BAD DEBTS

HC Deb 11 May 1993 vol 224 cc721-52

8 pm

Mr. Andrew Smith (Oxford, East)

I beg to move amendment No. 41, in page 29, line 32, leave out 'six' and insert 'three'.

The purpose of the amendment is to allow businesses to recover more quickly the output VAT that they accounted for when making supply to a customer where the debt proves to be bad. It provides the opportunity for us to discuss more generally the extent of bad debt and its serious consequences for small businesses in particular, which make the measure all the more necessary.

Let me make it clear at the outset that we welcome the fact that the clause proposes to reduce the waiting period from one year to six months, which will be of benefit to businesses large and small. As firms that are not in the cash accounting scheme for VAT—I shall return to that scheme in due course—become liable for VAT when they send out invoices, but only get the money back when their customers pay them, which in some cases is never, the provisions have serious consequences for business cash flows.

We believe that, given the comment before the Budget —for example, in the Financial Times of 8 March speculating on the benefit of immediate relief on bad debt, given that the CBI was calling for relief on bad debt to be immediately available when provision is made in the traders' account—we feel that the Government may be being unnecessarily cautious in moving only to six months and we should like to press the case for three months instead. That would give a cash flow benefit to small businesses in addition to that estimated by the Chancellor in the Budget.

Such a measure is especially important at a time when bankruptcies are running at such a high level. Dun and Bradstreet reports that in the first quarter of this year there were no fewer than 15,443 businesses collapsing—a 3.8 per cent. increase on the same period last year. In those circumstances, bad debts themselves become a principal cause of business failure. There is a vicious circle. Firms that do not receive payment find it increasingly difficult to meet their own debts. That compounds the problem and if such firms are not themselves pitched into bankruptcy or liquidation—as, sadly, many are—they are at the very least more likely to join the legions of late payers, stoking up the overall burden of corporate debt overhang, itself aggravated by high real interest rates, which make forced inter-company credit the borrowing of first resort. That exerts financial stress throughout the business network to the point where those unlucky or adventurous enough to be the weakest links in the chain then break, with knock-on consequences all round.

I think that it is now generally acknowledged that that is an extremely serious problem, not only in the United Kingdom but, as Michael Cassell reported in the Financial Times of 23 February, throughout the European Community, where the problem has become steadily worse as the recession has deepened. Michael Cassel reported the Association of British Factors and Discounters estimate of the time taken for European companies to pay as having increased by on average no less than one third in 1992. That is borne out by a disturbing report in today's Financial Times. Apparently, a survey by NCM Credit Insurance shows that One in five UK companies lost money as a result of non-payment by an EC customer in the year ended March 1993, compared with one in eight in the year to March 1989. Clearly, that augurs badly for British companies looking to the EC for business which Britain so desperately needs given the yawning balance of payments deficit.

All of that places a very real premium on the help that the Government can give as regards domestic late payments and VAT on bad debts. After all, in both cases, firms are merely trying to get back more quickly the money that is due to them.

We welcome the CBI prompt payers' code and hope that the CBI is successful in getting a much larger proportion of its membership to sign up to it. We believe, too, that the Government should be setting an example both in public sector payments and through their readiness to legislate where that would be of benefit.

It is an absolute disgrace that the Property Services Agency, being fattened up for privatisation, was revealed by the Public Accounts Committee to be making contractors wait months for payment because of delays by the Ministry of Defence in paying it. The Guardian obtained an internal PSA newsletter called "Paid when Paid", which revealed that the Minister for Local Government and Inner Cities, no less, was expecting companies to wait 44 days for payment in connection with defence, prison, courts and royal palace contracts, in contravention of the 30-day maximum target that the Chancellor of the Exchequer set in his Budget last year.

It is not enough for the Government simply to require Departments to publish details of their payments performance in their departmental reports. Although that is all well and good in itself, it does not give any immediate incentive to recalcitrant Departments, nor does it offer redress to contractors waiting for bills to be paid by those Departments. As the Government operate a system of penalties for businesses that are late in paying their VAT, why not apply a system of penalties—perhaps precisely the same penalties—to Government Departments that are late in paying their bills to businesses?

If that were brought in as an automatic supplement to which the trader would have a legal right, it would not only be seen to be fair but would offer some automatic compensation to the trader, would set a good example and would concentrate minds wonderfully in the Department concerned. It would show that the Government were prepared to match their words, which are cheap, with actions which might not be so cheap. I am sure that it would be welcomed by the business community.

The other important question to which the debate gives rise is why more small businesses do not take advantage of the cash accounting scheme which enables smaller businesses to account for VAT on the basis of payments received and made rather than the usual liability on the basis of invoices issued and received.

The Customs and Excise press notice issued on 16 March estimated that only about 40 per cent. of those traders who could benefit from the scheme were doing so. So although the announcement in the Budget that the threshold for eligibility for the scheme is to be raised from £300,000 to £350,000 and entry is to be made easier is to be welcomed, if small businesses are to derive the full benefit of the scheme and thereby escape the perils of late payment, we need to be assured that early action is in prospect on the outcome of the consultation exercise that is under way. I should be grateful if the Minister could tell us how soon the Government expect to be able to implement measures to improve take-up and ease of entry to the scheme.

I should be grateful if the Paymaster General could tell us whether any specific effort has been made to survey the 60 per cent. of eligible businesses to find out why they are not using the system. That is an obvious step to take. It may well be that the answer to that question—why businesses are not using the scheme—which does not appear on the Customs and Excise consultation paper on the operation of the scheme, is pertinent and the right route to finding a way towards higher take-up and thereby more benefits to small businesses in Britain.

Small businesses have been going through a difficult time. The VAT regime is often experienced as a real headache, making things harder for business rather than easier. We do not dispute that there are a number of measures in the Finance Bill that will help small businesses. We advocated those measures, and they are to be welcomed.

The Government need to accept that there is a long way to go as far as small businesses are concerned. That was underlined in a timely fashion by the publication today of a report by Grant Thornton which surveyed the opinions on economic prospects of small and medium-sized enterprises across the European Community. The report makes sorry reading. When such reports are published, it is important to underline that they do not tell the whole story about Britain's small businesses—many of them are thriving against all the odds. Labour Members certainly have no interest in talking down prospects for our small firms—we acknowledge that many are doing well.

The survey shows that many small businesses are gloomy about their prospects. The Press Association report on the survey says: Britain's small and medium-sized businesses are among the gloomiest in the EC about future prospects … there is pessimism about turnover, employment and investment—and Britain is the only country where research and development spending is expected to fall. It also has the weakest forecast for spending on training". The survey, which covered 5,000 businesses throughout the Community, underlines the severity of the problems which firms in Britain and elsewhere in the Community face with late payments. There seemed to be vulnerability to pressures on finance arising from the problem of late payers.

The widening skills gap is underlined in the report. That is one area where the United Kingdom comes out badly. It is bad news at a time when small businesses in Britain need help with upskilling their employees and with the advice available to the management of small firms. Another relevant outcome of the survey is that the size of management teams in small firms in Britain is, on average, much greater than that of their European competitors. That inevitably means that a higher proportion of costs is spent on management, with a consequent undermining of competitiveness.

The findings of the survey bear out everything that the Labour party has been saying about the need for the British economy to have more investment in infrastructure and skills and more support for our small businesses. The Paymaster General should tell the Committee what action the Government will take on the findings of the survey. He should also respond to the question which he did not have an opportunity to answer in the turmoil and somewhat torrid time that he was having at the end of yesterday's debate: what will be the effect of the increase in VAT on small firms—those businesses that people have started from home which are not paying any VAT on their fuel at present because they do not use more than 40 per cent. of their fuel consumption for business purposes? The imposition of VAT on fuel will hit those small businesses. The Paymaster General owes the Committee an explanation as to how the Government can possibly impose that measure on those businesses. He also owes the firms involved an apology.

8.15 pm

If the Government want small businesses to thrive, they must take action. As I suggested, they need to act to improve the overall economic position and climate that small businesses face. They also need to act specifically with regard to the consequences of bad debts for creditor firms. There are other provisions in the Bill with regard to small businesses, and we shall have a good deal to say about them—notably, the provisions relating to the VAT penalty regime and the right of recourse to VAT tribunals.

The Government need to take action to tackle the underlying causes which are giving rise to escalating bad debts. Those causes are fundamentally to be found in the consequences of recession and the fragility of recovery which still sees 1,200 businesses going under every week. Unemployment still casts an unacceptably long shadow over prospects for business recovery because of the greatly depressed purchasing power of the unemployed and because the fear of unemployment continues to corrode general confidence. Labour Members must stress the importance of tackling the causes of business failure and bad debt as well as the symptoms.

Small businesses add up to big business and they deserve every support. Labour's policies to that end are being developed further in consultation with small businesses. The key elements on which the construction of a supportive framework for small businesses need to focus were spelt out by my hon. Friend the Member for Leeds, Central (Mr. Fatchett) in a speech to the Small Business Development conference in April.

Those elements are, first, finance—the need to free small businesses from dependency on short-term and expensive finance and from excessive exposure to personal risk by encouraging longer-term financial support and an equity share on the part of banks. Secondly, there must be improved advice and encouragement for the development of managerial skills. I have already referred to that matter in the context of the Grant Thornton survey. Thirdly, there must be better support for technology transfer, technological innovation and bringing new ideas to the market place. We believe that, with a supportive fiscal framework and a proper overall strategy for economic growth, infrastructure, investment and training, small businesses will have an even more important role to play in securing Britain's economic recovery and sustainable prosperity.

With regard to the specific provisions in clause 48, a further reduction, to three months, in the elapsed time for eligibility for VAT bad debt relief would give more help to the cash flow of many businesses, thereby staunching job losses and boosting confidence and recovery. I commend the amendment to the Committee.

The Paymaster General (Sir John Cope)

It might be helpful to the Committee if I intervene at this point to talk specifically about clause 48 and the amendment. The hon. Member for Oxford, East (Mr. Smith) ranged a good deal wider than that to other subjects relating to small businesses. I may refer to some of those wider aspects at the end of the debate if I have a further opportunity.

The Committee will appreciate that the Government have given a good deal of attention to the problems of VAT and small businesses, especially in relation to bad debts, over the past year that I have been doing this job and, indeed, under my predecessor. I have long been involved in the support of small businesses. I am anxious to ensure that VAT is fairly operated and takes account of the difficulties of businesses, especially cash flow difficulties.

