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House of Commons

Friday 2 February 1990

The House met at half-past Nine o'clock


[Mr. Speaker-- in the Chair ]


Roads (Nottingham)

9.34 am

Mr. Martin M. Brandon-Bravo (Nottingham, South) : I beg leave to present a petition, collected over only the past three weeks, on behalf of more than 4,500 people living in the constituency of Nottingham, South who will be directly affected by a decision soon to be made by the Secretary of State for Transport.

They acknowledge that there is not a proposal for a major road development that does not upset someone, but when there is the possibility of a dual carriageway through a major open area, even when there is no alternative, you, Mr. Speaker, will understand that they are justifiably worried and deeply concerned, but when there is a viable alternative that takes the road away from the residential area and provides an ideal solution to Nottingham's access problem to and from the great motorway spine--

Mr. Speaker : Order. I am sorry to interrupt the hon. Gentleman, but he must not make a speech ; he should draw attention to the petition.

Mr. Brandon-Bravo : The petition reads :

"To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.

The Humble Petition of the residents of the constituency of Nottingham South sheweth :

That there is a need for a balance to be struck between the needs of the countryside and the quality of life for those who live in our towns and cities :

Wherefore your Petitioners pray that your Honourable House will ensure that proper and due consideration be given to the many thousands of residents within the City of Nottingham who live on the southern bank of the River Trent, who support the modified Green' route, known to the Secretary of State for Transport as the Purple' route, which they believe is the best resolution of the traffic problems of the City and its southern access.

And your petitioners, as in duty bound will ever pray, etc." To lie upon the Table.

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Orders of the Day

Interest on Debts Bill

Order for Second Reading read.

9.36 am

Mr. Michael Mates (Hampshire, East) : I beg to move, that the Bill be now read a Second time.

This is a Bill to help small busineses. I can guarantee that all hon. Members, whether or not they agree with the merits of the Bill, will agree that this is a time when, above all, small businesses need all the help that we can give them. High interest rates, high mortgages on homes and the introduction of the new business rate have hit the small business man particularly hard. When one adds the slower growth that we are experiencing as a result of matters that we will not want to discuss this morning, I hope that every hon. Member will agree that anything that can be done to help small businesses through this difficult period should be done. That is what I am seeking to do with the Bill.

The Bill aims to tackle the scandal of the late payment of debts--and I hope to be able to show that it has become a scandal. I am seeking to ensure that commercial debts owed to small businesses are settled in due time, and that if they are not, those small businesses will not suffer from late payment but will be able to charge interest.

In a sense, the Bill is unusual because it creates no new offence under civil or criminal law. It does not change the law of contract or the interaction between supplier and manufacturer, and it makes no difference to the operation of the market. It provides that those who do not meet their contractual liability must pay interest for their failure to honour their contracts.

For many people, the Bill has been a long time coming. As long ago as 1978, the Law Commission decided that those who do not pay their bills on time should be liable to interest on their debts. It published a report and draft Bill to support that independent view of some of the best lawyers in the land. Our former colleague, Mr. Richard Ottaway, took up the issue when he was a Member and, no doubt, he will return to it when we see him back on these Benches. He introduced a Bill in 1987 which, unfortunately, was not debated. Some will wonder why, when the Government have taken some action-- for which I commend them--the idea of legislating to create a statutory right of interest has been revived. I have done so not to criticise the Government--they should be praised--but to point out to them as clearly as I can that their action, although an honourable attempt, has been nothing like enough and has not had the effect that they would have wished. The Government produced a pamphlet entitled "Prompt Payment Please!" It showed the way that they sought, by encouraging good practice, to persuade companies voluntarily to settle their debts on time.

"Prompt Payment Please!" was a worthy document and all its sentiments were laudable. It was a genuine attempt to make things better. The Government's words on the front of the document are important because they say under the heading "The Payment Problem" : "There is a special responsibility on large firms to deal fairly with small suppliers, who may be severely damaged by delayed payment".

