payment on the nail of PAYE, national insurance and VAT. That is right because it is public money and the Government charge interest if they do not receive it on time. What is sauce for the goose should be sauce for the gander.

Unfortunately when it comes to the payment of VAT and PAYE, the small business man cannot change his customer because he does not have a choice. In these difficult times we should at least try to do something for the small business. My hon. Friend the Member for Hampshire, East (Mr. Mates) has not suggested that the Bill is a complete answer to the problems. He and my hon. Friend the Member for Ludlow talked about trying to create a climate or culture in which businesses in their relationships with each other take it as read that they will play the game. If the contractual terms refer to payment within 30 days, payment should be made in 30 days. The Bill aims to improve the general attitude.

Several hon. Members have said that they like the Bill in principle, but want to change some details. The time to do that will be in Committee. If the Bill becomes law and encourages good practice, today's debate will have been very worthwhile.

1.50 pm
Mr. David Martin (Portsmouth, South)

This is the second Friday running on which I have participated in a debate on a private Member's Bill. Such debates are rather like the late-lamented fourth leader in The Times—both entertaining and instructive, but without much practical effect if the Government are opposed to what is being suggested.

I am very pleased that my hon. Friend and near neighbour the Member for Hampshire, East (Mr. Mates) has presented the Bill. I am also pleased about the dramatic effect of the Bill that he did not present. Often more can be done behind the scenes than can be achieved in an entire Friday morning's debate that will have little practical effect.

I have many years' experience of family business and some earlier experience of legal matters, so I know the problems from various angles. My business experience convinces me that the Bill will be a useful addition to the armoury of those who are cursed with the problem of bad debts. All business men use ruses—they know that they can delay payment for goods or services by complaining about them. It is also wise to avoid involving lawyers. Anyone who has to pay the bills even for solicitors' letters is extremely foolish if he thinks that they should be part of the unofficial board of any company, private or public. Speaking as a lawyer, I feel that lawyers should be kept as far away as possible from business.

Mr. Hanley

But not accountants.

Mr. Martin

My brother happens to be an accountant and I have views about them as well, but in deference to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) I shall not go into them.

One of my most impressive methods of pressing for the payment of debts was borrowed from the legal process: sending a letter closely resembling a writ. I remember receiving one and then imitating it. It is possible to get away with making letters look very much like writs, and it is amazing how quickly payment arrives as a result.

As we have heard, the Crown is very adept at obtaining money from us, and obtaining interest on that money. Anyone who is away from home for a long time—during the first summer recess after my election, I was away from my London home for a considerable period—soon discovers the speed with which the gas, electricity and telephone bodies embark on their pursuit. The bills turn from black to red; then come the writs and the details of the costs. I challenge anyone to try to delay payment of the former nationalised industries; the attitude of such large concerns is very different from that of the small businesses with which I was involved. As several hon. Members have mentioned that already, however, I shall not go into further details.

With my practical experience, I understand the worries of small businesses. In the south, and particularly in my constituency, the introduction of the uniform business rate and the reform of domestic rates has led me to remember Macaulay's typically wise dictum: For unjust and absurd taxation to which men are accustomed is often borne far more willingly than the most reasonable impost which is new. That has come to mind on many occasions during this debate and others on the system which my hon. Friend the Member for Hampshire, East proposed to replace the unjust and absurd system with which many businesses are unhappy. It gives rise to reasonable worries, but because of the conservative nature of British people—in both senses of the word—when the new system is in operation I predict that it will be defended tooth and nail if someone tries to change it in future. Those who pushed railway lines through the country in the last century, sometimes faced great opposition, but when attempts are made to shut them down or to remove the viaducts that once were considered to besmirch the countryside, it is an entirely different matter. People have got used to the railway lines and the viaducts and it is difficult to accept a change.

I believe that what Macaulay said about taxation will apply to any new arrangements that we put in place, but we need time and we must ensure that the policies that apply to small businesses are understood.

