HC Deb 28 July 1997 vol 299 cc60-2W
Mr. McNulty

To ask the President of the Board of Trade what progress her Department has made on the proposal in the Queen's Speech for a statutory right to claim interest on commercial debts. [11224]

Mrs. Roche

The Government are publishing today a Green Paper, "Improving the Payment Culture: A Statutory Right to Claim Interest on Late Payment of Commercial Debt". It sets out the Government's proposal to give small businesses the right to charge interest on late payment of commercial debts. It is proposed that this new right will be extended to all businesses after a period to be set following this consultation.

Late payment of commercial debt is acknowledged by many in the business community to be a serious problem, especially for small businesses which are least able to bear the additional costs arising from payment delays. The proposed legislation recognises the fundamental part small businesses play in the economy of the UK and the seriousness of any actions that unnecessarily hinder their competitiveness.

The right to claim interest is to be found in many other countries, especially within Europe. It is the Government's view that it is time that the right should be available in the UK.

The proposals are designed to act as a deterrent to late payers who have, in effect, been using their commercial creditors as a source of finance. Any late payment, like any other breach of contract, should attract appropriate sanctions. The proposed legislation will help to improve the payment culture by enabling creditors to charge interest on late payment of commercial debt at a rate to be set following consultation. Initially, this right will be available only to small businesses for use against public sector organisations and large businesses. The Green Paper sets out proposals for phasing in the extension of the right to all businesses. This is because the Government recognise that small businesses, with their more limited resources, must be given time to benefit from being paid promptly by their large creditors and to take the necessary actions to ensure that they have the systems in place to make payments on time.

The Government recognise that the proposed legislation alone will not solve the problem of late payment. Providing for a statutory right to claim interest is very which important. It is one element of a package of measures which we are pursuing to encourage a change in attitudes and behaviour towards a more ethical approach to payment.

I am delighted to say that a number of leading business representative organisations have pledged to join the Government in tackling the problem of late payment. They include the Forum of Private Business, the British chambers of commerce, the Confederation of British Industry, the Federation of Small Businesses, the Institute of Directors, the Union of Independent Companies, the Country Landowners Association and the National Farmers Union.

These bodies, like the Government, are committed to helping small firms to see how they can manage their finances effectively and thus benefit from the increased competitiveness which a good cash flow can bring.

Over the next 12 months, we will work with those bodies on a number of initiatives. These will include making available to their members and other small firms advice and information on cash flow management, further publicity for the British standard for payment and other measures such as the CBI's prompt payment code, and making the payment practices of the public sector and large firms more visible. We will also work with them to find other ways of encouraging sound payment practices so that all UK industry can enjoy the benefits of a fair payment culture.

The Government are determined to change the payment culture in the UK. It will enhance the existing requirement for plcs and their large private subsidiaries to disclose the average time taken to pay suppliers by producing league tables with the private sector.

The Government are also committed to improving public sector payment performance. Government Departments and agencies must pay 100 per cent. of their undisputed invoices for commercial debt on time. They will have to monitor and report on their success in meeting this stringent target.

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