Late Payment of Commercial Debts (Interest) Bill [Lords]

HC Deb 05 May 1998 vol 311 cc591-626

Order for Second Reading read.

5.6 pm

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

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

I am delighted to bring the Bill to the House today. The Government have made it clear that the Department of Trade and Industry is the Department for all businesses and that everything possible will be done to promote enterprise and assist smaller firms. A healthy, vibrant small business sector creates wealth and employment, generates new ideas and products and is the bedrock of a successful enterprise economy.

The sector is crucial to UK competitiveness. Small firms lie at the heart of the Government's economic strategy. The Government will do all that we can to deliver the right conditions in which small businesses can thrive and grow. That is why our small firms manifesto, "Growing and Prospering", committed the Government to deliver a right to claim interest on the late payment of commercial debt.

The Gracious Speech of 16 May 1997 announced that legislation to provide that right would be brought forward in this Session. We have kept that promise. Our commitment to this measure is a mark of our commitment to the small firms sector. Our Green Paper, "Improving the Payment Culture: A Statutory Right to Claim Interest on Late Payment of Commercial Debt", published on 28 July 1997, set out our proposals.

The Bill is a vital element of a package of measures that will change the payment culture. The Bill will provide businesses with the additional statutory tool many have been asking for to combat the abuse of their trade credit.

I must note the crusading work of Stan Mendham of the Forum of Private Business. He has championed the need for a statutory right to interest for many years. The last Government may have been indifferent to the needs of the small businesses represented by organisations such as the Forum of Private Business, but I can assure the House that this Government are not.

Mrs. Cheryl Gillan (Chesham and Amersham)

I also would like to pay tribute to the Forum of Private Business, which has advised me on the matter. However, could the Minister name all the other business organisations—particularly those representing small businesses —which are completely in favour of the Bill?

Mrs. Roche

I thank the hon. Lady for her tribute to the forum; I am sure that it will be greatly appreciated. I note her long-standing commitment to the principle of a statutory right to interest: on 22 March 1994, when she was a Back Bencher, she contributed to an early-day motion calling for a statutory right to interest, although, unfortunately, the previous Government, of which she became a member, refused to implement that. Therefore, I am grateful that she is on the Opposition Front Bench today to congratulate us on our action.

In response to the hon. Lady's question, I can tell her that we consulted all the small business organisations in connection with the Bill. She will know that, in doing so, we have established the better payment practice group, to which all those organisations belong. The small business community and its organisations realise that the Bill is an important part of a package of measures designed to bring an end to late payment. She will also know that all the surveys show overwhelming support among small businesses for a statutory right to interest. That right will be automatic, but the exercise of the right will be voluntary.

Mrs. Gillan

What the Minister does not realise is that when legislation on statutory interest on debt was examined, many business organisations said that it would not help in respect of the late-payment culture. She will know that the previous Government made great efforts to tackle that culture, many of which were extremely successful. Do the Federation of Small Businesses and the Small Business Bureau fully support all of the proposals contained in the Bill?

Mrs. Roche

The hon. Lady will know, from past consultation, that there have been some shifts in the attitude of small business organisations: at times, some have supported a statutory right to interest while others have not. We have been successful this time in having consulted small business organisations every inch of the way during the passage of the Bill. We are grateful for the support that those organisations have given.

I have to take issue with the hon. Lady's remarks about the previous Administration. She will know of the boast of the former Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine), of having strung along his creditors and his saying that that was the secret of his business success. I am sure that she would dissociate herself from that comment.

Mr. Richard Page (South-West Hertfordshire)

Will the Minister give way?

Mrs. Roche

Of course I shall give way to my predecessor.

Mr. Page

The Minister is being unfair to my right hon. Friend the former Deputy Prime Minister, who is a person who built up his business. He was explaining what happens when a company gets into a position, not of being unwilling to pay, but of being unable to pay. He was describing the sort of thing that a company will do in order to survive; he was not describing callously stringing the customer along, but stating his understanding of the difficulties facing small businesses. I wish that the hon. Lady, along with her ministerial colleagues, would not misrepresent my right hon. Friend's remarks.

Mrs. Roche

The hon. Gentleman, with his customary generosity, does a good job defending his right hon. Friend, but those comments did a great deal of harm, set entirely the wrong tone and went down very badly with the small business community.

In setting out the legal context to the Bill, I should note that the issue of interest is not new. In 1893, Lord Herschell, in the London, Chatham and Dover Railways case, expressed strong sympathy with a claim for interest. However, despite his sympathy for the plaintiff, he found that interest could not be claimed under the existing Civil Procedure Act 1833. Forty-one years later, the legislature passed the Law Reform (Miscellaneous Provisions) Act 1934, which provided a power to include, in any judgment on any debt or damages, interest at a rate thought fit from the time when the cause of action arose to the date of the judgment.

In 1974, the Lord Chancellor, Lord Elwyn-Jones, asked the Law Commission:

To consider the law and practice relating to interest on debt (where interest has not been provided for by contract) and on damages, and to make recommendations". On 7 April 1978, the Law Commission made its report to the then Lord Chancellor, including a draft Bill which, had it been adopted as a whole, would have provided a right to claim interest where a debt is paid late, but before or during any proceedings, up to the point when a money judgment is given. In 1982, the then Government saw fit only to give effect to part of that draft Bill. The Administration of Justice Act 1982 amended the Supreme Court Act 1981 to provide the courts with the discretion to award interest where a debt was paid late after proceedings had begun, regardless of whether or not the proceedings concluded in a judgment on the principal debt. Of course, that still left suppliers who were paid late, but before proceedings were issued, unrecompensed for being kept from their money.

It is 165 years since the Civil Procedure Act 1833 began the development of formal law on the provision of interest on late-paid debts. The Bill returns to the recommendations of the Law Commission in 1978 and finally gives all suppliers, regardless of when they are paid, the right to claim interest on late-paid commercial debts. The evolution of legislative measures to combat late payment shows us that the right we are proposing is a fundamental necessity and long overdue. The Government believe that late payment is wrong, both economically and ethically, and that the time to act and provide the right contained in the Bill is now.

Late payment, or simply not knowing whether one will be paid on time, damages confidence among small businesses, damages cash flow and acts as a barrier to growth. Uncertain cash flow adds to the cost of borrowing for the smaller business, which discourages investment and adversely affects growth and competitiveness. In some cases, the very future of the small business is threatened. Recovering debts imposes further expense that small businesses can ill afford in terms of both costs and diverted resources, particularly where court action is required. The Government are conscious that small businesses are particularly vulnerable to the harm caused by late payment. Small businesses are often highly geared, relying on short-term loans and overdrafts for working capital, so cash flow problems caused by late payments can have an immediate negative impact on many small businesses.

Research undertaken by Grant Thornton has shown that, in countries where businesses actually use legislation for statutory interest, there are often shorter payment periods.

Mrs. Gillan

Given what she has just said, can the Minister explain the position in Spain, where the contractual period is 68 days and payments are made after an average of 74 days? Can she explain that anomaly?

Mrs. Roche

Yes. The problem is that, in different European countries, there are different legislative systems and different payment periods arising either from contract or common practice. The UK's late payment period is longer than that of the average European Union country.

Mrs. Gillan

Looking at the Spanish position, does the hon. Lady admit it is possible that a statutory right to interest could extend the contractual period?

Mrs. Roche

No, not given the way in which we have drafted the Bill. The hon. Lady is right to mention that point—it is one of the issues raised whenever a statutory right to interest is discussed. We looked seriously at the issue and provided for it in the Bill; if I am allowed to make a little progress, I shall explain those provisions.

The regulatory appraisal published by my Department in December last year demonstrated the extent of the problem. The same appraisal reported studies which related to the harm that late payment causes small business. Let me give one or two examples. In a 1996 Intrum Justitia-sponsored NOP survey on European payment habits, 72 per cent. of respondents showed that overdue debts caused them a problem or serious problem with their cash flow. In the same study, loss of profit as a consequence of late payment was cited by 62 per cent. of respondents as a serious problem.

I am sure that the House shares the Government's view that late payment is not just a question of economics. There are strong ethical arguments that necessitate action to combat late payment and improve the payment culture.

Paying late is wrong and unfair. Any business that pays late as a matter of course is effectively saying that it is acceptable to abuse the provision of trade credit and the good faith of its suppliers. It seems not to value its suppliers or care enough about them to foster or maintain good relations. Those who pay late should realise that supplier relations are key to the continued profitability of their own business. When an agreement on payment has been reached, not only is it right and proper to ensure that the agreement is honoured; it is also an act of enlightened self-interest.

The Government acknowledge that late payment is not always deliberate, with the intention of frustrating the process. It is not always a case of some Goliath stepping on a defenceless David, and there is often no malicious intent. Various reasons may exist for late payment. We listed them in our Green Paper, "Improving the Payment Culture: a Statutory Right to Claim Interest on Late Payment of Commercial Debt." However, we see no good reason why, aside from their own errors, suppliers should have to bear the cost of late payment. We believe that it is right and fair that the cost of late payment should be put back into the hands of those who control it: the customers.

It has been said—this deals with some of the hon. Lady's comments—that the new right will lead to extensions of credit periods. We have thought of that. Where an agreed credit period amounts to de facto contracting out of the provisions of the legislation, it will be a void term in the contract and the courts will be able to strike it down.

It has also been said that businesses will be too worried about losing a customer to exercise their right to claim interest. I do not believe that business sees that it makes any commercial sense to drop a supplier simply because the supplier made a claim for interest.

Businesses generally understand the value of good suppliers. All our great household names have got where they are because they value and invest in their supply chain. They also know that it is administratively time consuming and expensive to replace good suppliers.

Mr. Michael Fabricant (Lichfield)

As the Minister knows, I was in business before entering the House in 1992. How does she reconcile her comments and the situation of a small supplier, perhaps supplying to a very large corporation—I shall mention GEC, and there are others—which sometimes took up to 120 days to pay small suppliers? That was the case not just with plcs, but with the BBC too, although I believe that it has changed its ways. As a small business man trying to make an inroad into a market, I would not have dared to say, "I am sorry, but I insist that you pay within this particular time," when I knew that other suppliers were not doing that.

Mrs. Roche

The hon. Gentleman raises an important issue, and I am interested to hear of his experience, which illustrates some of the difficulties. I know from my postbag, which contains letters from hon. Members from all parts of the House, what late payment means to their constituents, especially their business constituents.