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The Government's reason for producing this voluntary code of practice is primarily to help the small business man and, as such, it is entirely commendable. Alas, it has not been successful. All the great and the good signed up. The document stated : "Industry Supports Payment on Time."

It continued :

"the Department of Employment, in conjunction with the Confederation of British Industry, Institute of Directors, Association of British Chambers of Commerce and Institute of Purchasing and Supply published Payment on Time', a booklet offering practical guidance to suppliers and buyers."

That was thoroughly laudable.

I am a little reluctant to mention names in my comments on the scandal of late payment and I am determined not to abuse my parliamentary privilege in doing so. But so notorious is one of these large companies that I feel that I must mention it because it is such an outstanding example of what is wrong and what the Bill could put right. It is the General Electric Company plc. It signed up to the document and agreed with the principle that it should pay debts on time. In the document, the company stated :

"The separate units of this Group operate autonomously and make purchases through their own buying departments. They are required by Head Office to settle accounts, whether with big or small firms, in accordance with contractual arrangements."

I mention GEC because of the hundreds of letters that I have received. Many people have complained about this firm and its notoriety in not settling its debts on time. I see from their indications of assent that other hon. Members have received similar complaints.

Having made this accusation, I must back it up. One of GEC's subsidiaries, Marconi, issued a letter last November which stated : "There has recently been some confusion with our suppliers with regard to the credit terms that Marconi used to pay invoices. To clarify the situation, I have to inform you that Marconi's standard credit terms for all suppliers are 90 days' credit. Under no circumstances are we now able to agree to terms less than that." That answers the first of the objections that my hon. Friend the Member of State raised on the "Today" programme this morning when he said that he feared that, if the Bill became law, more and more large companies would extend their terms because they had to pay interest and that, instead of the norm being about 30 days, it might grow to 60 or 90 days.

That is happening anyway. It is happening not because of my Bill, or even the threat of this legislation, but because of what is happening in the commercial world. Times are getting tough ; interest rates are high ; and large suppliers are screwing down their small suppliers even harder. I do not quarrel with that, because I do not want to interfere in this interchange. I certainly do not want to distort the contractual arrangements that are made between the big business man and the small business man. However, as that is happening anyway, the little man will be better off if he knows that on the 91st day--in Marconi's case--he will get interest. I say that because of the evidence that I have received. I will not name the people who have written to me because they want to continue doing business with these companies and do not want to be discriminated against for having come to me. I

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have undertaken to protect their confidentiality. If any hon. Member wants to see their letters, they are available at my side. Although Marconi is demanding 90 days' credit, it is not paying up until after about 150 days have passed.

Mr. Christopher Gill (Ludlow) : Does not the significance of my hon. Friend's comments lie in the fact that in this specific case--there are many others--the company that receives the goods dictates the payment terms and specifies 90 days? I remember when the terms were a matter of negotiation and agreement between supplier and customer. Does my hon. Friend agree that there is too much evidence today of the customer dictating not just specifications and delivery but terms of payment?

Mr. Mates : I entirely agree with my hon. Friend. He has reinforced my point about the need for this sanction. I have evidence that the average period for Marconi is 150 days and I have evidence of payment as late as 170 days--about six months. If that is what GEC means by the fine words in the document

"It is our policy that contractual arrangements should be met" I am a Dutchman.

I should like to read another letter because it shows what goes on. It is from a small business man who wrote to me in support of my Bill. He said :

"However there is one practice which I find very irritating, and which seems to be indulged in notably by companies in the GEC group. This is a sort of progressive taking advantage' which operates as follows :

(1) The officer who actually wants to buy negotiates a price. Usually a discount will be asked for"--

that is fine--

"(2) Then the purchasing department tries to negotiate a lower price, and longer payment terms.

(3) Then even those longer payment terms are ignored and the company takes as long as they like to pay."