Customs and Excise has experienced increased bad debts in the form of VAT arrears. That is not surprising in a time of recession. The House may have seen from the Customs and Excise annual report covering the last fiscal year, which was published not long ago, that arrears increased, in spite of some special measures, from 4.2 to 4.4 per cent. The Public Accounts Committee has rightly and fairly criticised those arrears.

It is essential, if we are to be fair to those who pay their VAT on time, that we collect the VAT due from their competitors as promptly as possible. It is not fair to the majority for us to allow a minority to postpone their obligations, particularly in cases where the trader has collected the VAT from his own customers—I am thinking especially of retail businesses—and then fails to hand it over to the Customs and Excise when it is due.

Conversely, we also recognise the problems of some traders, especially when they have not been paid by their customers. That is the problem to which the clause is directed. As the hon. Member for Oxford, East correctly said, my right hon. Friend the Chancellor of the Exchequer has taken two specific measures in the Budget to help people in that position. First, he has widened and improved the cash accounting scheme. Secondly, he has made bad debts easier to write off for VAT purposes.

The promised improvements in the cash accounting scheme can be put in place by order and administrative action. They do not require clauses in the Finance Bill. So there will not be an opportunity to mention them at another stage. The threshold has been raised to a turnover of £350,000 per annum. Traders whose turnover rises up to 25 per cent. above that can remain in the scheme until they come out of the top end. All that takes place under the VAT (Cash Accounting) (Amendment) Regulations 1993, which took effect on 1 April 1993.

Not only that statistical change has occurred. We have also made changes to the arrangements for the scheme so that any trader whose turnover is below the new threshold can automatically use the cash accounting system without having to apply for and receive approval, as he previously did. Clearly, if it turns out that he was not eligible, he has to put the matter right later. We have tried to get rid of the bureaucracy involved in signing up to the cash accounting scheme.

The hon. Member for Oxford, East asked me about the consultation with the trade organisations, which is now in progress. We have asked for responses to the consultation by 31 May. We shall consider carefully the responses that we receive as soon as possible thereafter.

We have done a certain amount to publicise the cash accounting scheme especially to new traders. The packs for new traders include advertisements explaining the scheme and the other schemes available to traders. Further details are offered to anyone who is interested to know more. We have drawn the scheme to the attention of practitioners, banks and so on, so that they can advise clients about the scheme and tell them to take advantage of it, if it is desirable and if they wish to do so. We have conducted various exercises to publicise the scheme among traders who might wish to benefit from it.

The hon. Member for Oxford, East mulled over why more traders who, on paper, are eligible for the scheme do not take it up. When one ponders the matter one sees that there are some fairly obvious reasons why some do not choose to take up the scheme. First, the retail schemes and other related schemes for retailers are better for some small businesses. It is not necessary for them to take up the cash accounting scheme to obtain similar benefits or benefits that they consider more desirable in making their arrangements for VAT. For some traders who take cash over the counter, there is no advantage in the cash accounting scheme in dealing with bad debts.

If one does business for cash, by definition one does not have any bad debts—unless one takes some dud notes—so some people do not become involved in the cash accounting scheme. It may be better for some traders from the input point of view not to be in the cash accounting scheme, depending how promptly they pay their suppliers and whether supplies are provided on credit.

Some traders find that the Inland Revenue cash accounting scheme does not blend as easily as it might with the VAT cash accounting scheme. They prefer not to be involved in the VAT scheme for that reason. Some additional accounting is required to keep the accounts on the basis that we require—necessarily, I believe—so that we can operate the scheme with due regard to the revenue.

Apart from the cash accounting scheme, which is highly desirable and which we have improved and extended in the Budget, my right hon. Friend and I were also anxious to improve the position of those who have bad debts and are VAT traders. That is the reason for clause 48 and the provisions that we are considering.

The present scheme was introduced by section 11 of the Finance Act 1990. Before then, there was a scheme of VAT relief for bad debts. It depended on the formal insolvency of the debtor. That led to difficulties. Apart from anything else, it provided a VAT incentive to traders to go through the formal insolvency procedures to get back the VAT, and for no other reason. That was correctly regarded as an unnecessary incentive to go through the formal insolvency procedures. That was partly why the new scheme was introduced in the Finance Act 1990.

Initially, the cash accounting scheme provided eligibility for relief on all debts in respect of supplies that were made after 1 April 1989 which were two years old and were written off in the trader's accounts.

A clawback provision still exists in respect of belated payments received by claimants. A debt may be regarded as bad at a certain time, but the trader may still chase it and he may succeed in getting some of the money back. We would obviously need to recover the VAT in that case.

The waiting period was reduced from two years to one year before the scheme came into full effect under section 15 of the Finance Act 1991. The new scheme has been generally welcomed and it has been discussed in the House and in Committee on a number of occasions. Representations have been made, however, from professional and business organisations and individuals about the fact that the waiting period is too long. Given the recession, those representations have had greater validity because of the cash flow problems that have thus been caused. We have responded to those representations with the proposal in the Bill to reduce the waiting period from one year to six months.

8.30 pm

The decision to halve the waiting period is a reflection of the attention paid to the representations made and significantly enhances a scheme that has already led to a major improvement for businesses chasing bad debts. The one-year cost of the scheme—it is only one year because the scheme brings forward the time at which bad debts are written off—is estimated at £150 million. In other words, the cash flow of those businesses affected by bad debt has been improved by £150 million as a result of the Government's efforts in the current financial year.

The hon. Member for Oxford, East has suggested that we should reduce the waiting period from six months to three months, but I do not believe that it would be wise to pursue that proposal. If it is possible to write off a bad debt too soon after that debt is incurred, the necessary provisions will become unduly bureaucratic and difficult. The necessary clawback of debts paid after the end of the proposed 90-day period would increase considerably.

We must remember that different types of businesses use different credit arrangements. Credit of 90 days is not unusual in some lines of business. If the amendment of the hon. Member for Oxford, East were accepted, it would mean that every debt that was more than one day or a week outstanding after 90 days could be written off for VAT. That VAT would then need to be clawed back at a later date.

I should make it clear that any waiting period, be it six months or, were we to accept the amendment, which I do not recommend, three months, runs from the day of supply. It runs from when the goods are delivered and the invoice arrives. The period does not run from when the credit allowed by the supplier has expired. I do not believe that VAT should be written off as early as three months after the date of supply, because that would add to the control problems of Customs and Excise when managing write-offs. It is necessary to establish that a debt is genuinely bad. Just because someone has been a bit dilatory in coming up with the money does not make for a bad debt. That is why the waiting period of six months is appropriate.

Mr. Andrew Smith

Why is it more difficult to validate that the debt is a genuine bad debt when it is reclaimed after three months rather than after six? Surely the same evidence will be available for the VAT inspectors.

The right hon. Gentleman referred to the increased bureaucracy that that shorter period would impose on a business. I certainly do not see why the VAT inspectors or businesses should be subject to any more bureaucracy. If a business wanted to operate a 90-day or an even longer credit system, it would have that choice under our proposals. It would be up to businesses to decide whether to reclaim VAT after three months, six months or longer. Although our amendment would enable businesses to make a claim after three months, it would not preclude them, from choice, from deciding to wait longer, if they operate an extended system of credit. Surely our amendment gives business more choice than the right hon. Gentleman has tried to suggest.

Sir John Cope

Yes, in some senses it does, but a business will have to decide whether to place itself at a disadvantage in comparison with some of its competitors by not reclaiming the VAT as soon as it could, as proposed under the hon. Gentleman's amendment. At the same time, a business would have to be sure that it got its clawback right. From our point of view and that of Customs and Excise, we would also need to try to be sure that no bad debt that had been written off at the end of three months had not been paid afterwards. From a technical point of view, that is quite a difficult thing to do. I speak as a former auditor who had to go over transactions and find out what happened. Sometimes it is difficult to be certain that a debt has not been paid belatedly.

The hon. Member for Oxford, East picked up my phrase about validating a debt as genuinely bad. There is no validation of the kind to which he referred, for example through the production of some documents to demonstrate that a debt is bad. The only validation that is required under the scheme is the length of time during which the debt has been in existence; in other words, from the date of supply until the six months period has expired. Providing that the debt has been outstanding for six months, no further validation in terms of documents is required.

For the scheme to be simple and easy to operate from the point of view of the trader and Customs and Excise, it is wise that a simple period of time should elapse. That provides reasonable protection and it is not necessary to provide further validation. That is why I believe that the period should be set at six months as opposed to three months.

At the time of the review of bad debt relief in 1988, when the scheme was introduced, an extensive consultation exercise was undertaken. Most of those who replied accepted the need for a waiting period and their views on the length of that period ranged from a maximum of two years, which is what the Government then introduced, to a minimum of six months. At that stage, no one requested a waiting period of three months and there has been no pressure for it since.

The expressed wish of those who were consulted is met by clause 48. To guard against the danger of fraudulent abuse, particularly by associated companies and connected persons—we must always think about those who would try to use, for fraudulent reasons, provisions in the tax law that were introduced for genuine reasons—six months is the right waiting period for the scheme.

The hon. Member for Oxford, East referred to quite a number of other, wider matters. I may respond to them more fully later, if time allows. In connection with the late payment of debt and the Government's own position, Government accounting now requires Departments to pay bills promptly in accordance with the terms of the contract or within 30 days of the receipt of goods and services or presentation of a valid invoice, whichever is the later, if no other terms are specified.

The Chancellor announced in his 1992 Budget that prime contractors to Government Departments would in future be required to include in their contracts with sub-contractors a clause committing them to pay promptly. The hon. Member for Oxford, East referred to some of the difficulties encountered in introducing and enforcing that provision across the public sector. New arrangements are being introduced by, for example, the Property Services Agency Building Management businesses to ensure that sub-contractors are paid promptly, within 30 days of the validation of the invoice.

A recent survey, to which the hon. Gentleman may have referred indirectly, by the Heating and Ventilating Contractors Association suggested a poor performance by the PSA. It predated the new arrangements and does not reflect their effect. There have been reports in answer to parliamentary questions on the performance of individual Departments, and they show that in 80 to 90 per cent. of cases the majority of Departments are already within the new arrangements, but it is only 12 months since their introduction and we are trying to improve the performance of individual Departments. As the hon. Gentleman himself mentioned, we are giving information on payment performance in departmental reports as well as in comprehensive parliamentary answers.