We are giving businesses the right to claim interest, but it is up to the individual business to make the commercial decision whether to enforce it. As part of a package of measures that I shall describe later and which I am sure will interest the hon. Gentleman, that provides an important lever in the hands of a small business. I believe that, rather than drop their supplier, debtors will go for the simple solution, and try to ensure that they pay their bills on time.

Action to tackle late payment can wait no longer. The Government believe that it is time to provide, in the context of a wider package of measures, a statutory right to claim interest on late-paid commercial debt, aimed at improving the payment culture in the UK now.

We stated in our Green Paper that, to help small businesses in particular, the statutory right to claim interest will be exercisable, initially, by small businesses against all large enterprises, including the public sector. We envisage that the right will be extended, after a period of two years, for use by small businesses against all enterprises, including the public sector. Finally, we envisage that the right will be extended, after a further period of two years, to all enterprises, including the public sector, to use against all enterprises, including the public sector.

Responses to the Green Paper showed business support for phasing at 87 per cent., with support for the proposed timetable only slightly lower at 85 per cent.

The Bill will encourage customers to pay on time, and, in conjunction with the wider package of measures, will help to combat the late payment problem. Part I creates an implied term in contracts, where no explicit remedy for late payment is provided, for a statutory right to claim interest; specifies the contracts and debts to which the term may apply; sets a default credit period and procedures for remission of interest; and provides an order-making power to set the statutory rate of interest.

Part II describes the extent to which parties to a contract can exclude or vary the right to statutory interest in relation to a qualifying debt. It will not be possible for parties to contract out of the Bill unless the contract provides a substantial remedy for late payment. Part III provides general and supplementary measures necessary to give effect to the Bill and ensure that it operates effectively. The final clause includes a commencement power to enable the Bill to be brought into force in stages.

The effect of the Bill will be that the cost of late payment will no longer have to be borne by the supplier. It will instead be borne by the party that can control it: the customer.

I can reassure the House—this answers the hon. Gentleman's point—that we do not see the legislation as a panacea. It is one important element in a package of measures that the Government are adopting, in partnership with the private sector, to improve the payment culture. The Government have regularly referred to the wider package of measures that can be seen in the annexes to their publications related to the Bill. Those include support for the decision by the Federation of Small Businesses to publish league tables of the payment performance of public companies; support for the development of the national vocational qualification in credit management; ensuring that small businesses can access credit management information and advice through the enterprise zone; and the establishment and co-ordination of the better payment practice group, which is a vital part of the Government's commitment to work in partnership with the business community to promote a better payment culture among British businesses.

The better payment practice group promotes best payment practice among all businesses and will help to shape both the private and public sectors' measures to tackle late payment. Members of the group include the Forum of Private Business, the Institute of Directors, the Confederation of British Industry, the British chambers of commerce, the National Farmers Union and the Union of Independent Companies. The group has met regularly and has already produced a substantial body of work.

The Government have recently published a better payment practice guide to credit management jointly with the better payment practice group. The guide benefits from the combined experience and considerable expertise of the group and provides straightforward guidance and advice on how to get paid on time. I thank all the members of the group for their hard work and effort.

The Government recognise that the public sector must lead by example. We will require all Government Departments, agencies and local authorities to pay on time. Government Departments and agencies must pay all their undisputed invoices for commercial debts within 30 days or other agreed contract terms.

Mrs. Gillan

I thank the hon. Lady for giving way once again. It is obvious that many of those measures, especially the last one mentioned, were introduced under a Conservative Government. I notice that, since the present Government came to power, there has been no publication of the league tables for payment performance, other than for the year that covered the previous Conservative Government. When will the next table be published, covering the Labour Government's first year in office?

Mrs. Roche

I shall answer the hon. Lady's first point straight away. I am a little perplexed by her comments. The group to which I referred was established by this Administration and all its meetings have taken place under this Administration. I am rather sorry that the previous Government did not think of establishing it. I am also sorry that they did not support the federation's work in publishing league tables in the private sector. The hon. Lady also asked about league tables, and I am delighted to tell her that I shall publish them before the summer recess.

Government Departments have adopted the British standard for achieving good payment performance in commercial transactions and the CBI prompt payment code. As I have said, we shall publish tables of the payment performance of central and local government before the summer recess. The Government are fully aware of the link between this Bill and the issue of access to justice. The Department has worked in close consultation with officials of the Lord Chancellor's Department. The Lord Chancellor announced in October that he was pressing ahead with reforms to the civil justice system aimed at reducing cost, delay and complexity.

We consulted widely on our proposals, and I am grateful to all those who responded. Their comments have been invaluable in improving what is, after all, a Bill dealing with a technical area of law. I am happy to say that all of our proposals have received widespread support. I am particularly pleased that our phasing proposals were so well supported. For example, when the Institute of Directors sought to respond to the Green Paper, it received 1,700 responses to a survey of its members, 69 of which favoured a right to interest.

I am pleased to say that, when concerns have been raised, we have tried to be as flexible as possible. I believe that we have demonstrated a willingness to reflect and to make changes where they are merited. That has been the case both during consultation and since the introduction of the Bill in another place.

Mr. Eric Forth (Bromley and Chislehurst)

I seek clarification from the Minister. I think that she just said that, out of 1,700 responses to the Institute of Directors survey, just 69 favoured a statutory interest on late payment. Is that figure correct?

Mrs. Roche

I meant 69 per cent.

Mr. Forth

I am grateful. Perhaps the Minister could clarify the survey's results for the record.

Mrs. Roche

Yes, I am happy to do so. The figure is 69 per cent. I also understand that that is one of the largest responses that the Institute of Directors has received to a survey of its members.

The Bill was introduced with two changes to the original proposals that appeared in our Green Paper. The definition of a small business was, for the sake of simplicity and in order to avoid enforcement difficulties, reduced from the two out of three Companies Act 1985 definition to the simple criterion of 50 or fewer employees. The second change was to the rate of interest. The Green Paper originally proposed a rate of base rate plus 4 per cent. Having noted the concerns voiced during consultation and after taking further advice, we recognised that the interest rate should be sufficient to recompense all businesses for the cost of late payment. Therefore, the legislation proposes a rate of base rate plus 8 per cent., which is the rate at which the weakest businesses are charged for term lending.

There are issues that the Government believe are central to the Bill. First and foremost is the fact that this Bill is designed to help small business. For that to happen, we believe that the phased implementation of the legislation is necessary. This is a vital Bill whose time has come, and I am very pleased to commend it to the House.

5.33 pm

Mrs. Cheryl Gillan (Chesham and Amersham)

I congratulate the Minister for Small Firms, Trade and Industry on bringing the Bill to the House—not least because, as she said, it has enabled her to keep one of her promises to the electorate. It is a pity that the Secretary of State for Health could not keep his promise to the electorate and that waiting lists have increased by 100,000. Perhaps other Departments could look to the example set by this Minister and improve their records.

It is sad that the Minister is supported today by a lone Back Bencher. None of her colleagues in the Department of Trade and Industry considers the matter to be important enough to sit alongside her and see her flagship move forward. At least I have good support from my colleagues on Conservative Benches. Unlike the Labour party, the Conservative party has traditionally been the friend of business,

Mr. Colin Breed (South-East Cornwall)

Traditionally.

Mrs. Gillan

We shall maintain that tradition.

The road to hell is paved with good intentions, and the Bill before the House epitomises that expression. All hon. Members agree that late payment could be agony for both large and small business. Yet today's Financial Times reveals part of the vision of hell that accompanies the good intentions in the Bill. The article is headed, "Businesses 'not ready' for tough law on debts". It states that a survey has found that fewer than 2 per cent. of company finance directors fully understand the Late Payment of Commercial Debts (Interest) Bill. The article goes on to say that the Bill could force companies in the United Kingdom to pay more than £180,000 a day. Yet again, a burden is placed on business—another piece of red tape—that has no obvious benefits for some who view the legislation.

Mrs. Roche

I am shocked by the hon. Lady's remarks. Do I take it that she now withdraws the support that she gave in 1994 to a statutory right to interest? I expected congratulations on the legislation, not carping.

Mrs. Gillan

The Minister has already heard my answer. Upon examination, it was found that other mechanisms would help more. No one supports the late payment of debts, but perhaps there is another way, apart from legislation. I hope that the hon. Lady will be open-minded and listen to some other suggestions.

If we look to our European neighbours, we can see that the lesson is not clear. As I said by way of intervention, Spain has problems. Companies in Spain and Portugal—which also has legislation in this area—have some of the worst records in Europe. Overall payment performance in the United Kingdom is better than the European Union average by some five days. Moreover, the Bill seeks to phase in the legislation, allowing small businesses to pursue other small businesses only in the final stage in several years. However, 70 per cent. of small businesses trade with other businesses of a similar size.

The Minister has tried to give the impression that her measures are universally welcome, but that is not strictly true. Her proposals have had a lukewarm reception in some areas, which perhaps explains why the arrival of the legislation in the Chamber was delayed for more than a year. Before the election, the Minister and her colleagues expended phenomenal efforts on trying to woo the business community. The prawn cocktail offensive became an embarrassingly familiar item in journalists' columns. We have seen the outcome of those cocktail parties, with chosen business men from organisations that could afford to donate £1 million to the Labour party getting what appears to be special treatment.

The spin doctors formulated the message in a desperate attempt to appear business friendly, and the policy was pursued ruthlessly. Labour callously tried to lull business into a false sense of security—and I am afraid that the Bill is part of that charade. Like so much in this Government, it is a thin facade: it is a fig leaf to cover the Government's modesty while they remain as rapacious as ever in their intentions towards business. They attacked business in both Budgets, and I give them notice that the businesses that I talk to are beginning to see through their warm words and their warm champagne and to realise that they are gradually eroding many businesses' competitive edge.

The raid of £5.4 billion on pensions makes Maxwell look like an amateur. The burdens are piling on, from the windfall tax, which has grabbed £5.2 billion and the road fuel tax, which has grabbed £440 million, to the car registration tax, which takes £60 million and the corporation tax changes, which take £630 million. The strength of the pound is destroying our exporters' business, and on top of that come the social chapter, the national minimum wage and union recognition, which will add to the burdens on business.

At Question Time today, we heard that the Department of the Environment, Transport and the Regions is considering taxing car parking spaces for shops, factories and offices. Business should not face such burdens. It also faces two other inescapable burdens: the additional costs of the euro and of the millennium computer problem, which will run into billions of pounds and impose financial burdens on businesses that have to maintain their competitive position in an increasingly competitive world. The debacle over the euro this weekend represents not only a national lottery, but an international lottery of giant proportions. It was a rollover weekend, but the people who were rolled over were European and British citizens.