In the past 10 years the Government have done much to help small businesses, not least through changes in the tax structure and reductions in taxation. People sometimes say that they would do better under a Labour Government, but businesses do not do better under Labour. I was in business under the last Labour Government and I also have experience of running a business under the present Government. In the days of the Labour Government it was difficult to build up any capital from the money that one made, whether from one's personal income or one's business. The amount of investment that one was able to plough into a family business fell dramatically after the war compared with when my late father began our family business in 1930.

The Government have created the conditions to help family businesses. In the short term, there will always be problems for business with high interest rates and cycles that go against businesses. Businesses cannot complain that they are getting into difficulty simply because people owe them money and are not paying their bills. Nor can they complain about high interest rates getting them into difficulties.

My late father started our family business in 1930 during the depression and always remembered the lessons from those days. There are bad times as well as good times. Anyone with any sense or wisdom should make sure that they do not take risky decisions. They should realise that there will be bad times as well as good times. Many estate agents should have heeded that advice. Setting up a business requires patience, persistence and hard work. One cannot build up a business without any one of those factors. I remember reading the advice given by his grandfather to Lord Keeper Guildford about building up a law practice. He said: If you will be contented to be a great while getting a little, you will be a little while getting a great deal. There are some who roar around in their Porsches after only a short time in business only to discover that interest rates go against them, that uniform business rates change the system and that their bad debts build up. They complain that a certain factor is the reason why they are in difficulty or have gone bust. Such people should look at the way in which they have built up their businesses and managed them. They should consider the wisdom of those who founded businesses that have been established for more than one generation.

I would have said a great deal more had it not been for the many wise comments that have already been made. The Government have taken many initiatives and will do more in the 1990s. Without many difficulties and without going against the principle that the Government should not legislate unnecessarily—when the Unfair Contract Terms Bill was introduced in the 1970s the chambers of commerce did not think much of it and many who object to today's Bill would have objected to it very strongly—there are instances when the Government can help through legislation.

My hon. Friend the Member for Hampshire, East has produced a proposal that is reasonable and measured. It should be added to the many things that the Government have done for small businesses, and I recommend it to the Government.

1.59 pm
Mr. Ian Taylor (Esher)

I recall with some guilt that before the debate began I posted two envelopes from my small company—one to the PAYE office and the other to the VAT office. Although they have been signed, I did not post the cheques to the various creditors of that company. In a sense, that is one strong argument in favour of the Bill before us this evening. [Interruption.] Sorry this afternoon; having sat here since 9.30 am, I have lost all sense of time.

I wonder whether we do not fall into confusion about the relationship between the individual—whether it be a corporate individual or a person—and the state and the much less regulated and complex relationship between one company and another in the commercial world. I do not necessarily think that the Government providing penalties and charging interest on VAT and PAYE is a good guide for what should be done within business.

Earlier, my hon. Friend the Member for Chichester (Mr. Nelson) forcefully said that if this Bill does not succeed it will severely damage the interests of the Conservative party because it will give the impression that it is not looking after small businesses. I take issue with my hon. Friend on that. Over the past 10 years, the Government have offered remarkable assistance to self-employed people and small businesses. This back-ground to the debate is important, and we must consider those developments before considering the specific problem of debt.

There are now 2.5 million businesses in the United Kingdom, 96 per cent. of which employ 20 or fewer people. They account for 36 per cent. of non-Government employment, compared with 27 per cent. in 1979. That underlines not only the Government's contribution in encouraging small businesses but the importance of the contribution that small businesses make to the economy.

The growth in enterprise spirit has been remarkable, and much of it has been created by deregulating and removing shackles on business, thereby allowing it to devise its own trading rules.

I have long experience as a corporate finance adviser, principally to small and medium-sized companies. For three years I lived in France, where in the 1970s an active group, Petites et Moyennes Entreprises, better represented small and medium-sized businesses than any comparable group in this country. Indeed, it developed many techniques to ensure that its members were not subject to the greater power of large companies. I earlier mentioned the use of factoring. The discount banks in France regularly discounted notes between companies so that there was regularity of cash flow. Of course it was costly, but many companies wanted certainty above all and were prepared to make an estimate of what that certainty was worth in terms of a possibly reduced profit margin.

