RATE OF STATUTORY INTEREST

HC Deb 01 June 1998 vol 313 cc120-7 10.12 pm

Mrs. Cheryl Gillan (Chesham and Amersham)

I beg to move amendment No. 1, in page 4, line 1, leave out 'made with the consent of the Treasury'.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this, it will be convenient to discuss the following amendments: No. 2, in page 4, line 10, at end insert— '(c) avoid the risk that purchasers enjoying a dominant position in a market may seek to renegotiate payment terms to the disadvantage of suppliers in that market.'. No. 3, in page 4, line 10, at end insert— '(3) The power to make an Order under subsection (1) above is without prejudice to the making of a further Order varying the provision made under paragraph (a) or (b) of that subsection. (4) No Order shall he made under subsection (3) unless any preceding Order under that subsection (or, as the case may be, an Order under subsection (1)) has been in force for at least six months.'. No. 4, in page 4, line 10, at end insert— '(3) The Secretary of State shall ensure that the terms of any order under this section are promulgated by such means as are calculated to bring them to the attention of businesses and other commercial undertakings as effectively and speedily as possible.'.

Mrs. Gillan

On 14 May, in Committee, I said that. due to the Minister's unsatisfactory responses, I intended to raise matters concerning the interest rate on Report. This group of amendments gives the Minister a chance to clarify the area that she dealt with so inadequately then.

I wish to deal first with the setting of the rate of interest and then the communication of that rate of interest to businesses and the speed and frequency with which the rate may change. In Committee, the Minister set great store by further consultations with business and others to establish the efficacy of the initial rate that was published in the draft order—the base rate plus 8 per cent. I hope that she can explain in detail how that can possibly work as it will be at least four years before some businesses can use the Bill against, for example, the public sector. Will they be excluded from the consultation process for the next four years? I presume that they will, but I hope that the Minister will categorically confirm or deny that point. If it is confirmed, a vast swathe of industry and business will be excluded from the consultation process that she has heralded.

Will the Minister explain in detail how, precisely, she arrived at the figure of 8 per cent? I believe that she initially favoured 4 per cent.—so she has doubled her original figure. That shows how wrong she was, so it is difficult to be reassured that she knows what she is doing.

The mechanisms in the Bill for setting the interest rate are similarly open to question, as the final rate will depend on the Minister's colleagues in the Treasury. Will she explain, in detail, how she expects the relationship between her Department and the Treasury to work and how potential conflicts between the two Departments will be resolved?

There is no provision in the Bill to protect businesses from rapid rate changes at the whim of the Government. In Committee, the Minister failed to answer my questions, so I hope that she will now deal with them. How frequently could the interest rate be changed? Will it be weekly, monthly or biannually? Would it not be better to provide a minimum period so that businesses could have some certainty? It is feasible that, in times of highly volatile interest rates, the rate could change daily as a result of these measures. The Minister has had due time to consider these matters and I hope that she will come forth with the answers.

Businesses are confused about how they will be told about the changes to the rate. The Minister has said that she will distribute a free users guide to businesses. Perhaps she will elaborate on that. How many copies of the guide will be printed? Does she intend to send it to all businesses, or is this another burden on businesses, which will have to make efforts to find out what is going on? What budget will be set aside for this leaflet? Will it be reprinted every time the rate changes?

The amendments were tabled because of the Minister's poor performance in Committee. I hope that she will now provide the answers to these questions.

Mr. Eric Forth (Bromley and Chislehurst)

I shall concentrate my remarks on amendment No. 2, which I hope will force the Minister to return to the issue that my hon. Friends and I raised on Second Reading and in Committee. We fear that the Bill would induce companies in a dominant position to renegotiate their terms of trade with their suppliers if the burden of interest set under the Bill were to become too onerous. The more onerous the rate of interest, the greater is the incentive for purchasers to renegotiate their terms of trade.

We have argued throughout that there will be a great temptation for a company that faces an unduly harsh penalty to reconsider its terms of trade instead of being content to operate on a net 30-day basis—admittedly with the possibility that the payments made could drift out beyond that period.

My hon. Friend the Member for South-West Hertfordshire (Mr. Page) has frequently carried out his own expert analysis of the impracticability of a strict adherence to an over-strict payments regime. I hope that he will return to that argument, because I always enjoy hearing it. I would argue that it is certain that businesses, particularly when in a dominant position, will decide that if they are to he held strictly to an impractical 30-day payment regime, it would make a lot of sense to negotiate alternative terms of trade of 45, 60 or even 90 days with their suppliers to make the payment mechanism more operable and to ensure that penalties are not unnecessarily incurred.