The measures fall on the negative side of the equation, but the Government hope that the Bill will register on the positive side. In many ways, I hope that it will, but instead of supporting it overwhelmingly, many businesses and organisations representing business do not think that it is necessary. The Federation of Small Businesses said:

We shall try to convince the small firms Minister that other issues should he looked at first". The British Chambers of Commerce said:

It is an ill-conceived, very short term solution and will hurt businessmen's interests". The Confederation of British Industry said:

It will not work and according to our members, will make matters worse. It would be very unfortunate if they went ahead with something that most small businesses do not want". The small and medium enterprises council of the CBI said that the Bill would not substantially increase the likelihood of small firms being paid on time.

We do not need to take those organisations' words for it, when we have those of the Minister. She has admitted that her proposals are not popular. In last summer's edition of Network, she said that almost 60 per cent. of lobby groups representing small businesses opposed a statutory right to interest on late payment of debts. What an admission. In other words, she said, "They don't want it, but we're going to do it anyway." The Government consider the Bill to be a headline grabber and will pursue it, irrespective of whether it will change the culture of late payment.

Mrs. Roche

I thank the hon. Lady for her courtesy in giving way, but does she not accept that every survey of small businesses shows overwhelming support for a statutory right to interest? She supported that not merely by signing the early-day motion, but by being one of the first six sponsors.

Mrs. Gillan

The hon. Lady has pursued the matter twice. She is highly embarrassed to be quoted as saying that 60 per cent. of small business organisations are opposed to a statutory right to interest. She intends to impose her will on the business community, regardless of what it thinks.

The Minister should have used her energies to ensure that the Government pay their bills on time, as the previous Government did. More than 50 per cent. of Departments improved their payment records in the last full year under our government, some substantially. In answer to my question on national health service trust payments, the Minister of State, Department of Health said that

80 per cent. of payments were made on time."—[Official Report, 30 October 1997; Vol. 299, c. 864.] Trusts make more than 3 million payments a quarter, so in any quarter 600,000 bills are paid late, which adds up to slightly under 2.5 million bills a year paid late. Surely the Minister's priority should be to continue to build on the work of the Conservative Government and improve that performance, but we have not even seen the payment performance of Departments under her Government and, as she has admitted, will not see it until the recess.

Mrs. Roche

On payment performance, will the hon. Lady confirm that when she was a Minister at the Department for Education and Employment, it paid a quarter of its bills late? Will she apologise for that?

Mrs. Gillan

I have no apology to make. The Paymaster General said in a written answer in Hansard on 27 November, at column 662, that the DFEE's record was 92.2 per cent., which is an improvement, because the Department for Education's payment record was 75.2 per cent. I hope that the Minister will apologise to me, and I shall give way to allow her do so. No, she is not a big enough woman to apologise when she has made a mistake.

I congratulate the Minister on the better payment priorities group and hope that it will be backed by more than her warm words. She has the arduous burden of making the winding-up speech, because no other Minister has come to support her. Will she say how much money will support the group's proposals? How much will go into the development of the national vocational qualification in credit management? How much will go into the credit management information and advice service? How much will go into business links to support credit management? I believe that the Minister, disingenuously, did not mention the Lord Chancellor's review.

Mrs. Roche

indicated dissent.

Mrs. Gillan

I stand corrected; I must have been distracted when the Minister mentioned it. However, we do not know when the review will be forthcoming. We know that the Government hit the ground reviewing last year, but few reviews have come to fruition, except when a review has become a consultation.

The sad thing about the Bill is that, despite the massive cull of prawns to sustain the Government's offensive to convert old Labour into new Labour, the Government still do not understand the essential ingredients of a successful business recipe. As soon as they perceive what they regard as a problem, they want to jump in and legislate. In 1994, rather than the previous Government legislating, their consultation on late payment resulted in British standard 7890, the standard for specifying procedures for good payment priorities and credit management, which business supported. Some of our most successful companies are outsourcing, but the hon. Lady does not seem to understand business relationships as they develop.

Outsourcing builds up mutually beneficial customer-supplier relationships. They depend on long-term arrangements and can result in improvements on both sides. Rather than implementing legislation that interferes with contracts freely entered into by both parties, the Government should encourage that sort of business climate. Where such a relationship does not exist, it is naive to imagine that the development of mutual trust can be fostered by encouraging suppliers to take action against their customers.

The Government have not yet caught up with the need for good industrial relationships. Perhaps I should not be surprised, as some hon. Members will remember how old Labour defeated Barbara Castle when, as Secretary of State for Employment and Productivity, she produced her White Paper "In Place of Strife".

Mr. Clive Betts (Sheffield, Attercliffe)

That is pre-history.

Mrs. Gillan

The hon. Gentleman says that that is pre-history, but "In Place of Strife" was defeated by Labour. Labour seems to believe that industry should thrive on strife. The Bill has the capacity to multiply that strife. Add to that the imposition of trade unions, the minimum wage and the other burdens that I have mentioned which are coming to haunt business, and we see that nothing has really changed.

If the Bill represents new Labour's concept of industrial progress towards international competitiveness as we move towards 2000, it is the Labour party which should be tested to see whether it has caught the millennium bug. That thinking seems to have flipped back to the year 1900.

This is a soundbite Bill. It sounds good, but it lacks real understanding of business. We shall not oppose it on Second Reading because businesses should pay on time, but we shall seek to probe the detail. We shall consider phasing in and thresholds, the large company's use of the statutory rate against other large companies in the public sector, the default credit period and many other matters. I hope that the Minister will look forward to discussing those matters, and I hope that she will keep an open mind on our suggestions.

It is important to scrutinise the Bill carefully. In Committee, we shall need to discover whether Labour's thinking on business has any substance beyond the soundbite. I think not.

5.51 pm

Mr. Richard Page (South-West Hertfordshire)

No one could deny that the Labour party had a splendid election campaign. It was rumoured that it worked on the 60 per cent. principle—if 60 per cent. of the population was in favour of a policy, it adopted it. We could see that that would run into trouble in the fulness of time because the 60 per cent. in one group would not be the 60 per cent. in another.

There is no collusion in this, but I had intended to mention the question of taxation and hospital waiting lists as an example of two policies on a collision course. In my constituency, waiting lists have increased by 28.9 per cent. However, it would be wrong to continue listing the Government's broken promises, so I shall move on to the small business sector.

The Labour party in opposition had a real problem. It was regarded not as the natural friend of the small business man and woman, but as hostile to the small business world. It ran around desperately trying to find a policy that would convince the small business man and woman that it was on their side. It had a difficulty because most of the things were being done. I say that with natural modesty, as is my wont. I have a natural sympathy for the task.

The Labour party came up with two problems for small businesses, both of which I recognise—one was regulation and the other was late payment. The Labour party promised to control regulation and deregulate like no Government had done before. The Minister referred to my right hon. Friend the Member for Henley (Mr. Heseltine), who set up the deregulation unit. In the two years before the election, about 1,000 regulations were merged or abolished.

As a matter of interest, in January I put a parliamentary question to the Minister—no doubt life has moved on since then—and I discovered that between 1 May and the date of the answer, the Department had managed to deregulate three items. I shall pursue the Minister on that matter, just as she pursued me with regard to Departments paying on time.

We all recognise how damaging late payment is for small businesses. It can make or break a business, and in many cases it has broken businesses. We have all had people coming to our surgeries to complain about how late payment has hurt their businesses. All hon. Members will be on the small business man and woman's side, but we must act sensibly and progressively. It is no good uttering honeyed words but not delivering in practice.

All Governments have considered the matter. The highly respectable accountancy firm, Grant Thornton, studied what was happening in the rest of the EU. In 1995, the United Kingdom was paying within 48 days and, in 1996, within 50 days. We were just slightly ahead of Germany, which took a couple of days more than us. I am told that a report by another organisation gives Germany a shorter period. However, it boils down to the fact that among all the countries with a statutory right to interest, we were right in the middle. The Scandinavian countries paid within about 27 days, and in Italy a company that is paid within 90 days holds a street party to celebrate, and life goes on from there.

Given those figures, is the statutory right to interest all that it is cracked up to be, or is it more a matter of national culture? That is what it comes down to. Reference has been made to all the surveys that have taken place, and hon. Members will not be surprised to know that such surveys also took place when I had a degree of responsibility. The result of the first survey was 50:50. Two years later, in another survey, 60 per cent. of organisations contacted were against the measure and about 40 per cent. were for it, but it was not conclusive either way. To sum up, we can do no better than to look to the clearing banks. Two of the clearing banks were against the measure and two were in favour of it, but one of those that was for it said that it would not work, but it might help to change the culture. That is a fair summary of the situation.

The Government commissioned research. The good Professor Wilson of Bradford university—I am sure that the Minister knows all about his work—was brought in. Unsurprisingly, he came forward with the startling news that companies that ran a good credit control department stood more chance of getting their money—a 38 per cent. greater chance. I do not know how he arrived at that figure and I do not intend to defend or explain it.

Taking all that into account, the Labour party, fighting its campaign, produced the statutory right to interest rather like the philosopher's stone—just rub it on a bit of bad debt or late payment and all will be turned to gold. I am rather worried that this is over-selling the situation, and many small business men and women might be rather disappointed at some of the outcomes. My hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) said that the measure might even make the situation worse and, in certain circumstances, it could. I hope to explain that later.

I was grateful to my hon. Friend for her support in making Departments pay on time, an initiative which was endorsed by the then Prime Minister. Some Departments were not up to speed, and my hon. Friend was in there like a terrier. She harried and wrote all sorts of unflattering and unkind parliamentary answers. Nevertheless, the message went out, and those Departments came up to speed. I was glad to see that the Department of Trade and Industry managed to achieve 98.9 per cent. just before the election. That was a substantial move in the right direction, and an example which Governments and agencies should set.

There is a great misconception about what was done. When the good Professor Wilson did his research, he also concluded that small businesses were more likely to be sinners than sinned against. I put out a call saying that any small firm that felt it was not being paid on time by any large organisation should write to us. I had, if I remember rightly, 27 responses, of which only two were genuine late payment cases. One concerned late payment by a Department, which "rolled over" immediately, and a second concerned a major organisation, which did the same. However, the other 25 were complaints and queries about the quality of goods and service. That worries me. The position may be exploited by those who want to avoid paying the statutory interest.