In this country, because of the recent growth in entrepreneurial spirit, the small and medium-sized sector is much bigger, and there is therefore a greater diversity of problems.

We should welcome that growth in entrepreneurial spirit; the Soviet Union would welcome even a small part of it. I cannot resist telling the House one of my favourite stories, which I once told at a meeting attended by a Russian professor. It is about the difference between a Hungarian peasant and a Soviet peasant. If a Hungarian peasant sees his neighbouring farmer with two cows, he works day and night until he gets a second cow. If the Soviet peasant sees his neighbour with two cows, he goes next door and shoots the second cow. At the end of the meeting, the Russian professor said to me, "You have got your story wrong. In the Soviet Union, the peasant would go next door and shoot both cows and the farmer."

Fortunately, that is not the entrepreneurial spirit that exists in this country. This country has benefited massively during the past 10 years because of the contributions by the small and medium-sized business man, helped by the sometimes maligned people in the City. The growth of the venture capital market over the past 10 years have been amazing. Let us remember that the unlisted securities market did not exist in 1979–80. Many people thought that it was crazy to have a market for companies that had short-term trading records and were small in terms of market capitalisation. Some of the larger City investment houses would perhaps blush at the memory that they were anxious that that market did not come into existence.

The Government have assisted specifically, as many of my colleagues have said, by simplifying the tax system, by reducing tax levels and particularly by giving benefits to smaller companies through lower corporation tax levels. They have increased the VAT threshold, which has removed many bureaucratic obstacles. They have encouraged schemes such as the business enterprise scheme, which has benefited more than 3,000 companies and resulted in 80,000 investors coming forward. The loan guarantee scheme, which is not often talked about, has led to about £750 million being made available to nearly 23,000 businesses. That scheme means that the Government guarantee up to 70 per cent. of loans up to a maximum of £100,000. The Government have given advice to companies through the small firms service and various training schemes. I note the recent announcement by my hon. Friend the Minister on the targets that he has set his Department this year to improve progress.

Why do I stress the importance of such Government help over the past 10 years? It is because the difficulties of small firms often stem from a variety of problems, not just late payment of debt. Although my hon. Friend the Member for Hampshire, East (Mr. Mates) has done a great service in introducing the Bill so that the House can debate the issue, the Bill is in a sense misleading. In my experience as a corporate finance adviser, I have often found that the late payment of debt was not among the most important problems faced by my client companies. Inefficient management systems in small and medium-sized companies are at the heart of many of their problems, as is slow invoicing, which would not be helped by the Bill. If a company cannot get its work in progress under control and invoice it at the right time, it will be critically injured as a company in a cash-flow sense, regardless of whether the legislation exists. Sales costing is another major problem in small companies. Some of them do not understand what they should take into account when pricing their final invoices, especially in certain manufacturing areas.

Mr. Arbuthnot

Does my hon. Friend recall, because he, too, has been here throughout the debate, that my hon. Friend the Minister referred to improved and cheaper computer systems for improving debt control? Does my hon. Friend therefore think that the problem of bad debts and slow payments should be lessened as the improvements in computers increase?

Mr. Taylor

My hon. Friend makes an interesting point. He is very knowledgeable about these matters. I am afraid that I have not quite caught up with modern technology. My 12-year-old son also tries to give me lessons. I know that computers can assist to a great extent, although I still have slight doubts about the impact, because I know that computers can provide excuses for non-payment. Nevertheless, let us face the fact that modern technology can help processing. Often, because it is not labour-intensive, it is of great assistance in increasing the efficiency of small companies. I am therefore glad that that point has been raised.

A small company can get itself into difficulties because of insufficient rapport with the client. It may not know how the client works, yet may hope to get further contracts. It may not be sure of its status with the client, so sometimes it holds back from interim invoicing and so on in the hope of pleasing the client. It may have a weak market position and we should never fail to take that into account. Many small companies come into the market with no degree of dominance, which can weaken their position and cause them serious problems, whether they are paid on time or not.

