Commercial Debt Settlement (Hansard, 2 December 1992)

§ Mr. Michael Bates (Langbaurgh)

I beg to move, That leave be given to bring in a Bill to provide that commercial debts shall carry interest after a specified period; to require publication in annual reports of details relating to the settlement of debts; and for connected purposes. I am grateful for the opportunity to seek leave to bring before the House statutory measures to protect small businesses from the late payment of bills. In presenting the Bill I would like the House to be aware of the key facts that have convinced me of the need for legislation of this nature.

It is estimated that small businesses, that is, those employing fewer than 20 people, which constitute some 97 per cent. of all businesses, are presently owed some £145 billion in unpaid bills. On average, it takes 81 days from the date of invoice for the average business debt in the United Kingdom to be settled. Since we are in the middle of considering matters European, I should point out that only we and Ireland do not have legislation to protect small businesses from the late payment of bills. The United Kingdom's record of an average 51-day settlement following the normal 30-day payment period compares with 28 days in France and 18 days in Germany, Norway and Sweden. This places British business at a clear disadvantage to their main international competitors. According to a CBI/Cork Gully report in January 1991, nearly one in five small firms were on the verge of going out of business because of late payment of debts.

In a recent debate on the Adjournment of the House, I addressed the problem of banks failing to pass on interest rate reductions to their small business customers. I acknowledge, however, that business overdrafts are only a symptom. The Bill that I seek leave to present to the House today tries to address the cause which, more often than not, is the late payment of accounts for goods and services. The Midland bank conducted a survey of its small business accounts and found that, on average, businesses were owed three times as much by their customers as they themselves owed to the bank.

The House will be aware that I am not the first to attempt to present a solution to this growing problem. My hon. Friends the Members for Newark (Mr. Alexander), for Hampshire, East (Mr. Mates) and for Croydon, South (Mr. Ottaway) have all brought these important issues before the House, and I am sufficient of a realist to acknowledge that I may not be the last. As far back as 1978 the Law Commission identified the problem. In 1982 my noble Friend Lord Stanley of Alderley moved an amendment to the Administration of Justice Act 1977, designed to ensure that the Law Commissioners' proposals of 1978 were fully implemented.

It is also true that these proposals have always been opposed by the CBI. I do not begrudge this because the CBI feels that it is protecting its interests—the interests of large and medium-sized businesses. I would, however, put it to the CBI that its true best interests lie in having a thriving small business sector which will compete for custom on the grounds of quality and service rather than on the ability to keep their heads above water the longest.

Many people have made suggestions which fall short of what I propose this afternoon. For example, why not allow VAT on purchases to be claimed when businesses have settled the accounts or invoices in question? This suggestion 288 contains a lot of common sense. However, with a VAT threshold of £35,000 it would not help the many small businesses which are not registered for VAT.

Some suggest voluntary codes of practice, and I acknowledge the role of documents such as the Government's leaflet "Prompt Payment Please" and the CBI's "Prompt Payers—A Code of Practice". From the fact that in 1986 privately owned business was owed £57 billion whereas in 1990 the figure had risen to £145 billion, an increase in real terms of almost 100 per cent., it is clear that this is not working. According to a survey by Dun and Bradstreet, only 5 per cent. of businesses are aware of these codes of practice.

Some say that it is up to the business itself to negotiate terms and conditions and to take businesses to court for late payment, but when a small business is desperate for work, as most are, and is offered settlement terms of 90 days only, what chance has it of levering a 30-day settlement period? It would only result in the contract going elsewhere. Moreover, what chance would the same small business stand of gaining repeat orders if it took the company to court? What chance has a small business man of taking on a multinational with its legions of commercial lawyers? None. That is why this Bill is so desperately needed by small businesses.

My Bill has four main provisions. It would establish a 30-day settlement period for contractual debts which would bring us into line with our main international competitors and ensure fair competition among suppliers on the basis of quality, service and price alone.

It would provide the right for statutory interest to be levied from the expiry of the 30-day settlement period. This would remove the financial incentive which currently exists for businesses to delay payment of bills.

It would establish a statutory rate of interest to be levied in accordance with judgment rates as laid down and amended from time to time by the Lord Chancellor. This would be fair, because the interest received on late settlement would be equivalent to that which would have been received had the matter been taken before the courts, and yet it would seek to avoid time-consuming and expensive litigation.

It would seek, through an amendment to the Companies Act 1989, to require all public limited companies to publish their settlement periods of accounts and invoices in their annual reports. This would open up the issue of prompt settlement to the scrutiny of shareholders and the public, and it would enable appropriate comparisons to be drawn.

I am grateful for the opportunity to present this Bill to the House. I believe that it is widely supported, inside and outside the House, as it is vitally needed by the businesses that it seeks to serve and whose interests it seeks to protect. I commend it to the House.