Another thing that we did, which neither of the Ministers has mentioned, was to do away with the iniquitous pay-when-paid regime. We must thank Sir Michael Latham for his work in bringing that about. Some hon. Members may not know of that old system, which is now fading away. It meant that on a construction site, a subcontractor, such as a plasterer who plastered a suite of offices, would not be paid until the main contractor had been paid—and he would be paid only when the architect signed the contract off. Six months ago, a gentleman came to my constituency surgery who had not been paid for more than two years by a London borough because a pay-when-paid regime operated. The borough told me that he would be paid within two or three months. That is clearly unsatisfactory, and a wicked abuse. Everyone can be grateful that it has been done away with.

We also ensured that large companies included not only their payment policy but their payment practice in their annual accounts. It will—I hope—be up to the many small firms organisations to question those companies if they do not keep to that practice. We all know that small firms do not have the resources or facilities to be able to ride over cash flow problems.

Much has been made of the launch of the British standard payment code. It has been endorsed by the CBI, which has its own code. What has not been mentioned is that, if a company signs a British standard code but does not adhere to it, trading standards officers can be called in. Firms can be held to account if they fail to adhere to the code that they have signed.

A great deal has been done to try to help small businesses. What worries me about the statutory right to interest is that it could make the position worse. I have three invoices with me. The first, from Universal, a company which supplies many hon. Members with stationery, has simple payment rules written on it: Except as otherwise agreed with the customer, payment of invoices consolidating separate deliveries shall be due not later than 15 days after the date of the invoice, payment of all other invoices shall be due not later than 30 days after the date of the invoice. The second, for the carriage of horses, says:

Payment is due within 30 days. My third invoice, a vet's bill—I have tried to represent the market as broadly as I can—states:

Payment due within 30 days of invoice". I believe that the Minister's heart is in the right place, but there is a misunderstanding of business practice. Nowadays, most companies run a monthly computer account. At the end of the month, there is a shut-off. If someone supplies goods that come in during the first two days of the month, the goods will be passed upward, the accounts clerk will sign them off, a statement will come in after the supplier's monthly shut-off, and it will be checked against the receiving company's remittance advice before the payment goes off perhaps two weeks into the following month. Immediately, six or seven weeks will elapse before the supplier gets the cheque.

As smart and intelligent people, hon. Members will appreciate that as the month progresses to the 20th, 21st or 22nd, the payment period will drop to about 21 days. However, an item that comes in on the 27th of the month, or the 6th of the following month—perhaps a weekend will intervene—will miss the cut-off. Payment for that item will not be made until perhaps seven or eight weeks later.

If the supplier company says that it wants the statutory right to interest because 30 days are up, the other company will say, "Stop. We want to negotiate, and to negotiate on the longest possible period that we could be caught for." That is quite legitimate; no one is trying to fiddle, or to short-change anyone. Everyone is operating a perfectly legitimate business practice because computers run with a monthly cut-off. The company will say, "Forget 30 days, we had better make it 56, because we do not want to be hit with interest charges."

Mr. Breed

Does the hon. Gentleman accept that, although the Bill offers business men an opportunity to claim interest, they do not have to do so, and are not statutorily required to do so? The instrument is available to business men to encourage payment.

Mr. Page

I appreciate that perfectly, but the teeth to require payment will not be there. Companies will argue, as I have argued, that it may take 56 days to pay. We have the Grant Thornton figures for Europe. We have the statistics of Intrum Justitia, the debt collection organisation, which show a figure of 49 days. I fear that the difficulty for small business will be that the payment period of 56 days—or thereabouts—will become the norm, not the exception. I fear that the 21-day period that currently exists in the middle of the month will start to go out of the window, and that firms will think in terms of two months rather than one.

I feel that the Bill will not be effective in operation. That is one reason why we did not introduce it ourselves. Anything that is done to try to help small businesses should involve looking more closely at the way in which the courts and the small claims system operate to help—or not to help—the small business man and woman. In particular, we should consider bailiffs and sheriffs. Their operation strikes me as highly arbitrary, and I have grave doubts about its effectiveness. Most people who end up in court are "can't pays" rather than "won't pays".

Our hearts are with the Minister, but the brains of those of us who have business experience urge a degree of caution. When the Bill goes into Committee in the fulness of time, I hope that we can produce some ideas that will make it more practical, so that it can really help small businesses.

6.8 pm

Mr. Tony Colman (Putney)

Let me first declare an interest as a director of GLE Development Capital Ltd. I chair that company on a pro bono basis, and it has a factoring and invoice-discounting subsidiary. The Bill is part of a package to help small businesses. I praise the work by factoring, invoicing and discounting businesses to help small businesses to deal with their cash-flow problems.

I was previously the director of the Burton Group. I particularly remember working in the late 1960s, in the early days of Top Shop, the fashion chain, with many small clothing manufacturers, many of whom are international names. It was extremely important, in terms of supporting their development, that they were able to receive seven-day payments. The charge was 5 per cent., but it was extremely important that the clothing manufacturers, the designers, were able to buy the cloth perhaps on a 30-day term, to make up the garments and to receive payment from Top Shop before they had to pay their cloth manufacturers. If we are to support creative industries, it is important that large manufacturers are particularly aware of the need to help start-ups, as occurred at that time.

It is particularly interesting to follow the hon. Member for South-West Hertfordshire (Mr. Page). He may not know it, but I stood for that seat in 1979 before the by-election that brought him to the House. He gave the example of Italy, where there is a very large clothing manufacturing sector, which we know through household names such as Benetton. I assure him that that firm does not operate on 90-day terms. In fact, it largely pays for the cloth, trimmings and materials on time to ensure that its suppliers are able to stay in business and make a good profit out of Benetton. If we are considering the position in Italy, it is extremely important to remember that the successes of its small and medium enterprise sector are very much related to the fact that, in its payment system, the larger companies support the smaller companies.

Mr. Tim Boswell (Daventry)

Nevertheless, does the hon. Gentleman agree that the Intrum Justitia figures show that the actual average payment period in Italy was 87 days, compared with the European Community average of 54 days and the UK average of 49 days? That may suggest that, if some are doing as well as Benetton, there must be others that are not complying with the principle.

Mr. Colman

Obviously, I would not wish to question those figures, but I am trying to point out merely that, in examining why Italy has such a strong small and medium enterprise sector, we find that late payment is not a negative factor there, and that large companies work strongly with small companies to ensure that the small companies are looked after. If the hon. Gentleman visits the area, he will discover that.

I am obviously pleased that there is cross-party support for the Bill. I was a little concerned to hear the hon. Member for Chesham and Amersham (Mrs. Gillan) perhaps being overly critical, but I note that she supports it and so she should: she has a record of supporting such a measure. I was hoping that she would still be on the Front Bench so that we could perhaps again take up the point that, in opposition, she is one of the hon. Members who support the early-day motion that calls for a statutory right of interest.

The residents of Putney who work with and have small firms are extremely concerned that this problem should be dealt with. Business Links in south-west London views this as the major problem in terms of expanding the small-firms sector there.

Mr. Page

The hon. Gentleman touches on an important point, but does he accept that one of the tasks of Business Links is to ensure that those small companies operate a correct credit procedure, that they vet the people for suitability before they give them credit and that they do not get so carried away that someone has had the wit and brain to place an order with them that they automatically give them the goods straight away?

Mr. Colman

Business Links in south-west London certainly does that, and I would hope that it is done throughout the UK. The problem is that larger companies do cheat on those small companies—that is what it is: cheating. After payment terms are agreed, payment is not made within the time that has been agreed. It is extremely important to recognise that we are talking about vulnerable companies.

The hon. Member for Chesham and Amersham talked about contracts that have been freely entered into by both parties. When a large company has a contract with a small company, it cannot be a freely entered into contract. I agree that the small company could choose not to go forward, but, if it refuses, obviously it will not get the business. Contracts are being imposed on it by the larger company.

The hon. Member for Chesham and Amersham pooh-poohed the figures that have been produced in support of the Bill. As a member of the Institute of Directors, I was particularly pleased that my hon. Friend the Minister pointed out that the statutory right to interest was favoured by 69 per cent. of the respondents to the IOD survey. What she did not say was that 78 per cent. of the respondents said that late payment created problems for their businesses, and that 93 per cent. said that it created problems for British business generally, so the Bill has the institute's support.

Earlier today, I was in discussion with the CBI. Its briefing states:

the Bill represents a sensible way to proceed. It is concerned about three items, but, in general, it supports the Bill. One involves the definition of the default credit period. I believe that that is already containable within the Bill. I understand that the matter has been raised in discussions between the Minister and CBI and that it can be dealt with in terms of custom and practice, but she may wish to respond to that in her winding-up speech.

The other two concerns are somewhat surprising. One is that the planned threshold to define small and large firms is too low. The CBI believes that, in the first phase, the threshold should be not 50 employees, but 100 employees in a firm. It is important for the Bill to bed down with the smaller size of company initially—I am getting nods from Opposition Members—rather than including much larger companies in the first phase. Again, the Minister may wish to respond to that.

The last point that was raised by the CBI—I see this as a rather minor proposal; it is important, but it does not in any sense undermine the thrust of the Bill—is that large companies should be able to sue public bodies in the first phase. When I read that, I asked, "Why should they not be able to sue large private bodies as well?" The CBI said, "Oh yes, those too." In my experience—I have moved from the private sector into the public sector—the public sector is a darn sight better at paying on time than the private sector. It is important to recognise that.

In preparation for this speech, I spoke to the director of finance for the London borough of Wandsworth, who said, interestingly, that, as the Bill was coming forward, he would report every quarter to the relevant council committee on how the council was getting on in terms of achieving the 100 per cent. target; in his knowledge, it was close to it. I mention that primarily to demonstrate that the Bill is necessary in terms of changing the climate. People should receive those reports. If companies have to state their policy in their annual reports, they could also show how they are doing and whether they are delivering that policy. Public bodies locally and nationally should do the same.

Companies can have recourse to the local government ombudsman if late payment occurs and local government is involved. There is concern about the fall-back position of a small company that does not want to go through the courts when the private sector is involved. It is important for the House to realise that small firms are at the mercy of large firms. I hope that, if the Bill, is enacted we will, in two years' time, consider whether there should be a commercial debt ombudsman, so that recourse to a neutral body would be available. I am concerned that some small businesses would not want to take court action. They would take action if public bodies paid late, because they would not feel that they would be victimised, but I am concerned about what would happen if the private sector were involved.

The hon. Member for Chesham and Amersham referred to the report in the Financial Times today. I am not surprised that 2 per cent. of the finance directors are not ready to pay within 30 days. They could simply adjust the computer programme to ensure that payments are made.