Inadequate cash flow facilities from banks are a major problem. It is not that the banks will not lend money and it is not a result of interest costs. The companies themselves have often never prepared a spreadsheet in sufficient detail to know what they require, so at the moment when they are most in need, they are caught out. I see the hon. Member for Southport (Mr. Fearn), who is a former banker, nodding in agreement. Many times, on behalf of clients, I have gone to the bank. The bank manager has asked why the client has approached the bank in a crisis; the bank cannot help easily now, but could have done if there had been more time. That is not a question of late payment, but of inadequate preparation to judge what the cash flow is likely to require.

One of the major problems, which would be a problem whether the Bill came into force or not, and one of the reasons why I have major doubts about the Bill is that, by and large, British companies are undercapitalised. If a company is attempting to move into a highly competitive industry and faces other companies that are far better capitalised, it will constantly face the problem of cash flow difficulties and will be at the mercy of setbacks that may involve the late payment of bills. The undercapitalisation of British companies is a problem and until it is resolved, it will continue to hold back the small and medium-sized business sector. It is not as grave a problem as it was 10 years ago because, as I mentioned earlier, there has been the development of the business expansion scheme and the venture capital industry, but it is still a major problem and the Bill would not contribute to tackling it. Another frequent problem for small companies is inadequate stock control and problems with stock turnover, which, in my experience, soak up far more business money than the problems of late payment.

No hon. Member has suggested today that late payment is not a problem; of course it is. I have taken the opportunity to talk to some of my constituents about it. There is no doubt that for certain companies, there are major difficulties as a result of some of the larger companies not paying them. One firm has been waiting no fewer than 120 days for a major foreign car manufacturer to settle an account of £1,700. It finds that problem not atypical. Another problem relates to the discount offered for prompt payment. That point has not been raised today, but interestingly, an electrical engineering firm in my constituency that works exclusively as a sub-contractor for large building companies is obliged, under the guidelines laid down by the industry's professional body, to offer contractually a 2.5 per cent. discount for prompt payment—that is, payment within 14 days. Unfortunately. it has yet to be paid within the 14 days and the average time is 60 days. The companies with which it deals still take advantage of the discount which is written into the price. That small firm has the option to pursue the matter through the courts to claim back the money that is owed, but estimates that the legal costs involved would not make it worth while to do so. Consequently, it is resigned to forgoing 2.5 per cent. of its rightful income. I have listened carefully to the debate today. I am not certain that that problem would be solved because the main contractors would find some other way of taking advantage of others in the industry.

The key phrase that is applicable to many of my constituency companies was used by one of them. The chairman said: Better to be paid later than never at all. He said that he understood the motive of the Bill and appreciated that this was an issue on which, superficially, it seemed that some form of legal action would be an improvement. However, he said that his firm was in the market place and wanted the market place to resolve the problem. I do not think that any form of legislation will remove that aspect of the complexity of the commercial world. No form of legal intervention will help.

I understand the problem; I understand the difficulty for small companies, which is precisely that a large company can go to a bank and get a loan at a cheaper rate—at a smaller margin over the inter-bank rate—than a smaller company. In that sense, small companies are penalised twice. That may be true, but it seems to me that the Bill does not provide the answer.

If small companies want certainty, there are other means available to them. The Minister has pointed out that, even under the Bill, a large company could force a smaller company to extend the agreed period of credit in the contract and thus postpone the date at which the statutory requirements would come into effect. That is a crucial weakness. The worry that has prompted the Bill is that small companies are in a weak negotiating position. But the Bill does not help that position, it does not strengthen the hand of small suppliers that may be in difficulty because it still enables large companies to dictate the period. The Bill says that the period, if not specified, is 28 days and is otherwise as specified in the agreement. The Bill does not, therefore, specify what the period should he. It does not specify the maximum. Unfortunately for small companies, large companies may well realise that very quickly.