The onus is therefore on the Minister to persuade us that such a response by a significant number of purchasers would be unlikely. If it is not, the whole argument behind the Bill will be shown to be fatally flawed. The amendment is a small but significant attempt to countermand such a natural response and inexorable process.

If what I fear actually comes about, it will make nonsense of the Bill. It has been said time and again during the Bill's previous stages that the purpose of the legislation, which I query, is to protect relatively small firms from being dominated or even exploited by larger ones. That argument is false because I suspect that as many late payment difficulties arise among small firms as between small and large firms. If the Bill succeeds in any of its objectives, it will thus end up penalising small firms as much as—perhaps even more than—large ones.

The amendment attempts to get round the dilemma thus: purchasers enjoying a dominant position in a market may seek to renegotiate payment terms". Although I do not know to what extent it will be effective, it at least recognises the dangers that I have outlined and tries to prevent their coming to pass. I want to hear from the Minister why my fears are unfounded and hence why the amendment is unnecessary. If she fails to explain that, I can only assume that her logic—it is usually impeccable—will drive her to accept the amendment, which is a mild but realistic attempt to correct an imbalance that I fear may arise if the Bill is enacted unamended.

My argument has not yet been properly answered, on Second Reading or in Committee. I therefore welcome the fact that my right hon. and hon. Friends have re-presented it, in the hope of a fuller answer from the Minister. The Minister looks as if she is in a generous and compliant mood tonight. I hope that, having heard my speech and the one I sense we are about to hear from my hon. Friend the Member for South-West Hertfordshire, she may be prepared to accept our amendment. Before we proceed any further, we at least expect a proper answer to our points.

Mr. Richard Page (South-West Hertfordshire)

Amendment No. 2 has about it the air of a hard commercial head butt. This is the amendment which shows why the Bill will be ineffective when it has to be implemented in the marketplace.

Despite what my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) said, I hope that he does not press the amendment to a Division. It would be impossible to implement, just as the whole Bill will be impossible to implement to the benefit of the small business sector for which it is designed. The Bill will have a marginal effect, which is one of the reasons it has not been introduced before.

I ask my right hon. Friend not to press the amendment because the Government have no answer to the question that lies behind it. He is absolutely right to ask for an answer. If a valid answer were forthcoming, it could revolutionise the approach to the Bill taken by some Conservative Members, but I strongly suspect that such an answer will not be forthcoming.

The amendment basically asks what is to stop a purchaser negotiating disadvantageous terms with a supplier. When a big boy is talking to a little boy, what is to stop the big boy negotiating terms that are disadvantageous to the little boy? In Committee, the Minister for Small Firms, Trade and Industry hinted coyly that certain things could be done to redress the balance. I should very much like to hear what could be done if the terms were felt to be unfair or out of kilter, but I strongly suspect that no response will be forthcoming.

The Bill will undoubtedly regularise credit terms, which must be welcome. Despite the blandishments of my right hon. Friend the Member for Bromley and Chislehurst, I shall not run through the credit cycle process for the third time. I have done so twice. When I read the record of my performance I was overcome by my brilliance, but a third time would be going too often to the well. However, I envisage certain phrases appearing in the arrangements made between companies, such as that payments will be made by X number of days after the monthly statement has been delivered. I envisage X being not 30 or 40, but 50 or 60, because companies will want to ensure that they cannot be caught by the statutory right to interest. I can see that number of days becoming a very comfortable cushion—a real protection against any possible charge of statutory interest.

The amendment aims to avoid the risk that purchasers enjoying a dominant position in a market may seek to renegotiate payment terms to the disadvantage of suppliers in that market. The Bill reveals the Government's lack of commercial knowledge; many credit arrangements are at odds with each other. How many suppliers supply goods on terms that do not match the purchasing orders? As my right hon. Friend the Member for Bromley and Chislehurst said, the Bill was introduced to protect small businesses, but I can see it being used to their disadvantage.

I should like the Minister to tell us what happens when a dominant supplier or purchaser draws up terms that are "considered unfair" for the smaller company. What will be done to protect the small business, which is what the Bill was designed to do? The explanations offered so far show that the Bill is flawed.