Mrs. Gillan

The Financial Times article said that fewer than 2 per cent. of finance directors in large businesses fully understand the Bill. If that is so, there must be a process of education, and it will be interesting to see how the Government embark on that process and how much money they are willing to provide to back up the Bill.

Mr. Colman

The public sector leads the way, and I had no problem talking to the director of finance of my local council about the Bill: he knew all about its contents and how to implement them. I am sure that the CBI, which is an excellent organisation—although the hon. Lady may not rate it very highly—is continuing this discussion and ensuring that its members fully understand the provisions of the Bill.

Mr. Page

The hon. Gentleman rather casually referred to 30 days. I have done my best to show that, with computer accounting and monthly cut-offs, the 30 days may have to be increased if the statutory right to interest is to be rigorously applied.

Mr. Colman

I covered that point earlier in my speech, and it was dealt with in the debate in the other place.

Mrs. Gillan

I think that I heard the hon. Gentleman correctly when he said that I did not rate the CBI very highly. I should like to pay tribute to the CBI, which sent me a message containing further remarks on the Bill while I was in the Chamber making my speech. I have a very high regard for the CBI, with which I have a good working relationship. I hope that the hon. Gentleman understands that.

Mr. Colman

I am pleased that the hon. Lady has such a good relationship with the CBI. This morning, when I asked staff at the CBI for a briefing, it had not been prepared. I spoke to them at some length and it was faxed to me. I am pleased that they managed to get it to the hon. Lady this afternoon, and that I was able to help her in that regard.

Mrs. Gillan

I am not sure where the hon. Gentleman is going with his argument. I have been in conversation with the CBI in the past few weeks on this matter. If the hon. Gentleman is trying to imply that I received a last-minute briefing, perhaps he would like to step outside the Chamber and compare the briefing he received with the up-to-date one that I have received within the hour.

Mr. Colman

I have obviously prompted a strong response from the hon. Lady. Like many Conservative Members, she is concerned about the fact that they lost the business vote last year and they have not got it back yet. I see confirmation of that from the Opposition Front Bench.

This is a moral problem: companies that pay late are cheating their suppliers. I do not believe that the Bill is a panacea for all the ills relating to late payment. It is part of a package, and I commend it to the House because it is a major step forward in dealing with this iniquitous problem for small businesses in this country.

6.25 pm

Mr. Brian Cotter (Weston-super-Mare)

I broadly congratulate the Government on this long-overdue legislation. The Liberal Democrats have, for a long time, believed in a statutory right to interest, and we welcome the Bill on behalf of businesses. I run a small business, so I am glad to be part of the statistics in saying that, as a small business person, I approve of the legislation.

The Conservative Government understood to some extent the problems that late payment of debt caused business, but they produced nothing substantial, which is why I welcome the Bill. The business community was offered the option of voluntary measures to aid good business practice. Hon. Members should note that those voluntary measures dismally failed, and that the commercial debt problem has worsened. Why? Because late payment is often intentional, so late payers must be penalised. A stick as well as a carrot is needed to get companies to pay on time: we need both.

Small businesses form the backbone of the United Kingdom and European economies. Small and medium-sized enterprises are not a minority interest, but hold the key to a dynamic, successful and competitive economy in the United Kingdom, in Europe and globally. It is the Government's duty to help SMEs to achieve and succeed in that aim. Improving payment practice will benefit the whole economy.

In the United Kingdom, it has been estimated that about 50 per cent. of all SME bank borrowing by value is used to fund commercial credit. Late payment is a huge impediment to competitiveness, and threatens the very survival of many firms, particularly small businesses.

The Liberal Democrats have long realised that late payment is a millstone around the necks of many businesses. It has a crippling effect on SMEs, which are dependent on tight budgeting in order to realise investment projects and consolidate their markets. Denying SMEs ready access to capital has brought many companies to the brink of collapse, if not to actual collapse. It has prevented a large number of promising small firms from realising their economic potential. Our aim should be to create a business environment in which potential can thrive and prosper. The Bill will help in that respect.

This legislation, in itself, will not solve the late payment problem. Other complementary measures need to be taken through trade organisations and appropriate bodies to ensure that small firms in particular promptly render invoices in a correct form and get paid promptly. If they do not promptly render their invoices, they often lose time.

In 1978, the Law Commission recommended statutory rights to interest, and, ever since, the campaign for such rights has received overwhelming support from all sectors of business and from business organisations. As a small business man, I have also supported it.

As the hon. Member for Putney (Mr. Colman) said, 78 per cent. of respondents to a recent Institute of Directors' survey said that late payment created a problem. Moreover, 93 per cent. of respondents said that late payment created a problem for British business generally. Those percentages are obviously very high.

Only this morning, I was at a meeting of the Institute of Management, where I was told that 75 per cent. of the institute's managers support the Bill.

Another survey published last summer showed that late payment is threatening the survival of one in four firms employing up to 50 staff and costs millions in reduced profitability for almost 75 per cent. of those businesses.

The Forum of Private Business—which has been recognised as an ardent campaigner for a statutory right to interest—has already been mentioned in the debate. The forum frequently conducts in-depth research, which has shown that late payment of bills imposes significant costs on both individual businesses and the overall economy. The forum estimates that the average cost of late payment to a business with a £500,000 annual turnover could be as much as £10,000.

Mr. Page

Can the hon. Gentleman tell us whether the forum has calculated how much such a company has saved by not paying its bills on time?

Mr. Cotter

As I said, we all agree that all companies have to pay on time. Moreover, small businesses' problems in meeting their bills often arise because they are not paid on time by large businesses. We must be realistic about small businesses' difficulties. The Bill is very important for small businesses, which are sometimes restrained in paying by large businesses.

Evidence from Europe suggests that effective legislation could reduce the average cost of late payment to £1,000, thereby saving such businesses £9,000. The Bill's opponents should at least bear in mind those facts and figures, and realise that their opposition rides against much information contradicting their opposition.

Late payment has a domino effect on business, and, undoubtedly, the worst offenders are large companies. A Dun and Bradstreet survey revealed that, as recently as October 1997, fewer than 10 per cent. of large businesses pay their bills on time.

Mr. Page

I am sorry to keep interrupting the hon. Gentleman's speech, but—as this debate has been coloured by people making grand statements—what does "being paid on time" mean? Is it within 30 days, or perhaps within a computer programme's monthly cut-off date? What does it mean? Are companies really as bad as is suggested by that percentage?

Mr. Cotter

The Dun and Bradstreet survey stated that only about 6.6 per cent. of companies paid within the agreed terms—which is what we are debating.

Potential complications have been mentioned, and I agree that there will be difficulties after the Bill is passed. However, over time, some practices in businesses and industry—we all know, for example, about those two or three days at the end of the month—will have to be dealt with. I believe that the problems can be solved.

Late payment is a vicious circle. Most small firms believe that their large business debtors often pay late to gain. We have heard in the debate of examples of such practice. One company that was mentioned earlier certainly used the practice, which is very bad news, to expand its bank balance.

For all those reasons, the Liberal Democrats support the legislation. Nevertheless, our support for the Bill does not mean that we are uncritical of it. I urge the Government to reconsider some aspects of it, so that it will operate more effectively and there will be no casualties along the way.

The first aspect that Ministers should reconsider is the phasing-in periods. The Bill will allow government at all levels to escape from its provisions until the later phases. Although we have already debated the matter today, I should like to propose that, in the first phase, businesses of all sizes should have the right to charge interest on outstanding bills owed by government. Moreover, the Government should be prepared to set an example in the matter.

The Minister will recall that, on 5 March 1998, I asked her:

Does she agree that, often, both local and national government are very bad at paying? I hope that she shares my view that the Government should give a lead in that direction. She replied:

I absolutely agree … That is why I intend to provide in the summer a league table of Government Departments, and I have taken the opportunity this week to remind local authorities of their obligations as well."—[Official Report, 5 March 1998; Vol. 307, c. 1178.] I ask the Minister only to dwell on that point—which she accepted when I asked my question—and to consider whether there is really any reason why government should not be covered by the legislation's provisions in the first phase. Only today, a colleague told me that he is very concerned that, because of financial strictures, local government is using late payment of debt to increase the amount of money that it has to hand. I ask the Minister urgently to consider that practice.

The question remains: why is government being exempted from the provisions in the early stages? I welcome the fact that the Minister has promised a league table, and reiterated that promise today. I hope that the table will be considered as an annual commitment, by which the Government may demonstrate how they are improving the payments record.

It is extremely important that quoted businesses also should have to declare their payment record in their annual accounts. I am sure that the Bill's passage will ensure that such declarations are made.

Earlier in the debate, the crowing of the right hon. Member for Henley (Mr. Heseltine) of his ability to delay payment was both mentioned and robustly defended. I do not think that the point was made clearly that he was talking about his own practice and not about the general practice of business. I was a member of the public when the comment was made, and thought that, coming from a Minister, it read very badly indeed. It was not a good example.

The hon. Member for Chesham and Amersham (Mrs. Gillan) has been very keen to promote statistics and to ask for apologies. I remind her of the fact—which she has not dealt with terribly well—that she signed early-day motion 912 1993/94, which stated that

the only effective solution to the problem of late payment of business debts is the implementation of a statutory right to interest". As we are debating statistics, I should say that that motion was signed by 328 hon. Members—representing a very large part of the House's then membership, and showing the strength of support for the motion, even among Conservative Members. The hon. Lady's support for the motion should be mentioned again, as she did not feel that she needed to apologise.

Mrs. Gillan

As that matter was mentioned three times earlier in the debate, I think that—by mentioning it yet again—the hon. Gentleman can be accused of boring repetition. Time moves on. When I signed that early-day motion, that was how I thought. However, I examined the problem in more depth, and I examined the Government's action on the matter. I no longer hold that view, although I will approve of any provisions in the Bill that will improve the culture of late payment. Nevertheless, I believe that the Bill is a piece of legislation too far, and that the hon. Gentleman is boring the House to death.

Mr. Cotter

People often say that when they are not very happy. Although time has moved on, improvement in paying debt has not moved on. We are debating a Bill containing provisions that the hon. Lady strongly supported. Moreover, we are debating the Bill's other provisions, which will deal with the problem even more strongly than the early-day motion suggested.

The Government think that a four-year phasing-in period is necessary to enable small firms to adjust effectively to the legislation. However, that argument has no bearing on the ability of large firms immediately to charge other large firms. The hon. Member for Putney mentioned large firms' ability immediately to incorporate the legislation. We could at least consider, in the first phasing-in period, allowing large firms to charge against large firms.