The hon. Gentleman also referred to an interesting report in this morning's Financial Times about a Grant Thornton survey of small and medium enterprises and their prospects in the European Community. I also noticed that report and have asked to see particulars of the survey. We will consider it carefully and see what lessons it has for us and what we should do, if anything, to address the problems that it throws up, on my side at least, as far as VAT is concerned. There may be wider lessons for other parts of Government.

In the early stages of what I had to say I referred to the problems of bad debt for both traders and Customs and Excise in a time of cash flow difficulties for us both, and the necessity of addressing those difficulties, particularly where small firms are concerned. The hon. Member for Oxford, East expressed a strong belief in small businesses and in the bigger part that they will play—bigger even than in recent years—in the recovery from recession to future economic prosperity.

I am glad to have been associated with the small business lobby in the House since before I even became an hon. Member, and I am very glad that small businesses have been able to contribute so much to the economy in the past decade. I am particularly pleased that the Labour party has come round so strongly to the support of small businesses and that it is promoting ideas such as the hon. Gentleman has put forward today to encourage them to build up. Although not earth-shattering, the clause is an important step in that direction, as are the changes in the cash accounting scheme introduced in the Budget by my right hon. Friend the Chancellor. I commend the clause to the Committee, but, for the reasons that I have given, I do not recommend that the Committee goes as far as to insert "three months" into the Bill.

8.45 pm

Mr. Peter Mandelson (Hartlepool)

The importance of the amendment that Opposition Members are putting forward is that it allows us to focus on the problems of late payment and bad debt facing many of Britain's 5 million small businesses and to consider the proposed changes to the VAT regime designed to ameliorate the problems that small businesses experience, especially when firms have already paid VAT on moneys owing to them that have become bad debts. No hon. Member will have been left unaware of the problems and demands of small businesses. I certainly have not, since I was elected last year. Many feel as if they are running not only their own businesses but a separate business dealing with the VAT inspectors, the paperwork, the bureaucracy and the appeals that are involved.

Many experience and complain about the often punitive fines which they incur and which equal the earnings in a given week. No doubt VAT men and women are badly misunderstood people, but it must be recognised that many are viewed as tyrants by the small business people who have to deal with the VAT authorities, and it behoves us hon. Members to try to do all that we can to build a bridge between the oppressed and the oppressors. Clause 48 represents the latest attempt to help small businesses by changing the VAT bad debt regulations by making VAT relief on bad debts more readily available. Although it is to be welcomed, it is only part of what is necessary to give greater support to the small business sector. The importance of the small business sector for the British economy has already been stressed. Ninety-five per cent. of all businesses in the United Kingdom employ fewer than 20 people. About half the work force—11 million people—work in small firms. Small firms contribute more than a quarter of the nation's gross domestic product. Small firms have rightly been called the engine room of Britain's economy, and since the war it is small businesses that have provided the fastest growth, the greatest job creation and the most dynamic technological innovation. Their needs are, therefore, a priority for our attention, and recognition of their needs crosses party boundaries and makes absolutely futile the argument that some like to have about whether their party is more pro-small firm than the other. I was grateful for the Paymaster General's commendation of the strong support that the modern Labour party gives to small businesses.

In the light, however, of what the Paymaster General said, I was amazed to read, prior to this debate, a debate on 13 November 1992 on small and medium-sized enterprises, initiated by the hon. Member for Colchester, North (Mr. Jenkin), during which his fellow bright spark the hon. Member for Chingford (Mr. Duncan Smith) tried to claim that small business drives to the heart of Conservative philosophy because small businesses are really about individuals, about dreams and aspirations and therefore solid Conservative principles are at the heart of the matter. For sheer lack of logic—some would say claptrap—his comments are difficult to beat, especially as he failed to go on and point out how many small firms' dreams have been smashed and aspirations broken on the back of the Tories' recession.

A more accurate summing up of the position regarding small firms was offered by the hon. Member for Colchester,North—obviously a shrewd judge with a brilliant future behind him—when he said: it is small firms that feel most under pressure in the recession, most put upon by the banks, most burdened by regulation and most neglected by Government policy."—[Official Report, 13 November 1992; Vol. 213, c. 1084–143.] I could not have put it better myself. Our task this evening, across the party divide, is to do what we can to unburden small businesses while observing the standards of employment practice shown in the best small firms. That is the aim of clause 48 and amendment No. 41.

Since that debate last November, the pressure of the recession seems to have eased somewhat—thank goodness for that—although it will take many years to undo the damage caused to small firms by it. There is still a long way to go to unburden small firms fully. It is worth pointing out that, as recovery picks up, some small firms will be experiencing fresh and different financial demans on them, exacerbating the existing problem of bad debt.

The Financial Times headlined a story on 4 May, saying: Upturn that can spell business ruin. It explained that the increase in orders that may come about as recovery picks up could mean the final strain on the recession-stretched finances of firms that have high borrowing levels and many late payments outstanding. That point was expanded in a speech made the next day by the director general of the CBI, Howard Davies, who observed: small firms' cashflow is so finely balanced that sales growth can put some of them out of business through cash shortages. A similar comment was made by the chairman of the CBI's small firms council who said: over the last year, record numbers of small firms have had difficulties in raising external finance. If these difficulties continue, they will seriously limit their performance and hamper plans for investment and expansion. It is important to note those concerns, to start preparing for that eventuality and to identify ways to assist small firms in such circumstances.

Bad debts represent a relatively small proportion of firms' finances, but they are an additional and, for many, a critical burden. They are why, in the overall context of small firms' financial needs, it is necessary to make renewed efforts to solve the problem of late payments of debts and why it is important to reduce the waiting period for eligibility for VAT bad debt relief, as both the clause and the amendment would.

VAT payers should have to wait the minimum time possible before they are able to recover VAT payments that they have made on accounts that go bad. That is the aim of the amendment. That action needs to go hand in hand with wider support for small firms at a local level. There is little point in making the changes concerning bad debt and creating the easier conditions for small firms that we are discussing tonight if so much else is not going right, or not right enough, for small firms. I shall give a few examples of what I mean.

Small firms rely on local advice about bad debt and other help to assist their growth. The Government have wisely launched their one-stop shop initiative. Never mind that the scheme introduced by the President of the Board of Trade mirrors almost precisely the ideas that were set out by the Labour party and were originally described by my hon. Friend the Member for Dunfermline, East (Mr. Brown) in an article in The Independent on 24 April 1990.

Why has the Government's initiative made so little progress? I am glad that the DTI hopes, as it said this week, that the first of the 23 shops, which will give much needed advice on bad debt as well as on other matters relating to VAT, will be set up by July. However, as the Financial Times remarked yesterday: On present plans, the government's proposals will take years to implement. It is hard to believe that we cannot move faster. After all, the original announcement was made in the House on 3 December.

The problem of late payments—a close cousin of bad debt—is still acute. Small companies have little muscle to ensure that they are paid on time and are often particularly vulnerable to a single large debt. Recent surveys have shown that the United Kingdom's bill payment record is noticeably worse than that of the rest of Europe. That was confirmed in the survey to which my hon. Friend the Member for Oxford, East (Mr. Smith) referred. Despite trade initiatives such as the CBI prompt payer code, there is a need to have a statutory right to interest on unpaid bills. I urge the Government to re-examine that option. I hope that the Paymaster General, if he speaks again in the debate, will offer the Government's views on that matter.

Underpinning any VAT regime that accommodates the problems of small businesses must be a fair and open appeals procedure in the event of disputes about reclaiming VAT on business expenses. Clause 48 needs to be seen alongside another provision in the Bill. Another clause places on appellants the new burden of having to prove not only that they are right in the eyes of the law but that Customs and Excise acted "unreasonably". That seems unreasonable. Such is the difficulty of proving "unreasonable" in law that the clause has been called "outrageous" by Coopers and Lybrand. I think that it tilts the appeals procedure against the taxpayer, contravening the spirit of the Government's taxpayers charter. It should be reconsidered and I hope that the Paymaster General will tell us, either tonight or when we return to the matter in Committee, whether the Government are prepared to do that.

At the time of the Budget, there was some press criticism of the Chancellor for introducing a mixed package of VAT reforms, some helpful and some that did not go far enough in the view of small business organisations. Our amendment shows how the bad debt change could be taken a step further. I would also urge a close examination of the cash accounting scheme under which businesses with a turnover of below £300,000 are eligible to pay no VAT until they receive payment from their customers. That is extremely relevant to the issue that we are debating. That would be the best indemnity against bad debt, because the businesses taking advantage of the scheme account for VAT on the basis of payment received and made rather than on the tax invoices issued and money received, or not. In that way, the problem of reclaiming VAT on bad debts need not arise in the first place, which is why it is such a useful scheme and one that is so important for many small businesses.

I welcome the raising of the eligibility ceiling to £350,000; none the less, conditions for entry to the scheme remain restrictive. Quite often, that is because of the bad debt trouble that small firms already experience. I hope that the Government will examine further the administration of the scheme and look closely at ways to draw more businesses to it, including raising the ceiling further. At present, Customs and Excise estimate that only 40 per cent. of eligible traders are in the scheme.

The lesson of the past decade is that, even in the most enterprising business sector, Government support and action are vital for success. The Government concentrated their attention on that matter and their help to small businesses during the 1980s—I do not gainsay the assistance that they offered during that time—concentrated largely on start-up advice. That now needs to embrace greater help not simply to nurture the start-up of small firms but to promote their growth.

Without doubt, the greatest blow to small businesses has been the recession, which has been a disaster, a hurricane which has wiped out vast stretches of the small business sector and the enterprise culture. In Hartlepool, more than 130 small businesses have gone under in the past three years, 30 of them in vital industrial sectors. In the past 12 months, 55 companies have closed, although my recent meetings with the town's business people give some cause for cautious optimism that things are starting to improve. I certainly hope that they will.

If business confidence and order books are growing, as I hope that they are, and if they are to be sustained, now is the time to do everything possible to assist the growth of small businesses. The high street banks have a considerable responsibility in that.

9 pm

Greater long-term attention must be paid to the way in which small businesses are financed. That is an old and much debated issue which is familiar to Opposition Members who are concerned about small businesses; none the less, it has been insufficiently acted on by the banks and has been given insufficient encouragement by the Government.