The man went on to say :

"The whole business is a bit ludicrous, because they place so much stress on negotiating payment terms but then just ignore them. Apart from costing money, this makes it quite impossible to quote reasonably and to predict finances. It also wastes my time in negotiations which I know to be meaningless anyway."

If that is not a cause for doing more to put these things right, I do not know what is.

I have another letter that arrived this morning and which I have not quite finished reading. It is addressed to Lord Monson in the other place and is about his comments about large companies deliberately putting off payment to smaller companies. I shall not bore the House by reading the whole letter, because it rehearses old arguments, but at the bottom, it states :

"Examples given : 45 days late--not too bad. Our current age of debt is approximately 87 days, although our trading terms are 30 days.

45 days--not too bad

The Army, four months"--

by that, the writer means the Ministry of Defence--

"GEC, seven months."

That is a scandal and the House should be doing something about it.

While getting ready to present the Bill, I had cause to talk to the press. At that stage, I had from Rolls-Royce a letter, which I want to share with the House. As I said at the time, I believe that what Rolls-Royce did in this case, although indicative of the need for my Bill, was thoroughly

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honourable in that it had at least kept its suppliers informed of what was happening. The letter, addressed to all suppliers, says : "Dear Sirs, You will be aware that in the fourth quarter of 1989, Rolls-Royce was adversely affected by two major industrial disputes--one at Boeing and one at our own facility at Hillington." The letter then describes the difficulties that Rolls-Royce has been having and says :

"However, we must look to our Suppliers to share in the cost of this problem. Accordingly, we will be delaying payments due to Suppliers by one week, commencing at the end of January, for a period of eight weeks. I can confirm that there is no suggestion of passing on the full impact of the disputes to our Suppliers."

I suppose that they are meant to be grateful for that. The letter continues :

"We are advising you of this action in advance so that you can make the necessary arrangements."

That letter was courteous and fair, and I understand that Rolls-Royce has a good relationship with its suppliers. I am not seeking to knock the firm, but I want to point out that the letter is a unilateral breach of contract for which the small man has no redress.

The House may consider it even more significant that, as a result of this case appearing in newspapers, I had a telephone call from Mr. Dominic Sheahy who is the director of public affairs. He wrote a letter in which he said that he did not want there to be any misunderstanding and that Rolls- Royce had taken that action with regret. I repeated that I thought that the firm had been honourable--and rather more honourable than other large firms --in telling its suppliers about the position. However, I pointed out that the firm was unilaterally in breach of contract. He said that it was, but that it could not help it. I asked what the position would be if my Bill were law, so that Rolls-Royce had to pay interest because it was paying a debt late, in breach of contract. He said that if the Bill were law, there would be no point in the firm undertaking that operation because there would be nothing in it for Rolls-Royce. If that is the case, I am interested to know why the Government oppose the Bill. For the life of me, I cannot see the reason.

I want to emphasise that all my examples are cases where there is no dispute over the invoice or the goods. That is another matter with which my Bill does not seek to interfere. They are simply cases of late payment. I want to give credit where it is due. Marks and Spencer pays all its suppliers within seven days of receiving the invoice. That is its standard practice and it keeps it through thick and thin. If it does not, its management wants to know why. If Marks and Spencer can do that, why cannot other firms, such as Marconi, GEC and Rolls-Royce?

The Government are not innocent in the matter. I do not want to put words into their mouth, but that may be why they are reluctant to support the Bill. The terms of the Bill will apply to central and local government. I know of one Ministry of Defence contractor on a major project who has simply stopped working on it because he has not been paid. He has walked off the site and has said that he is not coming back until he is paid. That is a special case about which I heard only yesterday and I have my own ways to take up the matter with the Ministry of Defence to find out what has gone wrong. Nevertheless, I feel wholly justified in quoting that case to the House. When such incidents happen, some of the sub-contractors are the

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worst hit, because they are not paid as a result of the main contractor remaining unpaid, which simply accentuates the problem. A vet has told me that the Ministry of Agriculture, Fisheries and Food pays 30 days late as a matter of routine. The vet works regularly as a licensed veterinary inspector. He submits his invoices regularly and they are always paid 30 days beyond the due date. I find it odd that the Government should publish a code of practice urging prompt settlement of debts when they are not paying their own debts on time. It is even odder that the Government seek to defend those practices while they insist that those of us who do not pay our tax or VAT on time are charged interest on our debts and there is no messing around on that because the process is automatic. What is sauce for the goose should be sauce for the gander.