If I catch your eye, Mr. Deputy Speaker, among all those who no doubt will be clamouring to speak on Third Reading, I shall explain how all the aims of the Bill could be achieved by another means in a fraction of the time and at a fraction of the cost. I look forward to hearing what the Minister says about how the Bill will protect a small firm against a dominant supplier.

10.30 pm

The Minister for Small Firms, Trade and Industry (Mrs. Barbara Roche)

First, I congratulate the hon. Member for Chesham and Amersham (Mrs. Gillan) on her move to the shadow Foreign Office. Tonight's debate is almost her swan song in the role of shadow small business Minister. I have very much enjoyed our exchanges across the Dispatch Box and I shall certainly miss them.

I am not surprised, however, that the hon. Lady has been moved. After all, during one of her first interviews as shadow spokesman, in The Sunday Times on 30 November 1997, she was reported as attacking her own party for losing the small-business vote at the general election. In an extraordinarily candid interview with the Federation of Small Businesses she admitted the Tory Government got its small business strategy wrong. 'Mea culpa,' she said. 'We did not get it right in all areas.''' That was surely the understatement of the year. I understand the hon. Lady's embarrassment.

I appreciated the speeches of the right hon. Member for Bromley and Chislehurst (Mr. Forth) and the hon. Member for South-West Hertfordshire (Mr. Page). The hon. Member for South-West Hertfordshire has always opposed the introduction of a statutory right to interest, as does the right hon. Member for Bromley and Chislehurst. Had his party been brave or foolhardy enough to do so, he would have voted against the Bill on Second Reading—but the Opposition dared not vote against it on Second Reading as they would have appeared to be anti-small business as well as lost the vote.

The hon. Member for Chesham and Amersham is in a very embarrassing position because, when she was first elected, she signed an early-day motion supporting the right to statutory interest. Not merely was she a signatory to it; she was one of the first six names.

I was startled when the Opposition tabled amendment No.1. After all, it was an Opposition amendment in another place that introduced the very words that it seeks to amend. However, we have come to expect U-turns from the shadow Trade and Industry team, and the hon. Lady has not disappointed us with her parting shot.

In another place, the Government were convinced by the arguments of Lord Home. In amending the rate of interest we shall take account of all views, if practically possible. Within the Government, we shall certainly wish to consult and be guided by the Treasury on any interest rate.

In view of amendment No.1, I should not be surprised by amendment No.2, but I am puzzled. It would oblige the Secretary of State to consider, among other factors, whether the rate would lead to dominant firms renegotiating their payment terms to the disadvantage of suppliers. To meet the new criterion wholly, it would be necessary to set the rate at 0 per cent; otherwise, theoretically, there may be the possibility of a dominant firm renegotiating a contract to avoid the interest rate. That is why it is entirely sensible for the hon. Member for South-West Hertfordshire to urge his party not to vote for the amendment tabled by its Front-Bench team.

Mr. Forth

The Minister seems to be arguing in a black and white way. We are talking about judgment. There may be an appropriate rate that could be applied and would be broadly accepted as reasonable, but if the rate became penal, dominant suppliers might be driven to renegotiate, as we fear. Surely the Minister will concede that somewhere between those two is the possibility of a rate that would work in most cases without driving companies to renegotiation. Her argument about a rate of 0 per cent. is too absolute. Will she not at least admit a balance of probability?

Mrs. Roche

I understand the right hon. Gentleman's argument. That is why we consulted and listened to the Bank of England. In a recent survey conducted by the Midland bank to be published next month, 79 per cent. of those surveyed supported the statutory right to interest, and 77 per cent. said that they would use it. Those who responded knew our proposal for the rate.

Taken to its logical conclusion, the amendment would result in policy following the lead of those who wanted to avoid its intent, which would be ridiculous.

Mr. Page

One reason why I urged that the amendment should not be put to a vote is that I know that my right hon. and hon. Friends appreciate its impracticality. Our aim is to ask how the Government are going to protect small firms against a dominant supplier or purchaser if it is felt that the terms are becoming unreasonable. The hon. Lady is running around the park without addressing that fundamental question.

Mrs. Roche

I understand the hon. Gentleman's point. I am addressing the amendment, which was tabled by the Conservatives. Having studied the Bill closely, the hon. Gentleman will know that we have drafted it to protect small firms and prevent companies from contracting out of the legislation. The Bill safeguards the position of small businesses.