The banks are often cast as villains, but recently I met representatives of NatWest and my impression was that some banks at least are more open to ideas on different ways of working, including increased debt-for-equity swaps, than they have been in the past. Those and other options desperately need to be driven forward if we are to nurture and sustain the small business sector that we so desperately need for the success of our economy in future. I hope that the proposals and ideas will be put forward on the back of the Finance Bill and its proposals on bad debt relief and other changes.

I hope that the Government will see fit—if not tonight, then on future occasions—to give rather more positive consideration to the amendment.

Mr. Geoffrey Dickens (Littleborough and Saddleworth)

I am delighted that my right hon. Friend the Paymaster General has the pleasure of supporting the clause because, like many people, I know only too well of all the care, consideration and help that he has given small businesses throughout his parliamentary career. My right hon. Friend is on much safer ground than he was last night, when he was faced with a volatile and noisy Committee, and he has great experience in these matters.

I remind the Committee that we are discussing clause 48 which reduces the waiting period for eligibility for VAT bad debt relief from one year to six months. That is achieved in two ways. Clause 48(1) amends section 11(1)(c) of the Finance Act 1990 by reducing the elapsed time required for eligibility from one year to six months. What is also important, and has not yet been mentioned, is the alteration under subsection (2) which allows the reduced waiting period to have effect from 1 April 1993 in relation to supplies made on or after 1 April 1992.

I have often heard it said that large companies dine out on the overdrafts of small companies and I am sure that that is right. When companies have cash flow problems they make every possible excuse for not meeting their payments. Those excuses range from the mildest, such as that the cheque is in the post, to much stronger excuses. But cheques arrive unsigned and have to be sent back, thereby giving the company another week, or the totals are not written in, so the cheques go back.

People may phone up the accounts department of another company that owes them money, only to be told, "We cannot pay your £6,000 invoice until we get paid." I should like to think that many companies then ask, "How much can you afford to pay?". If the reply is, "We can only pay £3,000 until we get paid", smaller firms in particular should reply, "Well, pay us the £3,000." If everyone did that, money would begin to circulate and cash flow problems would be eased throughout the business sector, wages would be paid and banks would take the pressure off companies. It is one thing to suffer debt; it is another to lock up bad debt for a whole year. That is a long time for a company to wait, especially one experiencing cash flow problems.

Earlier, Opposition Members levelled accusations at the Government, blaming them for the fact that companies were struggling. The world recession is common knowledge, but we should remember that companies are robbed of jobs by such developments as mechanisation and automation. For instance, there was a time when every bus had a conductor; now the driver takes the money, and thousands of jobs have been lost. Similarly, railway booking offices used to contain any number of ticket sellers; now there may be one such employee, and travellers must buy their tickets from machines. There used to be a man at the barrier in the underground station; now passengers feed their tickets into the machine. Even when passengers want to leave the station that is their destination, a machine must swallow their tickets before they can do so.

Years ago, people did all those jobs, but we must not struggle against change. The small businesses of today are the big businesses of tomorrow. When the railways were built, the farriers, those who made tack for the horses, the wheelwrights and people who made carriages threw up their hands in horror, saying, "We will be out of business." Many of them were, but at every railway station W. H. Smith put up a newspaper stand.

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse)

Order. I always hesitate to interrupt the hon. Gentleman, but he is straying very wide of the subject of debt. I hope that he will relate his remarks to the amendment.

Mr. Dickens

May I finish my little story? It is relevant.

Suddenly, small companies began to mushroom following the setting up of those bookstalls—companies producing newspapers, magazines and books, which are now sold by the thousand at railway stations. They created many more jobs than had been lost to those connected with horses and carriages. That is an example of the way in which mighty companies can grow from little acorns.

The hon. Member for Oxford, East (Mr. Smith) made a good point. He said that there might be difficult days ahead for small businesses with debts. That is true. Unfortunately, until recently, the banks were pulling the plug rather quickly on small companies with cash flow problems, because their overdrafts were secured on assets such as buildings and land. As the property market began to slip and such assets became less valuable—especially in the south—they ceased to match those small companies' overdrafts. The banks began to fidget and to look for more security in other areas, driving the small companies into the ground.

As the hon. Gentleman pointed out, a greater danger lies ahead—a danger closely connected with debt. Small companies will want to buy more materials as the recession draws to a close and the market grows—we hope that we are now emerging completely from recession—in order to add value, to produce goods to sell and to increase their profits. Will the banks allow those companies to extend their overdrafts, which are running at the upper limits, so that they can buy the material that they need?

In the early days, the banks were pulling the plug because they felt that they could sell buildings and land more easily than small companies that were struggling. In the event, they found that they could not. What will happen when the assets grow in value to match the overdraft facility? Will the banks run for cover and pull the plug? In Germany, banks take equity in companies and run with them. Here, the banking mentality is different.

The First Deputy Chairman

Order. That is all very interesting, but what has it to do with debt in small companies? The hon. Gentleman should confine his remarks to the amendment.

Mr. Dickens

I am obliged to you, Mr. Lofthouse. I thought that I was dealing with debt and the problems of small businesses. Before you resumed the Chair, we had a much wider debate, and I was endeavouring to answer points which were raised. I will accede to your request, since I have the greatest respect for you and the Chair.

Small businesses have already welcomed the proposal on bad debt in the Budget. The period of three months suggested by the Opposition is much too short. It cannot be said that a debt becomes a bad debt in such a short time. Companies like a sporting chance. When two companies have been dealing with each other for many years, one understands that the other is trying to keep its promise to pay and it would not want to regard a debt as a bad debt after only three months.

In some contracts, 90 days is the normal period for settling an account. It is going too far to suggest that an outstanding bill becomes a bad debt after three months. A period of six months is ideal.

Dame Elaine Kellett-Bowman (Lancaster)

Can my hon. Friend explain why accountants often recommend that their clients should include in contracts a clause giving 10 per cent. off if a bill is paid in a certain period, but the accountants themselves and other professional people never knock 10 per cent. off their bills? Would that not be a good idea?

Mr. Dickens

Hon. Members will correct me if I am wrong, but I always thought that accountants made assumptions. People are going down a slippery slope when they start to give discounts. If a small business gave 10 per cent. discount, it would begin to work at distress rates and it would get into real difficulty.

Mrs. Angela Browning (Tiverton)

I must come to the defence of accountants. I express an interest because my husband is an accountant. He gives the most generous discounts.

Mr. Dickens

I will not be tempted into an argument by saying that sometimes people must overcharge to be able to give large discounts. I am too generous of disposition to go down that road in a debate which must concentrate on clause 48.

I have made a sensible contribution. I always gain favour by leaving time for other hon. Members to make their contributions. I hope that theirs will be as sensible as mine.

Mr. Matthew Taylor (Truro)

I hope that the hon. Member for Littleborough and Saddleworth (Mr. Dickens) will get a gold star in the Whips' book to follow the black mark that he got yesterday. His turn round could scarcely be equalled for speed, if not necessarily for the quality of his contribution—[HON. MEMBERS: "Shame."] —although it was entertaining.

Mr. Mandelson

Withdraw.

Mr. Taylor

I do not think that it is necessary to withdraw. Opposition Members are supportive of the hon. Member for Littleborough and Saddleworth, but I do not want to go too wide of the amendment and be called to order by the Chair.

The debate is important to small businesses, a subject in which I am particularly interested. There are many small businesses and self-employed people in my constituency. Indeed, the Liberal Democrats currently represent many areas, such as Cornwall and Bath, containing a high proportion of small businesses. My hon. Friends and I have over the years raised the concerns of small businesses and have argued the case on their behalf in respect of bad debt and VAT payments.

9.15 pm

Clause 48 is a welcome pro-small business move and is designed to help cash flow. Businesses will have to wait less time to get back from Customs and Excise the VAT paid in respect of goods and services already sold but not paid for. As I have said, it is a welcome move which will be supported in all parts of the Committee. It will be particularly welcome to small businesses which have witnessed the stern and unbending hand of the penalties for late payment of VAT. They will be pleased to see matters turning more in their favour.

I have recently been dealing with the case of a small business in my constituency. The firm posted a VAT return in time but it was not received by the VAT office because of a dispute there. That meant that the post had not been processed. Even so, the firm is being asked to pay a fine and has been told, in effect, "Had you posted it earlier, it would have arrived before the industrial dispute." That seems harsh, and I shall be contacting the Minister once the small business in question has had time to digest that reply and got over the shock.

The measure now proposed by the Government is more generous. There is a connection between the VAT relief for bad debt and the VAT cash accounting scheme. Whereas the VAT relief applies to most companies, for the smallest companies which elect for VAT cash accounting there is no waiting period because they pay the VAT only when they get paid.

If the VAT cash accounting scheme applied to more businesses, VAT relief would be needed only for larger companies, which are generally more able to cope with cash flow problems. The Government brought the scheme into existence in 1987 and have increased the threshold in this Budget. That is welcome. The threshold for eligibility to the scheme will now be£350,000.

Liberal Democrats argue in our alternative budget that the threshold would be more appropriately increased to £1 million, so achieving a clear difference between companies which find it difficult to meet cash flow problems arising from bad debt and larger companies which are more able to absorb relatively small-scale problems as they proceed through their normal course of business.

Has the Minister explored the possibility of increasing further the threshold on the VAT cash accounting scheme, thus giving more help to more small companies? That would give more help than the Labour amendment would achieve. The only cost to the Exchequer would be a cash flow cost. Although it might under EC rules require a derogation, the Minister should explore that area because it would make a real difference to a large number of companies which, by any normal definition, remain small, albeit they are outside the limits of the scheme.

While the clause deals with one Government-related problem of bad debt, there is a much larger private sector problem concerned with the late payment of debt. Indeed, the day-to-day problem that most businesses in Cornwall have mentioned to me is late payment of commercial debt. When a firm's business customers do not pay their bills on time, the cash flow problems can have so many other effects in terms of higher costs and pressure from the bank that the firm can end up closing down, with knock-on effects for its suppliers.

I recall leaning against a gate by the travelling surgery that I conduct in villages around my constituency talking to a builder who had been put out of business precisely because of the problem that I have described. He simply could not understand the attitude that had been taken not just by the Government but by various bodies with which he had had to deal. He felt that there was so little understanding of the problem that he had been put out of business through no fault of his own. He had indeed done the job well; it was merely the payment that had not come through.