The Bill contains a definition of a small business—which was identified in the other place as a matter of some concern. A small firm is defined as one that employs no more than 50 persons, which implies that a large business is one that employs more than 50 persons. That seems ludicrous when one considers that there may be only one or two people on the payroll and that payrolls can vary. We must be concerned about that issue and consider whether we should have a different definition of a small business. There are many definitions; the European Community uses a different definition from the one used in this country.

I turn now to the problems, to which other hon. Members have referred, that debtors face when they are taken to court. The small claims courts need to be responsive to the Bill if it is to be effective. At present, the system is very ineffective for several reasons. A survey in a recent CBI brief pointed out that

larger firms were more likely to have used the courts than smaller firms. The courts system should be accessible, regardless of business size. The courts need more teeth, and judges could do more to encourage defendants to pay up.

Even if a claimant is prepared to go to all the initial effort and expense of taking a debtor to court, the effort and expense do not end there. The majority of those who win their claim experience extreme difficulty in receiving their payment because the responsibility lies with them, not the court. The claimant has to pay a further fee to make the court try to enforce the judgment. That makes a mockery of the whole system, especially as the powers of the bailiff are very limited, and companies end up throwing good money after bad.

As hon. Members will know, the Lord Chancellor is reviewing proposals, which were referred to earlier, for the reform of the civil justice system, with a view to reducing delay and costs. That is welcome because court access and the enforcement of judgments are vital to the Bill. I urge the Government to ensure that future legislation on the matter will tie in neatly with the Bill, so that it is worth pursuing a debtor through the courts system. The system must be simple, quick, accessible and effective.

I have been assured that there should be no problems regarding the Bill's compatibility with European legislation. However, we need a cast-iron guarantee from the Government that the Bill will be compatible with the European directive that is being formulated on this issue.

Of course, as other hon. Members have said, the Bill will not solve the problem of late payment. It is a cultural problem which requires more than legislation to solve it. There should be published lists of known, regular late payers. The Government seem keen to implement that proposal, which is welcome. If a business appeared on such a register, its credit rating could be affected, which might induce prompt payment. The hon. Member for Putney referred to the possibility of having an ombudsman to support such a requirement. That is a proposal, which I had not thought of, that we might consider.

Small firms need greatly to improve debt collection and the general running of their financial affairs. Many companies have no systems in place and operate ad hoc. They do not make proper credit checks; delays and errors in invoicing are common; and they do not promptly pursue debtors. Late payment is viewed as a burden, but often as inevitable, so businesses should be educated to realise that that need not be the case. Businesses need to be made aware that it is no good their taking on work if they are unlikely to be paid for it within a sensible time.

Improved credit management procedures are needed so that the late payment culture dies. Credit checks on potential new customers, credit limits, clearly defined payment terms, account monitoring and prompt action on debtors are some of the many ways in which businesses can improve their financial operation.

The 1996 Grant Thornton document on good payment practice states:

A sale is not a sale until it has been paid for. Businesses should bear that motto in mind, and business links should make credit management an absolute priority when advising small firms.

The Government have broad support from Liberal Democrat Members. I have outlined a few concerns, which I hope the Minister will address, and I look forward to her reply.

6.44 pm

Mr. Eric Forth (Bromley and Chislehurst)

My only claim to any background or expertise in this matter is that I was a buyer and a credit controller. That was some time ago, but the principles remain substantially the same as when I grappled with them in the private sector before I became a politician.

What bothers me about the Bill is that, like so many Bills being considered by the House, there is more than a smack of a quick fix and easy solution about it. I completely absolve the Minister from that accusation, because she said that the Bill was no panacea. I am more concerned for those business men who, as has been claimed repeatedly throughout the debate, are asked in surveys, "Wouldn't you like interest to be payable on late payments?" and reply, "Yes, please. That sounds like a very good idea." They would say that, wouldn't they? Most business men do not stop carefully to ponder the contents or implications of surveys. They read them and reply, "Yes, I like the sound of that." That is perfectly understandable.

It is surely our job to study the proposals and consider whether they are likely to benefit the business community. In that regard, I am always puzzled by the suggestion—particularly if it is alleged to have emanated from the business community—that the law will be helpful. The Conservative party and the Labour party have recently fallen over each other, claiming to be the party of deregulation; yet, time and again, against that claimed background, measures such as the Bill are put before the House. They are clearly regulatory and are always justified as a special case or part of the general scheme. The words must follow the action or the action the words. We cannot get away for much longer with claiming repeatedly to be the party of deregulation while putting our names to measures such as this.

The key to the matter is the relationship that exists in a trading context between large and small businesses. The suggestion that all or most small businesses are virtuous in that regard and pay their bills on time, and that it is only the large businesses that do not, does not reflect my business experience. Perhaps events have moved on since then and most or all small and medium firms are paragons of virtue in that regard. I wonder how many of them have considered that they, like larger companies, could get caught by the Bill. That is a matter for their judgment.

Mr. Breed

Does the right hon. Gentleman accept that many small businesses are unable to pay their bills because they have been unable to collect money owed to them? That is a cash flow problem: the fact that many businesses will not pay results in many that cannot pay.

Mr. Forth

I fully accept the hon. Gentleman's point.

Reference has repeatedly been made, not least by my hon. Friend the Member for South-West Hertfordshire (Mr. Page), to a change in culture. The assumption in the debate and underlying the legislation has been that the Bill will bring about a change in culture that we all desire and would approve of—businesses paying more promptly.

My fear is that the Bill will have precisely the opposite effect. There is at least a possibility, perhaps even a probability, that, as a result of the Bill, large firms will seek to change the terms of trade that hitherto have been normal in British business—net 30 days. They will argue that, if they are forced to pay interest on late payments, they will unilaterally change the terms of trade to net 60 days or net 90 days.

Mrs. Roche

When the right hon. Gentleman reads the Bill carefully, he will realise that we have thought of that important point, which is why we have said that terms in a contract that amount to a de facto contracting out of the provisions of the Bill will be void.

Mr. Forth

If that is so, I am even more worried about the Bill than I was. If the Minister is saying that she is seeking, by legislation, directly to intervene in freely negotiated terms between businesses in the private sector, the Bill goes much further than I had imagined. That is more than a step too far; it is a gross intervention in what has hitherto been regarded as very much the preserve of private business in the private sector to negotiate terms freely with one another.

Mrs. Roche

I am sure that the right hon. Gentleman is aware—I know that he has had an interest in these matters—that Acts of Parliament such as the Unfair Contract Terms Act 1977 have a role to play in contracts. The Bill is certainly not new against that legal background.

Mr. Forth

That is a different point altogether. When the Minister replies, I hope that she will reassure not just the House but the entire private sector that it is not the Government's intention to intervene in terms of trade freely negotiated between commercial businesses and commercial partners. If that is the Government's intention, the Bill is much more iniquitous than even I had imagined.

Mr. Boswell

Does my right hon. Friend agree that, if the Minister is right in saying that a typical net 30 days contract between a large purchaser and a small supplier would be struck down if the terms were changed to, say, 45 days, the likely recourse of the larger firm as the purchaser would be to find a fresh supplier on 45-day terms, cutting out the original supplier's business altogether?

Mr. Forth

Indeed; I am grateful to my hon. Friend. That is the result of the process that I was describing. Depending on the extent to which either the legislation or the Government seek directly to intervene in commercial relationships between companies, the change of culture which has been referred to could be adverse—not favourable or helpful. I hope that we would all wish to ponder on that at some length before approving the Bill.

Another element in the process is an old friend which is referred to in the explanatory memorandum as the supplier performing the obligation—by which I assume is meant meeting the requirements of the contract. Anyone who has been in business, even for a short time, will know that one of the most difficult matters in this regard is agreeing that the quantity delivered is that ordered and that the quality or specification is that required. Everybody will also know that, the more one seeks to intervene in the terms of trade or the mode of operation of companies, the more one drives companies down the route of using queries on delivery about quantity, quality or specification as a means of delaying payment, either legitimately or not. My hon. Friend the Member for Lichfield (Mr. Fabricant) referred to that point in an intervention, and I am sure that he will want to elaborate on it. It is an important point.

I am simply trying to illustrate that legislation of this kind—no matter how well intentioned or well supported in endless surveys of people who are asked whether they would like life to be better and easier and whether legislation could help that—can achieve the opposite effect of that intended. The Bill is a prime case in point. If my hon. Friends had sought to divide the House—perhaps they still will, if the Minister does not reply adequately—I should have been very happy to oppose the Bill for the reasons that I have given. We shall want at the very least to look in great detail in Committee at the possible effects that I have described—there may be many more—before we give the Bill our support.

6.53 pm

Mr. Richard Ottaway (Croydon, South)

First, may I apologise to the Minister for missing the first few minutes of her speech? I confess that I thought that the Magistrates' Courts (Procedure) Bill would take up more than 13 minutes of the time of the House. I was caught short, as they say.

I rise briefly as the hon. Member who, in 1986, introduced the Right to Interest Bill, the private Member's Bill which the House approved. Hon. Members may be interested to know that among those who sponsored the Bill were such moderate politicians as my hon. Friends the Members for Teignbridge (Mr. Nicholls) and for Sevenoaks (Mr. Fallon) and Mr. Michael Forsyth, whose presence in the House we very much miss.

The history of the Bill is quite interesting. The proposal was first considered by the Government under my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath), who asked the Law Commission to look at the matter. It decided that a statutory right to interest was right and appropriate. During the 1980s, the Government were very interested in the matter and undertook to introduce a Bill if the Confederation of British Industry and the Institute of Directors supported it. There was a time when the CBI supported the proposal, but the IOD did not. Then the IOD supported it, but the CBI did not. Both never supported it at the same time, which is why the matter never came to a head in the mid-1980s.

After the energetic campaign by the Forum of Private Business, a Bill was mooted in the 1994 Budget. The then President of the Board of Trade, my right hon. Friend the Member for Henley (Mr. Heseltine), was invited, when I was his parliamentary private secretary, to look at the issue by the then Chancellor. We were faced with two piles of submissions: one for a Bill and the other against it. There was, of course, no way in which we could proceed on such division, so there the matter lay.

There is no argument that there is a problem of late payment of debt: the theme unites all speeches in the debate. The problem lies with the chain. For a large construction project, there will be a main contract, a subcontract and a sub-subcontract. Smaller contractors at the base of the pyramid are without contracts and, therefore, do not have any protection from late payment of debt. The only way in which such subcontractors can obtain interest is to issue a writ with the invoice. That, of course, is no way in which to conduct business. Indeed, if subcontractors tried that, they would not get any more business.

