Interest on Business Debts (Hansard, 4 March 1992)

§ Mr. Richard Alexander (Newark)

I beg to move, That leave be given to bring in a Bill to provide that business debts should carry interest after a period of 28 days. The Bill is an attempt to crack down on businesses—usually, but not exclusively, large businesses—which drive thousands of other businesses, usually much smaller businesses, into bankruptcy by failing to pay their debts on time.

If passed, the Bill would allow a much freer flow of money for jobs completed and goods supplied. Without it, many firms will continue to crash. Not because of Government policies, not because of high interest rates, not because of difficulties with the banks, but because they cannot get in the money to which they are justly entitled and without which they cannot pay their way and continue in business.

The actual rate of interest and the actual number of days after which interest is to be paid, whether it be 28 or 30, can be decided in Committee. At this stage I simply seek justice and fairness on business debts which underlie the need for the Bill.

The chairman of the National Westminster bank, Lord Alexander—no relation I am afraid—has warned that the unfair practice of paying debts late is hampering Britain's economic recovery. That bank has surveyed business problems and second on the list is late payment of debt. The Bill will give the opportunity to redress that problem.

My Bill is designed not to give easier recourse to the law or to the courts but to achieve a change in business climate. Of course, businesses and their customers can agree between them at the time of contract that interest will be payable if the debt is not settled by a certain time. However, that is easier said than put into practice. Most suppliers are not strong enough to insist on such a condition. They have neither the muscle nor the bargaining power. The Bill will redress that.

Most of us have a Barclaycard, and many have American Express cards. We know that if we do not settle our statements by the end of a stipulated period, interest will be charged in the next statement. That concentrates the mind and brings out the cheque book. In the same way, if a debtor business wanted to take another month or so to settle its debts, it could pay to do so. It is an added cost on that business, not to the innocent supplier.

It is not only Barclaycard and American Express that charge interest on late payments—the Inland Revenue does so as well. The business man, however, has no recourse to interest in respect of his late payers—and they are often the people who cause him to delay his tax payments. The problem is one which mainly affects small businesses, but they are not the only ones to suffer.

Businesses with the largest muscle and biggest bargaining power are usually the culprits, and they can be large or small firms. The dominant customer can choose from a dozen or more suppliers and do exactly as he likes in respect of late payment. The less dominant supplier is in no position to insist on interest at the time of contract. If he does, the business may be placed elsewhere. My Bill addresses the problem created by dominant customers in an economic climate in which business is hard to win in the first place.

323 Mine is not a new idea. Several attempts have been made in the House to change the law. The Government have hitherto believed that a voluntary code accepted by all would achieve the desired effect without legislation, in the belief that any company that embraced a voluntary code would abide by it. Anyone does not and will not, and no amount of codes will deal with him.

There have been several codes since 1986, but over that period the problem of late payment has demonstrably grown worse. In 1986, a survey by the Forum of Private Business found that all businesses, excluding the very largest, were owed £57,000 million, and they themselves owed £47,000 million. When that exercise was repeated in 1990, companies were owed the horrendous sum of £145,000 million, and themselves owed £75,000 million. Those immense figures account for a huge proportion of this country's gross domestic product.

Last year, there were 47,777 recorded business closures. Dun and Bradstreet say that one of the main causes was slow payment. The whole business structure has a domino effect, so that if one business goes bankrupt, two or three others to which it owes money usually fail in its wake.

Businesses in England and Wales have the worst record in Europe for paying their bills on time. In 1986, the average bill settlement period after an initial 30 days was another 44 days—a total of 74 days before a supplier received payment. The average is now 51 days on top of those 30 days, making a total of 81 days before a supplier is paid, and this is the average.

Surely that position cannot continue. There is a statutory right to interest in all the other EC countries except Greece, Portugal and the Republic of Ireland. It can be no coincidence that, in countries where such a right exists, the average number of days that elapse after the 30-day payment period is as low as 22 in Denmark, and 18 in Germany.

It is probably the kiss of death for any hon. Member to say, "If the Bill is passed, it will bring this country into line with the majority of other EC countries." Nevertheless, I believe that reform will come about—and, for many small companies in particular, but for some quite large ones too, it cannot come soon enough.

I urge my party to include a commitment to such reform in its manifesto for the next election. In the meantime, I commend my Bill to the House.