Some might ask what the late payment of commercial debt has to do with the Government. Is it not, they ask, up to the firms involved to sort themselves out? The evidence goes against this purist, non-interventionist view, however. Despite years of exhortation to firms to pay their bills promptly, on the part of the Government and of business organisations such as the CBI, a recent survey by the Association of British Factors and Discounters showed that the average repayment period was now 80 days. A similar survey conducted last December by Trade Indemnity, the credit insurer, found that only 3 per cent. of nearly 600 firms contacted were being paid on time. In 1991, the Forum for Private Business estimated that small companies were owed more than £100 million in overdue debt.

The recovery may reduce the scale of the problem, and the latest quarterley review of the Association of British Factors and Discounters suggests that that is happening. If so, it is certainly welcome, but the problem will not go away. A report by the National Westminster bank in yesterday's Financial Times found the picture as bad as ever; and today's Financial Times quotes a study by the Manchester business school showing that, because of the recession in some European countries, some United Kingdom firms are finding it difficult to get continental customers to pay their bills on time, suggesting moreover that there may need to be action at European level to prevent unfair practices from taking hold in the single market. I hope that the Minister will make representations about the problem in Europe. This is a good example of a problem that will need to be tackled in future at that level.

However one considers the payment of commercial debt, there is clearly a problem. Although we welcome the provisions of clause 48, it shows that the Government are missing the larger picture in relation to late and bad debts.

There are some simple measures which firms can take themselves and which the Government can help to facilitate. First, many firms need to manage credit lines better. Often, companies can do more themselves, and the Government could encourage training and enterprise councils, and local enterprise companies in Scotland, to run courses in credit management for business people and their employees. If the one-stop shops develop as I hope that they will—we have long called for their development —I trust that they will take a lead in this area.

The Government could also make good their long-standing pledge to simplify the cumbersome and costly commercial debt recovery procedures so as to make legal redress for companies a realistic option. If they do so, the costs of this measure may fall as a result. A little money spent now may save the Government money in the longer term.

Even with such developments, however, I believe that late payment will remain a serious problem for small and medium-sized companies. The commercial fact of life is that larger firms can and do use their market power to scare their smaller suppliers into putting up with late payment. That abuse of market power suggests a role for competition policy and hence for some sort of Government intervention.

The Chancellor half acknowledged this problem when he announced in the pre-election Budget that new legislation would require larger companies to state in the notes to their accounts the average time taken to pay their bills. But the lack of understanding in the DTI of the seriousness of the problem was shown by the fact that it took almost a year for the Government to follow up that announcement with a consultation paper. In any case, shaming companies into paying their debts on time in this way is likely to prove ineffective. It might even prove counter-productive; those thinking of investing might inquire why payment was being made so quickly instead of pressing companies to pay more speedily.

So why not legislate for a statutory right to interest on debts outstanding after a certain period? The idea has received support in all parts of the House in the past, and it has been implemented in every European country bar the United Kingdom and Ireland. It is one measure that gets over the free-rider problem, ensuring that every firm has an incentive to comply. This measure would change the current awful culture of waiting until the very last minute before making payment. If the measure were in place, business men could devote their time to being business men instead of debt collectors.

Mr. Spencer Batiste (Elmet)

Surely the hon. Gentleman knows that the reason for that idea not having been carried through and being treated with considerable reserve by many business organisations is that it is likely that if there were a compulsory right to interest, it would be enforced by the big companies against the small ones while the small companies would not dare to alienate their customers by acting similarly.

Mr. Taylor

That argument has been put forward before. My experience is that it is the big companies which resist the principle while the small ones argue for it. What I am suggesting for the United Kingdom is done in other European countries. I am sure that the hon. Member for Elmet (Mr. Batiste) will acknowledge that this debate takes place across parties as well as between them. However, I believe that he is wrong and that a great many small businesses agree with me.

Mrs. Browning

The hon. Gentleman is probably aware that the Federation of Small Businesses—the biggest organisation for small businesses in this country, I believe —has declined to adopt the policy that he is putting forward. That body has identified the problem as being that, whether or not interest is charged, small companies ultimately have to go through the civil procedures of the British courts. That is what gives rise to most of the problems that small companies experience. They have to secure a judgment, but more often than not they also have to go back to have the judgment enforced. In the meantime, very often the bird has flown. That problem, too, must be addressed.

Mr. Taylor

I strongly agree with the hon. Lady. Indeed, I referred a few moments ago to the need to sort out a system of securing payment. I am sure that the hon. Lady, like me, receives many letters from small businesses that have obtained an order to secure payment but find that they have to go back to court. In many cases they are advised that it would simply be too costly to pursue the matter. Perhaps the Government could alter the title of the Criminal Justice (Amendment) Bill and introduce into it a provision to tackle this problem. Why wait?

The problems caused by bad debt are to only a very small degree solved by this clause. None the less, I welcome the fact that the Government are moving in the direction of change. Although there are some signs that we are coming out of recession, small businesses still have to face extremely harsh problems. Indeed, many people are still likely to lose their businesses. We have heard expressions of worry that it may take some years to recover properly from the recession. I am afraid that many people who have lost their businesses will never recover. We must consider all possible means of tackling this problem.

For many businesses in the south-west, the problems created by rising electricity, gas and water prices represent a more urgent and fundamental priority. None the less, this is an important measure, which is welcomed by my party.

Mrs. Browning

Payment on time and bad debt have been identified by hon. Members on both sides of the Committee as very important and serious, especially in relation to the cash flow of small businesses. My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) began by outlining the way in which many companies, particularly large companies, try to avoid payment when it becomes due, and he identified three or four of the most common excuses for non-payment.

I must declare an interest. Before becoming a Member of Parliament, I was a management consultant, and one of the areas in which I specialised was advice for companies in the United Kingdom and abroad on collection and credit control. It may be of assistance to my hon. Friend the Minister—as I am in a generous mood, perhaps I should say that it may be of interest to hon. Members on both sides of the Committee—if I say that I have a list of the 20 most common excuses used for non-payment, and I can tell hon. Members the response that one should make immediately to ensure that one is not floored by one of these excuses.

This is a serious matter. There are many reasons for the failure of companies to get their money on time. We have heard about the difficulties involved in dealing with large corporations. In many sectors, one sees the big stick being waved. This applies not least in the retail food chain, where small businesses supply the large supermarkets.

Such chains will often arbitrarily change the terms of a contract in mid-contract. An egg producer in my constituency was told by a large supermarket that the payment term that had previously been 30 days was to be changed to 60 without any question of renegotiation.

9.30 pm

We understand the difficulties and, ultimately, the cash flow problems that that means for small businesses, and I welcome the measure that my right hon. Friend the Chancellor has introduced on the treatment of debt and VAT. My right hon. Friend has already mentioned that it will mean an estimated £150 million benefit to the cash flow of businesses.

As the hon. Member for Hartlepool (Mr. Mandelson) and others have mentioned, the cash accounting scheme means that small businesses—previously those with a turnover of £300,000, now £350,000—will not have the problem, because they will be dealing on a cash accounting basis, and that is most welcome. I am aware, as I am sure is my right hon. Friend, that many small business organisations, in their representations to the Treasury before the Budget, particularly asked for this measure to be introduced.

I also know from consultations with Treasury Ministers before the Budget that, realising that it would be a difficult Budget with not a lot to give away, Conservative Members urged my right hon. Friend that anything that he could give should be given to the small business sector. This will be extremely welcome.

The hon. Member for Truro (Mr. Taylor) mentioned debts and the ability to add interest to them. That can be negotiated, as long as it is done at the point of contract and not added retrospectively. I am sure that all hon. Members are aware that other members of the EC operate the scheme.

The hon. Member mentioned the difficulties that those countries are having. Again, I am prepared to share an experience with the Committee. In Italy, a letter to the local chamber of commerce resulted in the payment of a debt by return. Again, that suggests that other European countries are now suffering from the recession, and the payment of debts may become a more common problem.

In my own business experience of dealing with public limited companies and large corporations, right down to small businesses and sole proprietors, they are still reluctant, when they agree to do business with other businesses, to carry out the necessary credit controls and checks to ensure the creditworthiness of those with whom they are about to do business.

There are many examples of what can only be described as sloppy procedure on the part of companies. Sometimes it is not deliberate. The smaller the company, the busier are the people who run it. The sole proprietor of a small business has to sell and buy goods and deal with the documentation, and I can understand it if chasing up debts is put on the back burner. However, the longer a debt is left, the more likely it is that ultimately it will be written off, and that includes the VAT element as well. Many companies have been forced to do that: it is not a case of good business practice. That is a salutary lesson for any company to learn.

One has to be vigilant and efficient in getting money in on time. As someone who has, or had, a reputation to keep in this area—I occasionally write on the subject in periodicals—my terms were 30 days; on day 31, the person who owed me money received a telephone call from me before 10 am. I thoroughly commend that procedure to businesses, particularly small ones.

The measure reducing from one year to six months the waiting period for bad debt relief will be welcome. lion. Members have identified areas associated with bad debt and business write-offs which are a burden on businesses. One of the difficulties that businesses have to face concerns the banks. The reduction of interest rates will help with the cash flow of businesses.

We are pleased that interest rates are coming down. However, one must sometimes question the banks' judgment when lending to small businesses, because they should realise that businesses may sink.

The hon. Member for Hartlepool gave examples of the difficulties that businesses face when they are expanding.

Businesses get into debt because they do not have orders; they also get into debt because they are doing well. The hon. Gentleman outlined what we all recognise as over-trading. We shall have to address that problem as the economy picks up, and as businesses receive more orders and begin to grow again.

Mr. Alan Milburn (Darlington)

The clause is obviously very welcome; the problem is that it does not go far enough. It has taken the Government five years to reduce the deadline for bad debt recovery from two years to six months. They should have gone rather further rather more quickly.

The amendment is designed to assist small businesses in particular. I was especially taken with the contribution by the hon. Member for Littleborough and Saddleworth (Mr. Dickens), who spoke a lot of sense—I hasten to add the caveat, "on this one occasion"; I cannot say that I always agree with everything he says. The problems of small businesses that he outlined, such as access to finance and difficulties with bad debts, were pertinent. Before I came to the House, I worked in north Tyneside with small companies, both fledgling and expanding, and I know that the hon. Gentleman identified the problems accurately.

The problems that most often arose for small businesses were simple. They were lack of access to finance for expansion, especially in the range £250,000 to £1 million, in which venture capital is not available. That problem is especially acute in the peripheral regions, including my own, because venture capital is overwhelmingly concentrated in the south-east. Companies also encountered problems with late payment and bad debts. Those were the problems that the companies most often identified.