Some would say that parties are free to negotiate terms and that they live by the sword and die by the sword, but it is not that easy if one is the small man at the end of the chain who wants business. If such people are asked whether they want the work or not, and are told, "Get out there with your camera and take photographs of that building," it is not easy for them to say that they want a contract, which includes a right of interest, before they leave their office. It just does not work that way. When someone writes on an invoice "Payment within 30 days", it is not binding. It is not a term of the contract; the parties did not mutually agree it.

Many figures and surveys have been referred to in the debate. That is where I share the views of my hon. Friends on the Front Bench. In truth, I have no idea whatever whether the Bill will work and whether it will achieve the results that we hope it might. What makes the Bill worth while is that it will probably result in a change of climate of opinion on the late payment of debt. I do not envisage a flood of litigants going to court when the Bill becomes law. The Bill will make a difference in the way in which people talk to each other and negotiate. It is for that reason that my hon. Friends on the Front Bench are right not to oppose the Bill, which I wish well.

6.58 pm

Mr. Michael Fabricant (Lichfield)

The hon. Member for Putney (Mr. Colman) said that the Bill would protect small firms that are at the mercy of large firms. I broadly welcome the Bill, but if its objective is to protect small firms from the strictures of larger firms, it will not achieve it—other than, as my hon. Friend the Member for Croydon, South (Mr. Ottaway) said, by changing the climate of opinion.

Before I entered the House of Commons, I ran a company in what might be called nowadays a sunrise industry. It manufactured electronic equipment for broadcasting companies. Originally, our plan was to build small independent radio stations in the United Kingdom, but, after 10 years, we had expanded and set up radio stations in some 48 countries. Therefore, I have experience of how, in a niche market, a small company trades in its early years and of how it can grow into a reasonably sized company. One thing above all told me that the company would survive in its early days—not its profitability, but its short-term cash flow.

I broadly welcome the Bill, but I believe that it is flawed. I come from the libertarian wing of the Conservative party and usually share the views of my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth), but I disagree with him in this instance, as I do not think that the Bill goes far enough. Interestingly, the Bill is flawed from whichever way one considers it, regardless of whether, like my right hon. Friend, one believes that it goes too far, or whether, like me, one believes that it does not go far enough. There is agreement that it will not achieve what was intended.

I believe the problem is one of culture—how companies behave to one another in the United Kingdom. Far be it from me to introduce the subject of the European Union, but it is interesting to note that there are differences in culture in Europe on how bills are met. The Nordic countries, including Norway, Finland, Sweden, Denmark, Germany, Austria, the Netherlands and the United Kingdom—or what the French would call the Anglo-Saxon countries—pay their bills more or less on time. Further down the list are Ireland, France, Belgium, Spain, Italy and Portugal, with Greece at the bottom—those countries are the worst at paying their bills. There is a cultural gap between the Nordic, Anglo-Saxon countries and the Club Med countries.

Mr. Boswell

Has my hon. Friend noticed the correlation between the propensity of a country to pay bills on time and the level of public debt incurred by its Government in the context of the Maastricht criteria?

Mr. Fabricant

My hon. Friend entices me to go where I had not intended to go—so as not to be out of order, I shall be brief in response.

The Prime Minister said this afternoon that there had been no fudge over the euro, but Helmut Kohl has stated that Belgium and Italy have the worst public debt and should not enter the single currency. It is interesting to note that Belgium and Italy come near the bottom of the list of payment records internally and overseas. Payment is a cultural and educational issue—if the Bill has any effect, it will be to educate people on the importance of paying bills on time.

Small companies in sunrise businesses need protection. I recall that, when my company was very small, we supplied equipment to firms such as GEC and the BBC. The irony is that Radio Uganda was the most prompt in paying bills, which gives a new slant to the phrase Ugandan relations—my Ugandan relations were very good, as Radio Uganda paid its bills within eight days, whereas the BBC paid its bills over 120 days. If it had not been for the contracts that my company had in east and southern Africa, we should not have been in business for long.

It would be no bad thing if the Bill encouraged larger corporations such as GEC to pay up on time. The problem is, as I said, that it does not go far enough. Its main strength lies in clause 8, despite which, as the House of Commons Library report said:

It will still remain for any business to decide whether it wishes to exercise the right to statutory interest or not, but this decision will be voluntary not coerced. The implication is that, once again, large firms will say to small firms, "If you want the contract, you will not exercise your right under the Bill to impose interest charges if payments are not made on time."

When the Bill is enacted—which, sadly, given the Government's parliamentary majority, it surely will be—nothing will change except, perhaps, the climate of opinion. I give the Minister the benefit of the doubt, as a change in the climate of opinion would be no bad thing in the longer term, and I give the Bill full marks for trying and for good intentions. However, I suspect that, in terms of achievement, it will be more soundbite than sound money.

7.5 pm

Mr. Tim Boswell (Daventry)

There are occasions in the House when it is not entirely necessary to be curmudgeonly, and I do not intend to be so now, either by speaking at great length in a debate that has rehearsed the principles thoroughly, or by advising my hon. Friends—unless they are so disposed—to oppose Second Reading. That, of course, will be to some extent contingent on the Minister's reply, but we are doing our best for her.

Our position of what may be called sceptical acquiescence in the Bill arises from the fact that we are very anxious not to send a signal to the business community that could be interpreted, even inaccurately, as saying that we are in favour of a late-payment culture. We are not in favour of such a culture; we deprecate it as much as the Minister does. My late father, a business man from whom I learned many things on how to conduct my own business, was firm in insisting that bills be paid on time. There may be some who find it difficult, physically or because of the bank, to pay bills on time, but it was always my father's practice to do so, as I am sure it is of hon. Members who have business experience.

I shall sketch one or two general points before I comment on individual contributions to the debate. As almost all hon. Members said, the Bill is no panacea—I notice that the Minister is nodding in agreement. We need not go round the course again on who said what to whom, or who has changed his or her mind on a particular occasion. As the Minister said, almost 60 per cent. of lobby groups representing smaller businesses are opposed to a statutory right to interest—there is clearly a difference of opinion in the business sector. I do not say that opinions do not change over time. I am sure that business and trade organisations approximate themselves to the way in which the wind is blowing as developments occur—as, indeed, they have done to some extent on the national minimum wage proposals. None the less, the Bill is neither a universal panacea nor universally wanted by the business sector.

Another general point, which has been implicit in many of the contributions to the debate, is that the problem that businesses identify in the conduct of their business concerns not interest on late payments but late payment itself. Businesses do not want payment to be delayed. There is no question that large, or public sector, customers will not be good for the money sooner or later, but there is irritation when a large and sophisticated organisation cannot pay. In the case of small customers, however, there is a genuine worry about whether the money will be paid at all—that is probably the major concern of many small businesses, which typically deal with other small businesses.

If the problem is late payment, the provision of statutory interest cannot be a sufficient solution; it may alleviate matters or soften the blow, and it might even help with the cash, albeit rather late in the day, but it does not solve the problem of a late payment culture.

The choreography of the debate has been interesting. The Minister, commendable as she is, has been on her own throughout. Her four ministerial colleagues in the Commons have not even looked in to see her. She has been supported by one Labour Back Bencher, and broadly supported by one Liberal Democrat Member.

My hon. Friend the Member for Chesham and Amersham (Mrs. Gillan), by contrast, was supported by both shadow Ministers, as well as others who have looked in on parts of our debate, and four of my Back-Bench colleagues have made weighty contributions. That suggests that, in the "speak your weight to small business" campaign, there may be a certain imbalance between the parties; that will be noted elsewhere.

I do not mean in any way to criticise the hon. Member for Putney (Mr. Colman), who has had a distinguished, in-depth business career over a long period and spoke interestingly. Predictably—I do not blame him—he supported the Bill. I am pleased that he was in favour of a prompt payment culture. He mentioned factoring, which is an important part of modern business practice—the son of one of my cousins is a distinguished factor—and, in some interesting remarks about the balance of advantage in the Bill, he conceded that there was no panacea.

Mr. Fabricant

I recognise the valuable work that factoring does in assisting the cash flow of small businesses, but does my hon. Friend accept that sometimes factoring companies can be heavy-handed when small businesses are the ones who owe the money? Sometimes they can be so heavy-handed as to drive into bankruptcy small businesses that could have become large businesses.

Mr. Boswell

My hon. Friend points up the dilemma precisely.

The hon. Member for Weston-super-Mare (Mr. Cotter) did not deal with matters in precise chronological order. He produced some slightly unconvincing evidence in support of the Bill and developed his criticisms of it at some length.

I speak from the relative safety of possibly not being involved with the Bill in Committee. I may be anticipating, or even sending a message to the Committee of Selection. The Minister knows how much I enjoy Committee work, but it is not possible to split oneself in two and make two speeches simultaneously. That said, I have never come across a Bill that was more requiring of attention in Committee. Hon. Members' concerns need to be properly discussed.

The Minister will have noticed some variation in emphasis and enthusiasm for the Bill among Conservative Members. My hon. Friend the Member for South-West Hertfordshire (Mr. Page), in a distinguished and fluent contribution, explained the problems and clearly expressed some reservations that I share, when he warned the Government about overselling the measure. He said that it should not be regarded as a philosopher's stone that would automatically remove all business problems, or even the problem of late payment.

My hon. Friend spoke interestingly about measures taken during his stewardship of these matters to stimulate the private sector to improve its own business practice, and also mentioned the record of improving the Government sector. I remember, from my own time as a Minister, that there was a need for improvement. We began to change the culture, and not before time.

The House should consider the current Government's record on compensation for confiscated firearms. We debated the matter early in the Government's life, and pointed out to the Minister of State, Home Office, the hon. Member for Cardiff, South and Penarth (Mr. Michael) that the Prime Minister, when in opposition, had committed Departments broadly to payment within 30 days, but that, even in straightforward cases, there had been a delay of up to six months. That is not good enough, and I hope that it will never happen again.

My right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) said that, if asked whether they would like to get interest on money owed to them, small businesses "would say that, wouldn't they?" I have been in business, and I would love to have had that interest, which would possibly even have helped once or twice. As ever, these matters are not simple and there may be a price to pay.

My right hon. Friend rightly asked whether there were limits to the cases in which intervention could deliver the commitments now made by all political parties to deregulation, and went on to say that intervention in contract law could pose as many problems as it sought to solve.

My hon. Friend the Member for Croydon, South (Mr. Ottaway) and, in his own distinctive way, my hon. Friend the Member for Lichfield (Mr. Fabricant) were perhaps warmer towards the concept of the Bill. The former identified some of the real concerns about late payment, and the latter wondered whether the Bill went far enough. His contribution was very entertaining.