A friend of mine who is a director of a large company made a pertinent remark when he said that he thought that the Bill was a "short and curlies" proposal. I shall not go into that in detail, except to say that I think that my friend meant that the Bill would give him much more power to dictate his terms to smaller companies and that it might prompt him to do so. The Bill would therefore cause smaller companies more difficulties than had previously been imagined.

I shall draw my remarks to a close. For many in my constituency and many of the businesses that I have advised over the years, late payment of debt is not the principal problem. If I could wave a wand and give businesses in my constituency a choice, they would ask for skilled labour, the shortage and price of which they regard as one of their biggest problems—a much more damaging general problem than late payment.

Even if one accepted that the Bill has merit, one would still want to ask why it does not apply to everyone. If one asks a small company whence its difficulties come, it says that it is not just from large companies, although for obvious and logical reasons, it may be with larger companies that the bigger percentage of its debt is at any given time. Difficulties also come from other small companies because those are the companies that they cannot rely on to pay. They are most at risk from other small companies getting into difficulties and going into liquidation because those are the companies that find it most difficult to get bank assistance when they are in trouble.

I admire my hon. Friend the Member for Hampshire, East. He has pursued this case with great conviction. He has put his arguments before the House clearly. He has failed, I am afraid, to convince me, but I should certainly not wish to stand in the way of his conducting the argument further. I merely urge him to improve his case because at the moment his proposal is flawed.

2.18 pm
Mr. Jeremy Hanley (Richmond and Barnes)

A few minutes remain for us to discuss this important issue. Some of the speeches againt the Bill have been examples of the exercise of a power somewhat similar to that which big businesses have over small businesses. Some hon. Members should have been charged interest on the length of their speeches over and above 10 minutes.

As my hon. Friend the Member for Esher (Mr. Taylor) said, we all recognise that late payment of debt is a real problem for companies, both large and small. Although it may not be the most crucial problem affecting companies, it usually affects those on the margins of survival. Therefore, to say that skilled labour is the most important problem—I accept that it might be for industry as a whole —is not to understand the point, for a small business that has been waiting for a good many months for payment from a large customer, because whether that one payment comes in or not is often a matter of survival for the small company.

Many of my hon. Friends would say, "Let them sue." That is obviously the advice of a House that contains nearly 140 lawyers. However, suing is not a real possibility for the smaller company. For a start, it may mean the High Court. At least if the Bill is enacted, interest can be severed from the principal of the debt and a simple action through the country court could then ensue. Lawyers might not become involved in the transaction at all—an attractive possibility, indeed.

It is because of the Government's campaign on prompt payment that the whole House knows that late payment of debt is a problem. The booklet that they have produced and updated is excellent in itself, but it is a voluntary code. I remind the House, as I reminded my hon. Friend the Minister of State earlier, that in the debate on 24 July 1986, it was said that if the voluntary code did not work, legislation would be considered. While the voluntary code may be having an effect—but who knows what effect?—it is certainly not working or we would not be having this debate and the Bill would not have been presented so excellently by my hon. Friend the Member for Hampshire, East (Mr. Mates).

The Government's booklet "Prompt Payment Please!" is sponsored not only by the Department of Employment, but by four leading bodies—the Association of British Chambers of Commerce, the Institute of Directors, the Institute of Purchasing and Supply and the Confederation of British Industry. I remind the House that when the booklet was issued, the Institute of Directors was in favour of the voluntary code and against compulsion. However, as my hon. Friend the Member for Hampshire, East has said, the institute has changed its mind. In other words, the problem is getting worse, not better, as a result of the voluntary procedures.

I repeat the extract from the letter from the Institute of Directors that was sent to my hon. Friend the Member for Hampshire, East earlier today. It states: Thanks to these changes your proposal is better targeted, more likely to be effective and more compatible with freedom of contract

That is a pretty tough statement from the Institute of Directors and shows its change of mind. The letter then states:

On balance, therefore, we feel it may now be better than not to have your proposal on interest on late paid debts on the statute-book. Your approach is certainly a more sensible and appropriate response to the problem of late payment than previous proposals. In other words, the Institute of Directors now believes that the Bill is the right way forward.