For small companies, especially companies that seek to grow rapidly, bad debts and late payments can quickly become a death sentence. My hon. Friend the Member for Hartlepool (Mr. Mandelson) has already pointed out the ways in which the problems can become more acute at the beginning of a recovery. Small businesses cannot rely on retained surpluses or on profits. They probably have to rely on borrowing for investment, and on cash flow to support risk business.

We have heard about the positive steps that have been taken in expanding the limit to £350,000, which is welcome. However, I hope that the Paymaster General will take the opportunity to address the remarks made by my hon. Friend the Member for Oxford, East (Mr. Smith) about the fact that many firms that qualify under the cash accounting scheme do not take advantage of its provisions. Approximately 200,000 small companies fall into that category. Hundreds of thousands of other small firms fall outside the £350,000 exemption which face similar difficulties.

There are 3 million small firms in this country, and there are 3 million self-employed people. They play a vital and expanding role in the nation's economy. Between 1987 and 1989, for example, firms with fewer than 10 employees were responsible for nearly half the jobs created. Small firms are often the most innovative and entrepreneurial, and they are often the most prone to take the biggest risks. They therefore need the most assistance. They have been badly treated in the recent years of recession. Between 1989 and 1992, there were almost 187,000 new VAT registrations, which was extremely good news. However, 240,000 VAT-registered businesses were deregulated, amounting to a net loss of about 53,000 companies.

As my hon. Friends have made clear, smaller companies are especially prone to bad debt problems. The finances of small companies suffer disproportionately from late payment.

The reasoning behind the amendment is simple: if the Government's claims about economic recovery and about the key role that small businesses will play in it are true, it is important that Ministers act to ensure that real stimuli are given to help that recovery. As the Financial Times article of a day or so ago suggested, there is a late payment culture in Britain. The problems that small businesses face as a result of late payments and bad debts are much more acute than those faced by their cousins on the continent. It is incumbent on the Government to play a positive role in intervening to overcome those problems

I am reminded of the famous and oft-quoted remarks of the President of the Board of Trade about intervening before each and every meal. The amendment gives the Government a real opportunity to do just that. I hope that the Minister will take it seriously. I hope that he will show his empathy with small businesses and his sympathy for those who have given their lives to create job opportunities and wealth by helping them to overcome some of the problems that beset them, through no fault of their own.

Mr. Richard Page (Hertfordshire, South-West)

I apologise to the Committee for the fact that I was not here for the start of the debate. A constituent came to see me about difficulties in connection with the statementing of a child. Faced with such difficult situations, I put my constituents first, but I again apologise for not being here earlier.

As someone who has taken a great interest in small business for 16 or 17 years now, I can, I think with modesty, suggest that this is ground that has been galloped upon quite a few times. Although I do not recognise the amendment as a sensible proposal and will not support it if there is a Division, I welcome the opportunity it gives us to draw to the attention of the Committee and the nation the problems of small business debt.

Small businesses are the acorns from which oaks can grow. They are the employment generators of the future. In future, employment will come not from big businesses, which, as a result of robotics and information technology, will shed rather than generate jobs, but from smaller business with more labour-intensive requirements. It is small businesses that we should be encouraging at this stage.

I want to disabuse the Committee of the popular view that running a small business is easy. In fact, it is harder than running a big business. Someone running a small business must be able to understand VAT, health and safety legislation, the pay-as-you-earn system, national insurance and employment law. One has five minutes left at the end of the day in which to run the business itself and perhaps make a few shillings to pay VAT, the uniform business rate, national insurance and so on.

In small business, debt control is not easy and it is not good. During the past six months or so, I have been going around the regional centres of our banks. I have been unhappy with the banks' support for business over the past year or so. To my amazement, although I would not say that they have been fighting back—they are too delicate and too gentle for that—more than one bank has told me that, of its commercial clients who have turnovers of up to £.1.2 million a year—I do not know why that is the figure used—only 10 per cent. produce a profit and loss account for every month's trading.

That is staggering. How anyone can go into small business and try to run a business without a monthly profit and loss account, I simply do not know; I find it incredible. If that is the case, every figure goes out the window when one starts talking about cash flow. It is small wonder that small businesses run into trouble on debt control, not because of malevolence or trying to fiddle things, but because they simply do not have the proper managerial tools.

I welcome the change from one year to six months. I welcome the Labour party's amendment as a method of opportunity to debate the matter. If Labour Members know anything at all about small business, they will not press the amendment to a vote tonight. If they do, that will show that they are completely ignorant of small business and are simply using it as a tool to debate a specific issue and make a specific point. The small business sector will be back safely in Conservative hands, because Labour Members do not understand it one iota.

The hon. Member for Hartlepool (Mr. Mandelson), who has obviously popped out to have some dinner or something, said that bad debt is a small proportion of the small business sector and its debts. That exposes an innocence of the small business world, because there is a real difficulty in distinguishing between the slow payer and the long payer in small business. My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) made a point about all the excuses that can be used to delay debt.

At the end of the day, one never knows whether a person will pay. One gets into the catch 22 position—does one want to lose customers or hope to get the money and then retain them and do more business?

Mr. Dickens

Will my hon. Friend give way?

Mr. Page

With respect to my hon. Friend, who made a powerful speech earlier, I am getting messages from afar that mean that I have literally one minute to go.

The pressure on small businesses to do business in recessison is almost irresistible. The measure introduced by the Government is exceptionally helpful, especially the provision that it will come into force on 1 April 1993 and apply to supplies that come in on or after 1 April 1992. That will give a valuable cash flow boost to those companies that accumulated debts during that period and help to go forward into the recovery that is now taking place.

I sincerely hope that Labour Members will not press their amendment tonight, but congratulate the Government on reducing the provision from one year to six months.

Mr. Clive Betts (Sheffield, Attercliffe)

Labour Members are not fundamentally disagreeing with the Government's proposal on bad debts or, indeed, the other proposals in the Budget to assist small businesses. In our amendment, we are saying that the Government have not gone far enough. We do not believe that their proposals are unacceptable; they are unexceptional. They have missed so many opportunities to assist small firms, especially at a time when they have great problems with debt.

We are not simply dealing with small firms that tick on daily and yearly. We should be looking at the growing firms that can add to and create the industrial base for the future at a time when, even by the Government's forecast, investment in manufacturing in the United Kingdom at the end of this year will still be 10 per cent. lower than it was in 1989. We can see the scale of the problem that we want to address.

Clearly, there is a debt crisis in the United Kingdom. It is almost as though small firms are playing a bizarre game of pass the parcel. The problem is that, when the music stops and the firm ends up with the parcel, it ends up with a debt problem that cannot be resolved because of cash flow difficulties. The small firm then goes out of business. It passes on the parcel—it owes money to other firms, but cannot pay because it has gone out of business, so the next firm with the parcel is also overwhelmed by debt and goes out of business.

Time and again in my constituency I have seen how the failure of one firm spirals down to the failure of other firms. The game is a handicap. As Conservative Members said, small firms are handicapped as large firms take advantage of them and squeeze them harder on the supply of goods and payment times, to the advantage of larger organisations.

All too often in this debt crisis, we see not merely industrial failure. So often the borrowing of small firms is backed, because the banks put on pressure, by the only asset that owners have—their house. So often as constituency Members we see not merely the failure of small firms, but, as a result of the problems of negative equity, repossession of the property of the owner. That is a problem in this recession. But let us think what will happen in the next recession. Let us see what will happen in the recovery which we hope is starting. Who will go to the bank to borrow money when the requirement is to put up his house as the asset backing? Who will do that knowing that thousands of people have lost not merely their business but their home in this recession?

Where are the Government's proposals? I should like the Paymaster General to consider promoting an initiative to introduce equity lending and venture capital on a real scale into the funding of small enterprises in Britain. I have seen nothing in the Budget and heard nothing from the Government on that. Have they not listened to Howard Davies, who has said that just as the banks over-lent during the 1980s, there is a real danger that they will over-react and over-restrict their lending in the 1990s? If the banks do that, where else is the capital for small firms to come from?

Why have not the Government expanded the loan guarantee scheme on a massive scale or launched a Government initiative to release the resources of pension schemes for direct investment? Why do not the Government respond to the Confederation of British Industry, which has made proposals recently to address the issue of debt? The Government could create an independent debt tribunal to address the problems of debt recovery for small firms, to which the hon. Member for Tiverton (Mrs. Browning) referred.

On the issue of swifter payments, why have not the Government considered the German scheme and introduced a national initiative to reduce payment times to protect small firms from pressure from larger firms? Why have not the Government introduced initiatives to swap debt for equity? Why have they not produced a replacement for the business expansion scheme operating through local investment vehicles, which the CBI has promoted? We do not want the sort of scheme that resulted in fake housing enterprises which were simply a vehicle for tax avoidance for so many people. But why have not the Government introduced a scheme to channel money into small enterprises?

Why do not the Government address the problem that 64 per cent. of venture capital goes into management buy-outs rather than start-ups or early stage funding? The Paymaster General said that so much had been achieved by small firms in Britain. So much more could be achieved if only the Government and the financial institutions got together and assisted the development of our future industrial base.

Mr. Batiste

I am grateful for the opportunity to speak, albeit briefly, in the debate on a subject on which I made my maiden speech some 10 years ago. The matter has by no means diminished in importance in those years. The common feature of virtually all the speeches by both Conservative and Opposition Members was the importance of small businesses to the economy. There has been a surprising increase in the number of jobs in the past couple of months. That reduction in unemployment was unexpected at this stage of an economic recovery. I suggest that it was largely created by small businesses, which are operating close to the optimum level of efficiency. They can therefore respond to growth quickly.

As small businesses respond to growth, they will be in danger of overtrading and their cash flow will come under severe pressure. That is why the Government's measure is welcome. It injects an extra £150 million into the cash flow of small businesses at a time when they need it. The backdating to 1 April will also be welcome because it will give companies the opportunity to plan from now with considerable security.

I am aware of the time and I know that my right hon. Friend the Paymaster General wants to reply to the debate. I make one plea with all the force at my command. While the measures to improve cash flow are important, the one thing above all that the Treasury can do to help small businesses in the next year is to show a measure of forebearance to companies that are a little late in paying their VAT, national insurance or income tax. That lateness often does not happen because companies have mispriced their products or are running their businesses badly, but because they are having to wait for money from their customers. I hope that my right hon. Friend will be able to say that the Treasury understands that problem and will be reasonably sympathetic to companies that say that they need a little understanding to see them through until they are paid.