Conservative Members have some controlled scepticism about whether the Bill will materially redress the problem, which we clearly recognise, without causing problems of its own. We are not rubbishing the Bill and will allow it to go to Committee, but we want it to be carefully scrutinised there, so that the problems can be further exposed. There must be a proper process of public education about how the legislation is to work. If it is to work properly—and we wish it well in that sense—it must be understood by the business sector.

The more I have listened to the debate—and especially to the contribution of my right hon. Friend the Member for Bromley and Chislehurst—the more I have realised that the Bill amounts to an intrusion into contract law. The Minister regards the Bill as very much in the interests of fairness and as building on the Unfair Contract Terms Act 1977, but it goes much wider than that.

It seems to me that the impact will be rather contingent. It is not clear to me—I am not a lawyer, and the Minister is—whether it is seriously intended that attempts will be made to attack contracts made between parties other than the original supplier and customer, if the customer switches to another supplier. The only possible way in which one could go down that road would be by specifying national contract terms and having a single model contract. I am not sure whether the Minister wants to do that, but if she follows her own logic she may be driven that way.

A point embedded in the interesting exchange that I had with my hon. Friend the Member for Lichfield was that, while the Minister wants to sell the Bill as a pro-business measure—and one which, by inference, will soften the blow of some of the nasty things that we believe her Department is hatching for business—to help one business by giving it a statutory right to interest is ipso facto to damage another business, which will not be very happy. It is a business-business conflict of interest, rather than a business-labour conflict of interest.

In seeking to replace the normal commercial practices between broadly consenting, if not entirely happy, parties to an arrangement, the Government may create a differential response. The evidence I have seen suggests that perhaps only half of creditors with a right to statutory interest will press for it, while half will not. That, in' turn, creates another anomaly. I remind the House that there is nothing to stop the parties agreeing on a contract right to interest at the moment. They can write that in.

Mrs. Roche

indicated assent.

Mr. Boswell

I see that the Minister agrees. It is not clear what defect is to be remedied which would not otherwise be remedied. If there is a problem in enforcement, it is probably a problem of relative size or of market influence, rather than one that would be brokered by some magic change in the law as proposed by the Minister.

A question that worries me is whether the defects culture will come into the consideration of debts. It would be easy for a firm to say that it did not like what it had received or that the building was unsatisfactory, and that it would not pay until the matter was settled. That may well shift the burden towards yet more litigation on whether or not contracts have been adequately discharged. The Committee must consider whether that chimes in with the statutory right of interest, or whether these matters can be held in the same legislation.

The question of contracts not expressed in sterling bothers me. There is reference in the Bill to overseas contracts under foreign law, but I noted that, yesterday, the President of the Board of Trade was effectively writing virtually a blank cheque for the introduction of the euro as a secondary, supplementary or parallel currency in the UK. I presume that contracts made under English law and expressed in euros between two consenting parties will be testable in the English courts.

If that is so—if there is a single interest rate which is characteristic of the euro and the new European central bank throughout euroland, and those countries that use the euro as a subsidiary currency—it is likely that that single interest rate will diverge from the rate generally applicable on sterling debt. if that is the case, there is a possibility that there may need to be a second rate for the euro. If so, I wonder how that would be expressed, and whether parties might wish to convert from one to the other at various times. Those matters should be considered by the House, particularly given the DTI's enthusiasm for Europe.

If one asks small businesses whether they would like interest on late payment of debts, they are likely to say that they would. As so often with what this Government propose, it looks like a good idea at the time, it is easy to say, it sounds good and it is a simple political trick. However, the devil—and the problems for other businesses—will be in the detail. It is right that the detail should be tested thoroughly in Committee.

We have good will towards the business community, and we hope that the problems—some of which we have outlined tonight—do not transpire. To prevent them from doing so, it is essential that we do not collapse into a warm bath of bonhomie without at least considering that there may be problems, some of which I hope that the Minister can respond to tonight. It is on that basis—and on that basis only—that we do not oppose the Bill this evening.

7.23 pm

Mrs. Roche

With the leave of the House, Mr. Deputy Speaker, I shall reply. This has been an interesting debate on an issue of importance to British business—particularly small business. I have listened carefully to the debate, in which a number of issues have been aired; I have agreed with some and disagreed with others, but I can assure the House that I will reflect on the debate when we go to Committee.

First, I wish to deal with the speech by the hon. Member for Chesham and Amersham (Mrs. Gillan), who referred to burdens on business. The Bill is hardly a burden. It provides a right, not a regulation. We received no response to the Green Paper saying that the Bill would be a burden on business. The only burden is that of late payment itself, which the Bill seeks to address.

The hon. Lady referred to taxation and the Budget. The last Budget was excellent for small businesses and has been welcomed by small firms' organisations. She asked how much has been spent on the best payment practice group. The Government measure success by what is done and we are pursuing a package of measures. It is sad that the Opposition cannot bring themselves to recognise that. Money is available to bring our objectives to fruition and that is being provided from existing budgets. The hon. Lady mentioned EU comparisons, and I referred to that in my speech.

The hon. Member for South-West Hertfordshire (Mr. Page) made the valuable point that we face a problem of culture. He is right, and that, in part, is what the Bill seeks to address. We are seeking to reinforce a culture change—a point made by the hon. Member for Lichfield (Mr. Fabricant), who has some experience of this matter. I was interested to hear his remarks about the sunrise industries, which are so important to the economic future of this country. The hon. Member for Weston-super-Mare (Mr. Cotter), who comes from a small business background, also referred to the payment culture. The Bill can succeed only in parallel with our other measures, which I have outlined.

Reference was made to the Lord Chancellor's review, which is up and running. It is a vast task, and measures to expedite judgments are expected to be in place by spring next year. I know that the Lord Chancellor will also review enforcement procedures over a longer time scale. That is excellent news for small businesses and is another measure aimed to improve the payment culture.

The hon. Member for Chesham and Amersham and I had a discussion about late payment by Government Departments. She will be interested to recall that when she was Under-Secretary of State at the Department of Education and Employment in 1995, only 75 per cent. of bills were paid on time. I am sure that she would want to reflect on that.

Mrs. Gillan

The Minister will be aware that over the time I was a junior Minister at the Department of Education and Employment—as is clear from Hansard—that payment record improved dramatically to more than 92 per cent.

Mrs. Roche

I am afraid that it had a long way to go. I gave the hon. Lady the opportunity to apologise to small businesses, but she failed to do so. I want to be fair to the hon. Lady, although I was slightly puzzled by her speech. She started by saying that the Bill was almost the road to hell, but then said that she would not divide the House on it. I want to be fair to her. I know the problems that she has. It is reported that she told a freelance reporter who told the Federation of Small Businesses which told The Sunday Times that the last Government had lost the small business vote, and that we would be seeing no new policies in this area from her. Clearly, that was her attitude today.

We heard an interesting speech from the hon. Member for South-West Hertfordshire, whom I thank for his kind remarks about the part that we both played in Government Departments. I know that the figure has increased for the DTI. It is not the figure that the hon. Gentleman quoted; from memory, I think that it is about 97.5 per cent. I recognise the contribution that he made in that respect. He raised the important matter of net monthly accounting as an example of the legislation in practice. The Bill will allow that to continue instead of having the default period of 30 days, where it exists in the normal course of dealings between the parties. I refer the hon. Gentleman to clause 16(2). It is always better to agree a date for payment expressly within the contract. The point that the hon. Gentleman made about small businesses is not one with which I necessarily agree. It is important that all businesses pay on time. We want to give small businesses time to develop the necessary systems for timely payment, which is why we propose phasing in that case.

The comments by my hon. Friend the Member for Putney (Mr. Colman) reflected his years of business experience, mainly in dealing with big business. He rightly referred to the importance of good supply chains. Where businesses have succeeded, they have invested enormous time and effort in their supply chains, not only because it is the right and ethical thing to do, but out of enlightened self-interest—it is in their own interest to have good suppliers. My hon. Friend also referred to phasing and the default period, on which we have been holding discussions.

The hon. Member for Weston-super-Mare talked about the definition of a small business, and I understand his point, but it is difficult exactly to define a small business. There are several definitions, for example, in company law and according to the European Union. We have tried to pick on a definition that is workable and is readily understood within the business world.

The hon. Gentleman mentioned phasing: we consulted on the phasing proposals, and 80 per cent. of respondents supported phasing, with about 85 per cent. of those supporting our proposals. It is important that we give the proposals time to bed in, but we shall keep an open mind on the question of the timetable and be responsive to representations from business. He also mentioned the recently published EU directive, which has not yet been discussed by member states, although I understand that it will probably be on the agenda of the Industry Council this week. We have been in discussion with the Commission as it has formulated its proposals.

Turning to the speech by the right hon. Member for Bromley and Chislehurst (Mr. Forth), it would be ludicrous were the Government to ignore the possibility that businesses might abuse their negotiating strength and force excessive credit periods on suppliers—we live in the real world. The best answer to the right hon. Gentleman's point came from his hon. Friend the Member for Lichfield who has experience of small business. The Labour party is the party of small business and we do not want to stand aside where there is evidence of abuse. As for the example of a customer changing supplier because of 15 extra days credit, the idea is bizarre. Suppliers are chosen for many reasons, but I doubt whether 15 extra days credit would be one of them. Businesses look around for quality and consistency of supplies—that is what influences them.

The right hon. Gentleman also spoke about regulation, but the Bill will not impose a burden—it provides a right, not a regulation. It is a matter for the individual supplier to choose whether to make a claim for interest, so I cannot accept the right hon. Gentleman's argument.

Mr. Page

We are all seekers after the truth in this matter, but is it not a fact that, when a large company supplies a small company, more often than not a direct debit service is involved so that there is immediate payment and there are no credit terms whatsoever? There is a complete imbalance, which the Bill fails to address.

Mrs. Roche

I agree that there is an imbalance, but the Bill seeks to correct that balance by implying that term into statute, giving small businesses a remedy whereby they can claim interest if—I stress, if—they wish to do so.

I thank the hon. Member for Croydon, South (Mr. Ottaway) for his remarks and for the role that he has played. He provided a good riposte to the remarks by his right hon. Friend the Member for Bromley and Chislehurst. I welcome his support for the Bill.

This has been short but interesting debate. The Bill is vital to small businesses, which are the economic backbone of this country. 1 pay tribute to the contribution that they all make and I sincerely hope and believe that the Bill will help them in their important task.

Question put and agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).