Other hon. Members have said that the Government should take a lead, and the Government have said that they should lead by voluntary procedures. The 1988 changes on VAT and interest have been mentioned, but I remind the House that it is not only in that respect that the Government have hit late payers. They do so on taxation, with high rates of tax penalties, and in almost every other area. The whole country is used to interest on debts, such as those on credit cards, and on mortgages. It seems that it is only in the business community that interest is taboo. Even in executorship, if an executor does not pay out to an estate within 12 months, which is regarded as a reasonable period within which he or she can carry out the work, that is regarded as unreasonable. In other words, the principle of late payment beyond a reasonable time is already accepted in many branches of the law.

The actions recommended in the Bill are wholly sensible. My hon. Friend the Member for Gillingham (Mr. Couchman) has said that a private Member's Bill is not appropriate to this subject and that Members should introduce matters merely of their own interest. I cannot think of anything more important at the moment for the survival of small businesses than giving this strong message to companies that do not pay. It is right for Members to introduce legislation to redress a wrong and there is a wrong here.

Of course, the Bill is not a palliative for all evil. It cannot be said that it is the only measure that will help small businesses to survive, but it would offer them compensation against the money and the interest that they lose because of the late payments of their customers.

Will the Bill introduce a change of attitudes? I believe that it will give a kick to those who do not pay. It will show that the House approves of early payment, in a way in which the voluntary code has so far been unsuccessful in doing. Therefore, I welcome the Bill wholeheartedly.

Madam Deputy Speaker

I call Mr. James Arbuthnot.

Mr. Mates

rose in his place and claimed to move, That the Question be now put. Question put, That the Question be now put:—

The House divided: Ayes 52, Noes 0.

Division No. 65] [2.24 pm
Ashdown, Rt Hon Paddy Meyer, Sir Anthony
Barnes, Harry (Derbyshire NE) Nelson, Anthony
Bendall, Vivian Powell, Ray (Ogmore)
Body, Sir Richard Rathbone, Tim
Bowden, Gerald (Dulwich) Rossi, Sir Hugh
Buck, Sir Antony Ruddock, Joan
Cartwright, John Sheldon, Rt Hon Robert
Colvin, Michael Skinner, Dennis
Corbyn, Jeremy Smith, C. (Isl'ton & F'bury)
Crowther, Stan Soley, Clive
Fearn, Ronald Spearing, Nigel
Field, Frank (Birkenhead) Stanbrook, Ivor
Fraser, John Stewart, Allan (Eastwood)
Garrett, Ted (Wallsend) Summerson, Hugo
Gill, Christopher Thompson, Patrick (Norwich N)
Greenway, Harry (Ealing N) Tracey, Richard
Hamilton, Neil (Tatton) Watts, John
Hanley, Jeremy Wells, Bowen
Hawkins, Christopher Widdecombe, Ann
Hayhoe, Rt Hon Sir Barney Winnick, David
Hind, Kenneth Winterton, Mrs Ann
Hughes, Simon (Southwark) Winterton, Nicholas
Hunter, Andrew Young, Sir George (Acton)
Jones, Robert B (Herts W)
Latham, Michael Tellers for the Ayes:
Leigh, Edward (Gainsbor'gh) Mr. Martin Brandon-Bravo
Maclennan, Robert and
Martin, David (Portsmouth S) Mr. Jacques Arnold.
Mates, Michael
Tellers for the Noes:
Mr. James Arbuthnot and
Mr. John Marshall.

Whereupon, MADAM DEPUTY SPEAKER declared that the Question was not decided in the affirmative, because it was not supported by the majority prescribed by Standing Order No. 36 ( Majority for Closure).

It being after half-past Two o'clock, the debate stood adjourned.

Debate to be resumed on Friday 9 February.