I commend the clause and I ask the Opposition not to press the amendment to a Division, because there is a difference between late payment and bad debt. Bad debt occurs much later than after three months. If we adopted the three-month waiting period, the VAT clawback would inevitably impose a regulatory burden. We need deregulation, not more regulation, and imposing a three-month limit instead of a six-month one would be bound to produce a regulatory nightmare. I look forward to hearing what my right hon. Friend says.

Sir John Cope

With the leave of the House, I shall respond briefly to the debate, which has been an interesting one and has ranged a good deal wider than the clause under consideration. It was none the worse for that.

My hon. Friend the Member for Hertfordshire, South-West (Mr. Page) echoed an important point that I used to emphasise when I was the Minister responsible for small firms—that running a small business is more difficult than running a large one simply because of the range of expertise that one must have and the number of different matters with which one must keep up. That is why it behoves those of us in government, with responsibility for the different bits of bureaucracy that impinge on small businesses, to ensure that we do our best to make sure that that bureaucracy is as user-friendly as possible. That applies as much to VAT as to any part of Government bureaucracy.

My hon. Friend the Member for Elmet (Mr. Batiste) called for forebearance. Although Customs and Excise has been pursuing its proper duties in claiming revenue, my hon. Friend may be interested to know that the number of time-to-pay agreements has increased by 52 per cent. in the latest financial year for which figures are available, 1991–92. The value of those agreements has increased by 70 per cent. That demonstrates how debt management, the phrase now used by Customs and Excise, has responded to the needs of small business in the manner requested by my hon. Friend.

My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) made an interesting and even more wide-ranging speech than other hon. Members and referred to the commencement date. The new provision applies to a debt resulting from goods supplied in the previous year. If a firm has not been paid for something supplied on 30 June last year, under the old system it would not have been able to write off that payment for VAT purposes as a bad debt because 12 months had not elapsed. It will now be able to do so and could have done as soon as the new scheme started on 1 April.

My hon. Friend the Member for Tiverton (Mrs. Browning) gave us the advantage of her expertise and gave us some shrewd advice for which, before she became a Member, we would have had to pay and, as she made clear, paid promptly. Even if we had got a discount from her husband, it was not clear that we would have done from my hon. Friend, for reasons that my hon. Friend the Member for Littleborough and Saddleworth made clearer than most.

The hon. Member for Truro (Mr. Taylor) raised a number of points about the cash accounting scheme. The consultation document states that the aim is to make Cash Accounting as attractive and simple to use as possible. In other words, it will be user-friendly, as I said earlier.

On that subject, the hon. Member for Hartlepool (Mr. Mandelson) said that the conditions of entry to the cash accounting scheme should not be too restrictive. He seems to have gone back to Hartlepool or somewhere; at any rate, he is not here now. I tried to make it clear in my opening remarks that we had made it a lot easier to enter the cash accounting scheme. One need no longer fill in a form and seek permission in advance. Only two restrictions remain: the person concerned must not have committed a VAT offence in the past three years and must not have a debt to the Customs of more than £5,000 at the time. Those are very small restrictions on entry to the scheme.

10 pm

As a past member of the Deputy Chief Whips' society or union, I must not run over my time tonight. I just want to emphasise, in concluding, that this is not the only thing that we are doing for small business in the Finance Bill. There is a range of help for small businesses and quite properly so, as the debate has emphasised, as regards rates, VAT penalties, capital gains tax relief for entrepreneurs, improvements to the loan guarantee scheme as called for by the hon. Member for Sheffield, Attercliffe (Mr. Betts), reduced premiums for the loan guarantee scheme, expansion of the business start-up scheme and various deregulation measures.

All these are extremely desirable and I thoroughly recommend them and clause 48 to the Committee, but I do not recommend that the Committee votes for amendment No. 41.

Question put, That the amendment be made:—

The Committee divided: Ayes 252, Noes 292.

Division No. 264]	[10.00 pm
AYES
Abbott, Ms Diane	Cousins, Jim
Adams, Mrs Irene	Cryer, Bob
Ainger, Nick	Cunningham, Jim (Covy SE)
Ainsworth, Robert (Cov'try NE)	Cunningham, Rt Hon Dr John
Allen, Graham	Dafis, Cynog
Anderson, Donald (Swansea E)	Darling, Alistair
Anderson, Ms Janet (Ros'dale)	Davidson, Ian
Armstrong, Hilary	Davies, Bryan (Oldham C'tral)
Ashdown, Rt Hon Paddy	Davies, Rt Hon Denzil (Llanelli)
Austin-Walker, John	Davies, Ron (Caerphilly)
Barnes, Harry	Denham, John
Barron, Kevin	Dewar, Donald
Battle, John	Dixon, Don
Bayley, Hugh	Dobson, Frank
Beith, Rt Hon A. J.	Donohoe, Brian H.
Bell, Stuart	Dowd, Jim
Benn, Rt Hon Tony	Dunnachie, Jimmy
Bennett, Andrew F.	Dunwoody, Mrs Gwyneth
Benton, Joe	Eagle, Ms Angela
Berry, Dr. Roger	Eastham, Ken
Betts, Clive	Enright, Derek
Blunkett, David	Etherington, Bill
Boateng, Paul	Evans, John (St Helens N)
Boyce, Jimmy	Ewing, Mrs Margaret
Boyes, Roland	Fatchett, Derek
Bradley, Keith	Faulds, Andrew
Brown, Gordon (Dunfermline E)	Field, Frank (Birkenhead)
Brown, N. (N'c'tle upon Tyne E)	Fisher, Mark
Bruce, Malcolm (Gordon)	Flynn, Paul
Burden, Richard	Foster, Rt Hon Derek
Byers, Stephen	Foster, Don (Bath)
Callaghan, Jim	Foulkes, George
Campbell, Mrs Anne (C'bridge)	Fraser, John
Campbell, Menzies (Fife NE)	Fyfe, Maria
Campbell, Ronnie (Blyth V)	Galbraith, Sam
Campbell-Savours, D. N.	Gapes, Mike
Cann, Jamie	Garrett, John
Carlile, Alexander (Montgomry)	George, Bruce
Chisholm, Malcolm	Gerrard, Neil
Clark, Dr David (South Shields)	Gilbert, Rt Hon Dr John
Clarke, Eric (Midlothian)	Godsiff, Roger
Clarke, Tom (Monklands W)	Golding, Mrs Llin
Clelland, David	Gould, Bryan
Clwyd, Mrs Ann	Graham, Thomas
Cohen, Harry	Grant, Bernie (Tottenham)
Connarty, Michael	Griffiths, Nigel (Edinburgh S)
Cook, Frank (Stockton N)	Griffiths, Win (Bridgend)
Cook, Robin (Livingston)	Grocott, Bruce
Corston, Ms Jean	Gunnell, John

Hain, Peter	Murphy, Paul
Hall, Mike	Oakes, Rt Hon Gordon
Hanson, David	O'Brien, Michael (N W'kshire)
Harman, Ms Harriet	O'Hara, Edward
Heppell, John	Olner, William
Hill, Keith (Streatham)	O'Neill, Martin
Hinchliffe, David	Orme, Rt Hon Stanley
Hoey, Kate	Paisley, Rev Ian
Hogg, Norman (Cumbernauld)	Parry, Robert
Hood, Jimmy	Pendry, Tom
Hoon, Geoffrey	Pickthall, Colin
Howarth, George (Knowsley N)	Pike, Peter L.
Hoyle, Doug	Pope, Greg
Hughes, Kevin (Doncaster N)	Powell, Ray (Ogmore)
Hughes, Robert (Aberdeen N)	Prentice, Ms Bridget (Lew'm E)
Hutton, John	Prentice, Gordon (Pendle)
Illsley, Eric	Prescott, John
Jackson, Glenda (H'stead)	Primarolo, Dawn
Jackson, Helen (Shef'ld, H)	Purchase, Ken
Jamieson, David	Quin, Ms Joyce
Janner, Greville	Randall, Stuart
Jones, Barry (Alyn and D'side)	Raynsford, Nick
Jones, Ieuan Wyn (Ynys Môn)	Reid, Dr John
Jones, Lynne (B'ham S O)	Rendel, David
Jones, Martyn (Clwyd, SW)	Robertson, George (Hamilton)
Jones, Nigel (Cheltenham)	Robinson, Geoffrey (Co'try NW)
Jowell, Tessa	Roche, Mrs. Barbara
Kaufman, Rt Hon Gerald	Rogers, Allan
Keen, Alan	Rooker, Jeff
Kennedy, Charles (Ross, C&S)	Rooney, Terry
Kennedy, Jane (Lpool Brdgn)	Ross, Ernie (Dundee W)
Khabra, Piara S.	Rowlands, Ted
Kinnock, Rt Hon Neil (Islwyn)	Ruddock, Joan
Kirkwood, Archy	Salmond, Alex
Leighton, Ron	Sedgemore, Brian
Lestor, Joan (Eccles)	Sheerman, Barry
Lewis, Terry	Sheldon, Rt Hon Robert
Livingstone, Ken	Shore, Rt Hon Peter
Lloyd, Tony (Stretford)	Short, Clare
Llwyd, Elfyn	Simpson, Alan
Loyden, Eddie	Skinner, Dennis
Lynne, Ms Liz	Smith, Andrew (Oxford E)
McAllion, John	Smith, C. (Isl'ton S & F'sbury)
McAvoy, Thomas	Smith, Llew (Blaenau Gwent)
McCartney, Ian	Soley, Clive
Macdonald, Calum	Spearing, Nigel
McFall, John	Spellar, John
McGrady, Eddie	Steel, Rt Hon Sir David
McKelvey, William	Steinberg, Gerry
Mackinlay, Andrew	Stevenson, George
McLeish, Henry	Strang, Dr. Gavin
Maclennan, Robert	Taylor, Mrs Ann (Dewsbury)
McMaster, Gordon	Taylor, Matthew (Truro)
Madden, Max	Tipping, Paddy
Mahon, Alice	Turner, Dennis
Mandelson, Peter	Tyler, Paul
Marek, Dr John	Vaz, Keith
Marshall, David (Shettleston)	Walker, Rt Hon Sir Harold
Marshall, Jim (Leicester, S)	Wallace, James
Martin, Michael J. (Springburn)	Walley, Joan
Martlew, Eric	Wardell, Gareth (Gower)
Maxton, John	Wareing, Robert N
Meacher, Michael	Watson, Mike
Meale, Alan	Welsh, Andrew
Michael, Alun	Wicks, Malcolm
Michie, Bill (Sheffield Heeley)	Wigley, Dafydd
Michie, Mrs Ray (Argyll Bute)	Williams, Rt Hon Alan (Sw'n W)
Milburn, Alan	Williams, Alan W (Carmarthen)
Miller, Andrew	Wilson, Brian
Mitchell, Austin (Gt Grimsby)	Winnick, David
Moonie, Dr Lewis	Wise, Audrey
Morgan, Rhodri	Worthington, Tony
Morley, Elliot	Wray, Jimmy
Morris, Rt Hon A. (Wy'nshawe)	Wright, Dr Tony
Morris, Estelle (B'ham Yardley)	Young, David (Bolton SE)
Morris, Rt Hon J. (Aberavon)
Mowlam, Marjorie	Tellers for the Ayes:
Mudie, George	Mr. Peter Kilfoyle and Mr. Jon Owen Jones.
Mullin, Chris