As I have said, I am puzzled by the amendment. In the other place, the Opposition Front-Bench team sought to ensure that the criteria for setting the rate of interest were not set in stone. We were persuaded that we should insert the words, "among other things". The hon. Member for Chesham and Amersham has reversed that policy.

Amendment No. 3 is unnecessary and unhelpful. There is no need to provide an order-making power to amend an order. The order to be made under subsection (1) can be amended simply by making another order under the same subsection. The proposed subsection (4) would prevent the Secretary of State from amending the interest rate for six months after making an order, regardless of any advice that she may have received from business and other representatives. That is not helpful.

I understand the concerns that have been expressed. It is important that changes to the interest rate are made known effectively and speedily. The Government have worked with trade associations, business representative organisations and the business links network to publicise the Bill and the likely interest rate. As part of the Better Payment Practice Group's campaign to improve the payment culture, we shall highlight the proposals through a publicity campaign.

Mrs. Gillan

I am pleased that the Minister has dealt with some of my points on this group of probing amendments. How often does she envisage the rate may change? Does she intend to go to the expense of republishing the leaflet every time it changes? For the sake of businesses listening to the debate, she should clarify the mechanism.

Mrs. Roche

I understand the hon. Lady's points. If she will bear with me for just one moment, I shall deal with them.

Following—I hope—Royal Assent, I shall publish a user's guide to the Bill, which businesses will be able to obtain free of charge. Members of the Better Payment Practice Group are committed to promulgating that guide. The Department will also write to trade associations and business links to ensure that they are aware of the guide and can inform their members of how they may obtain their free copies. By those means, we can effectively bring to the attention of business the initial interest rate.

Should it be necessary to change the rate—I am not going to predict at this stage how frequently it will change—we will use similar routes to inform businesses of the change. Incidentally, that same commitment to providing information applies to other orders made under the Bill, such as the commencement orders for the phasing arrangements.

For the first time, all business representative organisations are sitting down together to do something about improving the culture of late payment—something which the previous Government failed to achieve. I urge the House to oppose the amendments if they are not withdrawn.

Mrs. Gillan

I thank the Minister for her kind remarks at the beginning of her response to the group of amendments.

Mr. Clive Betts (Sheffield, Attercliffe)

It did not last long.

Mrs. Gillan

I, too, will miss the Minister. I have enjoyed our exchanges across the Dispatch Box, although I have not enjoyed her hackneyed comments. Like my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth), I wish that she would get some new material; this audience is certainly very tired of it.

When I signed the early-day motion, I naively thought that statutory interest on late payment of debt might solve the problem and change the culture. It was only when I went into the matter in detail with Ministers in the Department of Trade and Industry, and businesses and trade associations, that I realised that the proposal was not a panacea, but yet another burden on business.

The Minister ought to be embarrassed because, in an interview in Network, she admitted that almost 60 per cent. of lobby groups representing smaller businesses were opposed to a statutory right to interest on late payment of debts. I have nothing to be embarrassed about, but the Minister should be ashamed that she is proposing legislation which, she admits, is not popular among smaller businesses.

The Minister has not addressed the questions that my right hon. and hon. Friends and I have raised; I am certainly not satisfied with the answers. She has ducked the question of how often the interest rate will change. Indeed, it seems that it could change daily. She failed to address the fact that many businesses will be excluded from taking any meaningful part in the consultation process, which she keeps going on about. Such businesses will not be able to exercise the protection afforded by the Bill, particularly against the public sector, so they can hardly be consulted on it.

The Minister has not even given any indication of how much money will be set aside in the Department to promote the rate of statutory interest for businesses. She says that she will produce the leaflet free of charge; I hope that she has the budget to produce a leaflet as many as 365 times a year. If interest rate changes demand it, that is what she will have to do. She said that she is writing to trade associations and businesses links. I must tell her that not all small businesses are either members of trade associations or have contact with business links. In other words, she is quite prepared to leave a large swathe of small businesses in ignorance or put them to the time, trouble and expense—which can hurt a small business—of finding out what her large Department is proposing.

It is clear that the Minister has not, and will not, respond well to the amendments. They were tabled as probing amendments to try to elicit decent and healthy responses, which have not been forthcoming. In view of the lack of information from the Government, it is not even worth pressing the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.