The problem of non-payment is so bad that some companies have ceased to do business with big companies or with the Government because of late payment. J. J. Hamilton and Sons of Oxford have ceased working with a major building contractor just because they are always paid late. As I am sure many of my hon. Friends know, some companies have ceased trading because of late payment. A sad example brought to my notice is a company called Rathoprint of Greenock, which had traded for 17 years. In the end, its bankers refused to sustain its overdraft because it regarded the debts that the company was owed as too old. That is one of the main difficulties that face small firms and one of the reasons why I believe that the Bill is important. It will give small companies an additional confidence with their own bankers. They run up against banks that tell them not to pay their own bills while they wait for the big man to pay them. They are reluctant to do that, as I should be.

Mr. Edward Leigh (Gainsborough and Horncastle) : I am sure that we all respect my hon. Friend for introducing this Bill. My hon. Friend is a fair man and I am sure that he would not want to give the impression that this is simply a conflict between small business and big business. He has, no doubt, seen the press release from the Association of British Chambers of Commerce, which represents 98 chambers of commerce with 70,000 members, many of them small business men, who voted 3 : 1 that they were unable to support this legislation. I am sure that my hon. Friend would not want to give a false impression.

Mr. Mates : I do not intend to give a false impression and I shall come to all the objections, if my hon. Friend will be patient. The banks regard debts of three months or more as likely to be bad debts, so they threaten the company concerned with closure. I am rather surprised by that, because the banks themselves benefit from late payments because of the enormous interest they charge us on our overdrafts. It is important to ask why debts are not paid on time when there is no dispute about the goods, the services or the invoice. The basic reason, as I have mentioned, is that large businesses have something to gain by not paying their sub-contractors on time, keeping their money in the bank--or hoping to borrow more--and earning interest for as long as possible.

I believe that it is necessary to focus these proposals on small businesses, as what is seen by a small firm as a large debt is seen by a big company as a small debt. It is of no importance to one of the large plcs that somebody is owed

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£5,000 when its total debts may amount to millions of pounds, but to that man, the £5,000 might be the difference between life and death, between being able to pay his mortgage or having his house repossessed, and between being able to stay in business or to go out of business. The human side of this may have been overlooked in the welter of figures that have come out. The point of the Bill is that liability of interest as a right makes it no longer worth a company's while not to pay on time. Companies will have nothing to gain. I believe that that answers the second point made by my hon. Friend the Minister on the radio this morning when he said that he doubted whether the proposal would be enforceable. I do not believe that it will need to be enforced. Most of the companies about which we are talking, and certainly central and local government, are law abiding. Public limited companies have to obey the law, or they can be had up for it at their annual general meeting. If the Bill were to become law, not only would companies obey it, but, as in the case of the company I mentioned, they could dismantle a large office that is employed solely to delay payment on the basis that a simple calculation has been made that the company can earn more by keeping its money on deposit while paying two or three people to juggle the bills around and to wait until the writs arrive. That would come to an end because there would be nothing in it for the company. After all, businesses are pragmatic organisations.

The statistics vary but there is no doubt that the problem is getting worse --another shot at the argument that we do not need the Bill. Dun and Bradstreet, the largest debt collectors in the country, conducted a survey, in which 77 per cent. of the 500 firms questioned said that they would be able to reduce their bank borrowing if their bills were paid on time.