NOES
Ainsworth, Peter (East Surrey)	Evans, Jonathan (Brecon)
Aitken, Jonathan	Evans, Nigel (Ribble Valley)
Alison, Rt Hon Michael (Selby)	Evans, Roger (Monmouth)
Allason, Rupert (Torbay)	Evennett, David
Amess, David	Faber, David
Ancram, Michael	Fabricant, Michael
Arbuthnot, James	Fairbairn, Sir Nicholas
Arnold, Jacques (Gravesham)	Field, Barry (Isle of Wight)
Arnold, Sir Thomas (Hazel Grv)	Fishburn, Dudley
Ashby, David	Forman, Nigel
Aspinwall, Jack	Forsyth, Michael (Stirling)
Atkinson, Peter (Hexham)	Forth, Eric
Baker, Rt Hon K. (Mole Valley)	Fowler, Rt Hon Sir Norman
Baker, Nicholas (Dorset North)	Fox, Dr Liam (Woodspring)
Baldry, Tony	Fox, Sir Marcus (Shipley)
Banks, Matthew (Southport)	Freeman, Roger
Banks, Robert (Harrogate)	French, Douglas
Bates, Michael	Fry, Peter
Batiste, Spencer	Gale, Roger
Beggs, Roy	Gallie, Phil
Bellingham, Henry	Gardiner, Sir George
Bendall, Vivian	Garel-Jones, Rt Hon Tristan
Beresford, Sir Paul	Garnier, Edward
Blackburn, Dr John G.	Gill, Christopher
Bonsor, Sir Nicholas	Gillan, Cheryl
Booth, Hartley	Goodlad, Rt Hon Alastair
Boswell, Tim	Goodson-Wickes, Dr Charles
Bottomley, Peter (Eltham)	Gorman, Mrs Teresa
Bottomley, Rt Hon Virginia	Gorst, John
Bowis, John	Greenway, Harry (Ealing N)
Boyson, Rt Hon Sir Rhodes	Greenway, John (Ryedale)
Brandreth, Gyles	Griffiths, Peter (Portsmouth, N)
Brazier, Julian	Grylls, Sir Michael
Brooke, Rt Hon Peter	Gummer, Rt Hon John Selwyn
Brown, M. (Brigg & Cl'thorpes)	Hague, William
Browning, Mrs. Angela	Hamilton, Rt Hon Archie (Epsom)
Budgen, Nicholas	Hamilton, Neil (Tatton)
Burns, Simon	Hanley, Jeremy
Burt, Alistair	Hannam, Sir John
Butcher, John	Hargreaves, Andrew
Butler, Peter	Harris, David
Carlisle, John (Luton North)	Haselhurst, Alan
Carlisle, Kenneth (Lincoln)	Hawkins, Nick
Carrington, Matthew	Hawksley, Warren
Carttiss, Michael	Hayes, Jerry
Cash, William	Heald, Oliver
Channon, Rt Hon Paul	Heath, Rt Hon Sir Edward
Churchill, Mr	Heathcoat-Amory, David
Clappison, James	Hendry, Charles
Clark, Dr Michael (Rochford)	Heseltine, Rt Hon Michael
Clarke, Rt Hon Kenneth (Ruclif)	Hicks, Robert
Clifton-Brown, Geoffrey	Higgins, Rt Hon Sir Terence L.
Coe, Sebastian	Hill, James (Southampton Test)
Colvin, Michael	Hogg, Rt Hon Douglas (G'tham)
Congdon, David	Horam, John
Conway, Derek	Hordern, Rt Hon Sir Peter
Coombs, Anthony (Wyre For'st)	Howard, Rt Hon Michael
Coombs, Simon (Swindon)	Howarth, Alan (Strat'rd-on-A)
Cope, Rt Hon Sir John	Hughes Robert G. (Harrow W)
Couchman, James	Hunt, Rt Hon David (Wirral W)
Cran, James	Hunter, Andrew
Currie, Mrs Edwina (S D'by'ire)	Hurd, Rt Hon Douglas
Curry, David (Skipton & Ripon)	Jack, Michael
Davies, Quentin (Stamford)	Jackson, Robert (Wantage)
Davis, David (Boothferry)	Jenkin, Bernard
Day, Stephen	Jessel, Toby
Deva, Nirj Joseph	Johnson Smith, Sir Geoffrey
Dickens, Geoffrey	Jones, Gwilym (Cardiff N)
Dicks, Terry	Jones, Robert B. (W Hertfdshr)
Dorrell, Stephen	Jopling, Rt Hon Michael
Douglas-Hamilton, Lord James	Kellett-Bowman, Dame Elaine
Dover, Den	Key, Robert
Duncan, Alan	Kilfedder, Sir James
Duncan-Smith, Iain	King, Rt Hon Tom
Dunn, Bob	Kirkhope, Timothy
Dykes, Hugh	Knapman, Roger
Eggar, Tim	Knight, Mrs Angela (Erewash)
Elletson, Harold	Knight, Greg (Derby N)
Evans, David (Welwyn Hatfield)	Knight, Dame Jill (Bir'm E'st'n)

Knox, David	Nicholls, Patrick
Kynoch, George (Kincardine)	Nicholson, David (Taunton)
Lait, Mrs Jacqui	Nicholson, Emma (Devon West)
Lamont, Rt Hon Norman	Norris, Steve
Lawrence, Sir Ivan	Onslow, Rt Hon Sir Cranley
Legg, Barry	Oppenheim, Phillip
Lester, Jim (Broxtowe)	Ottaway, Richard
Lidington, David	Page, Richard
Lightbown, David	Paice, James
Lilley, Rt Hon Peter	Patnick, Irvine
Lloyd, Peter (Fareham)	Patten, Rt Hon John
Lord, Michael	Pattie, Rt Hon Sir Geoffrey
Luff, Peter	Pawsey, James
Lyell, Rt Hon Sir Nicholas	Peacock, Mrs Elizabeth
MacKay, Andrew	Pickles, Eric
Maclean, David	Porter, David (Waveney)
McLoughlin, Patrick	Portillo, Rt Hon Michael
McNair-Wilson, Sir Patrick	Powell, William (Corby)
Madel, David	Redwood, John
Maitland, Lady Olga	Renton, Rt Hon Tim
Malone, Gerald	Richards, Rod
Mans, Keith	Riddick, Graham
Marland, Paul	Rifkind, Rt Hon. Malcolm
Marlow, Tony	Robathan, Andrew
Marshall, John (Hendon S)	Roberts, Rt Hon Sir Wyn
Marshall, Sir Michael (Arundel)	Robertson, Raymond (Ab'd'n S)
Martin, David (Portsmouth S)	Robinson, Mark (Somerton)
Merchant, Piers	Roe, Mrs Marion (Broxbourne)
Milligan, Stephen	Rowe, Andrew (Mid Kent)
Moate, Sir Roger	Rumbold, Rt Hon Dame Angela
Monro, Sir Hector	Ryder, Rt Hon Richard
Montgomery, Sir Fergus	Sackville, Tom
Moss, Malcolm	Sainsbury, Rt Hon Tim
Needham, Richard	Scott, Rt Hon Nicholas
Nelson, Anthony	Shaw, David (Dover)
Neubert, Sir Michael	Shaw, Sir Giles (Pudsey)
Newton, Rt Hon Tony	Shephard, Rt Hon Gillian

Shepherd, Richard (Aldridge)	Tracey, Richard
Shersby, Michael	Tredinnick, David
Sims, Roger	Trend, Michael
Skeet, Sir Trevor	Twinn, Dr Ian
Smith, Tim (Beaconsfield)	Vaughan, Sir Gerard
Soames, Nicholas	Viggers, Peter
Spencer, Sir Derek	Waldegrave, Rt Hon William
Spicer, Sir James (W Dorset)	Walden, George
Spicer, Michael (S Worcs)	Walker, Bill (N Tayside)
Spink, Dr Robert	Waller, Gary
Spring, Richard	Wardle, Charles (Bexhill)
Sproat, Iain	Waterson, Nigel
Squire, Robin (Hornchurch)	Watts, John
Steen, Anthony	Wells, Bowen
Stephen, Michael	Wheeler, Rt Hon Sir John
Stern, Michael	Whitney, Ray
Stewart, Allan	Whittingdale, John
Streeter, Gary	Widdecombe, Ann
Sumberg, David	Wiggin, Sir Jerry
Sweeney, Walter	Wilkinson, John
Sykes, John	Willetts, David
Tapsell, Sir Peter	Wilshire, David
Taylor, Ian (Esher)	Winterton, Mrs Ann (Congleton)
Taylor, Rt Hon John D. (Strgfd)	Winterton, Nicholas (Macc'f'ld)
Taylor, John M. (Solihull)	Wolfson, Mark
Taylor, Sir Teddy (Southend, E)	Wood, Timothy
Temple-Morris, Peter	Yeo, Tim
Thomason, Roy	Young, Sir George (Acton)
Thompson, Patrick (Norwich N)
Thornton, Sir Malcolm	Tellers for the Noes:
Thurnham, Peter	Mr. Sydney Chapman and Mr. Andrew Mitchell.
Townsend, Cyril D. (Bexl'yh'th)

Question accordingly negatived.

Clause 48 ordered to stand part of the Bill.

Committee report progress.—[Mr. Arbuthnot.]

To sit again tomorrow.