Late Payment of Commercial Debt (Hansard, 14 October 2003)

§ Lord Harrison
asked Her Majesty's Government: How successful their late payment legislation has been, and whether more can be done to help small businesses with late payment of commercial debt.

§ Lord Davies of Oldham
My Lords, late payment can have a crippling effect on the cash flow of businesses. The 1998 legislation provides a framework for tackling it. It allows businesses to charge interest on overdue invoices at 8 per cent above the Bank of England base rate, and to claim compensation of up to £100; SME representative bodies can also challenge unfair payment terms. Late payment was top of one list of business concerns in 1997; it is now ninth.

§ Lord Harrison
My Lords, I congratulate the Government on the successful introduction of the late payment on commercial debt legislation. Nevertheless, I raise a disturbing report that I have had from the Forum for Private Business, which suggests that contracts commissioned by Defra two years ago during the outbreak of foot and mouth disease have not been paid, and nor has the statutory interest. Does my noble friend agree that it is imperative that all government departments observe the legislation, the cornerstone of which is that right to statutory interest?

§ Lord Davies of Oldham
My Lords, the target for all government departments is 100 per cent payment on time. Defra is just below the present figure of 95 per cent, and it must bear responsibility for that. No doubt my noble friend will pursue the issue with the department. There have been some difficulties in particular areas, as he indicated. A senior official in Defra's procurement division will attend a meeting of the Better Payment Practice Group on 21st October, when the issue will be discussed.

§ Lord Razzall
My Lords, does the Minister accept that, in his Answer to the noble Lord's timely Question, he has somewhat led with his chin by suggesting that the issue has moved from the number one concern to number nine? That leaves eight matters still of significant concern to the SMEs. Does he accept that the most significant of them is the increased burden of regulation on SMEs and that, notwithstanding the good work of the task force that the Government set up after they came into office, significantly more work needs to be done in that area?

§ Lord Davies of Oldham
My Lords, I agree with the noble Lord's latter point that there is more work to be 756 done. I do not think that I led with my chin in indicating that the issue of debt had dropped to ninth in concern. In fact, I would be excessively naïve if I thought that medium and small enterprises had no concerns.

§ Lord Borrie
My Lords, does my noble friend agree that the 1998 Act was based on a false assumption that small firms that are owed money will be willing to sue for interest larger firms with which they have an ongoing relationship? That was expecting an impossibility, as the years since have rather proved. Should the Government not think of other methods to ensure that late payment of debts comes to an end?

§ Lord Davies of Oldham
My Lords, my noble friend has a point. Small firms will not want to alienate large firms with which they have contracts. However, he should recognise that there has been significant improvement since the passing of the 1998 legislation. That has been recognised by the leaders of organisations representative of small businesses. The legislation permitted those organisations to challenge non-payment in court, and not simply to leave it to the small enterprises themselves.

§ Lord Skelmersdale
My Lords, in the Minister's answer to the supplementary question of the noble Lord, Lord Harrison, he said that no doubt the noble Lord would pursue the matter with Defra. As the matter has now been put at the Minister's feet, will he accept not only that he would have more clout in pursuing the matter with Defra, but that he should get on and do it?

§ Lord Davies of Oldham
My Lords, I thought that I had indicated that that was exactly what we were doing. I suggested that Defra had responsibility for its own performance with regard to the objective and the target. However, the group that monitors performance of government departments has put the issue on its agenda, and a senior Defra official will attend to respond to challenges made at that meeting.

§ Baroness Greengross
My Lords, I am very concerned about the crippling effect of late payment on many voluntary organisations. They face real difficulties because of the late payment of invoices and contract moneys due, specifically from local authorities. One charity of which I know is owed £1.68 million out of an annual turnover of £12 million. Half that amount relates to the past financial year. That is obviously unacceptable, and I seek reassurance from the Minister that the late payment legislation will be tightened up to address the problem, which is growing.

§ Lord Davies of Oldham
My Lords, the noble Baroness clearly identifies an important case. In terms of the general position with regard to voluntary organisations and charities, particularly in relation to local authorities, the target set for government bodies is also a target for local authorities. Of course, each local authority is responsible for its performance, but 757 the Government have made it absolutely clear that we expect public authorities to get as close to 100 per cent timing and performance as possible.

§ Baroness Miller of Hendon
My Lords, does the Minister accept that in this matter the Government should be leading the way in paying their bills and not have any bills outstanding for any period of time? We were amazed to hear that 95 per cent of Defra bills are paid on time. However, that is not what the newspapers say. What does the 5 per cent represent? How many bills are not paid? Do the Government offer to pay the statutory interest for late payment without being asked by the individual who is owed the money?

§ Lord Davies of Oldham
My Lords, the House will recognise that the payment of some bills is problematic because the submission can be the subject of dispute. Where public money is involved, it is absolutely right that the department concerned makes sure that it is being charged exactly and precisely for services rendered. However, the noble Baroness is right. The Government set the target at 100 per cent because that is what we expect government departments to achieve. In some departments, we are very close to or hitting that target. Defra, if I may return to it, is just below the government department average, which is 95 per cent. That is an improvement on the 91 per cent of five years ago, before the legislation. The legislation is having its effect and we are making progress.