It may help the House if I cite a few examples. Mr. Peter Valentine of CASMU Contracts wrote to me and said that he is owed £500,000 in overdue payments--one quarter of his turnover. He has calculated that he is spending £25,000 a year on interest, purely as a consequence of unpaid bills. Of that £500,000, a total of £152,882 is owed in overdue payments by just six large firms. I ask the Minister to imagine what effect that has on a small man struggling to make his way. I hope that I have shown conclusively that the Government's code of practice is simply not working.

A business man from the Isle of Wight wrote me a fairly long letter saying that he had tried to raise the problem before :

"I should therefore like to add my wholehearted support for your campaign in the hope that this time you may achieve something more positive than David Trippier's ineffectual pamphlet, Payment on Time'."

I shall not join the criticism of my hon. Friend who is now the Minister for the Environment and Countryside because what he did was laudable. It was right to approach the problem on a voluntary basis at first. But I hope that I have been able to show the House that that has not been enough. It may have made some difference, but we must now tackle the problem in a more robust way and bring large businesses and central and local government to account.

One might think from all the examples that I have cited that all those who have anything to do with small businesses would be in favour with the scheme. I am sorry

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to say that not all of them are as strongly in favour of my Bill as the Forum of Private Business, the Institute of Directors, the National Chamber of Trade and the Union of Independent Companies. It is most significant that the Institute of Directors, which represents directors of large, medium-sized and small firms should have changed its mind. I hope that all my hon. Friends have received a copy of the IOD's parliamentary brief. [Hon. Members :-- "No."] It was in the mail this morning. [Hon. Members :-- "Oh."] I did not post it. [Interruption.] I do not want to go down a blind alley.

Mr. Ian Taylor (Esher) : Our secretaries are reading it now.

Mr. Mates : I must say that I thought to myself, "What the hell is this doing arriving on a Friday morning?" I sent my research assistant to the wastepaper basket and we discovered that it had been posted first-class on Monday so I do not blame the Institute of Directors, although its late arrival is an interesting comment on the times in which we live.

Mr. Ian Taylor : Perhaps that is another reason for late payment-- that cheques do not arrive through the post on time.

Mr. Mates : I think that if it was a question of postal delays, no business would seek to charge interest, so great would be the sigh of relief that the payments were close to being on time.

The IOD's letter is interesting :

"Thank you for sending us details of your Bill. As you know, the IOD has always opposed legislation on this subject in the past as an unwarranted interference in freedom of contract which, in any event would not have had the effects desired by its proponents. Your Bill, however,"--

some of my hon. Friends may not quite realise this--

"differs from previous proposals in two significant respects Thanks to these changes, your proposal is better targeted, more likely to be effective and more compatible with freedom of contract."

I hope that the Minister has received the letter--I believe that I sent him a copy--in which the IOD explains its change of heart. I note that he is completely dumb.

Mr. Paddy Ashdown (Yeovil) : The hon. Gentleman did not have the benefit of seeing the Minister's face when he produced the Institute of Directors' letter ; he showed some shock at the hon. Gentleman's revelation. I think that we may conclude that he has not yet received it, but no doubt he will ensure that the civil servants in the Box provide him with it as quickly as possible.

The Minister of State, Department of Employment (Mr. Tim Eggar) : For the avoidance of doubt and the discomfiture of the leader of the SLD, let me make it clear that I opened my mail at 8 o'clock this morning, and among the letters that I received was one from the IOD.

Mr. Ashdown : In that case--

Mr. Deputy Speaker (Mr. Harold Walker) : Order. We cannot have interventions on interventions.

Mr. Mates rose --

Mr. Ashdown : Will the hon. Gentleman give way?

Mr. Mates : Certainly.

Mr. Ashdown rose --

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Mr. Deputy Speaker : Order. Perhaps the right hon. Gentleman did not hear me the first time. It is not our practice to allow interventions on interventions.

Mr. Mates : I would not challenge your ruling, Mr. Deputy Speaker, but I thought that I was on my feet and had given way to the right hon. Gentleman. I trust that you will allow me to do so now. Mr. Ashdown rose --

Mr. Deputy Speaker : Mr. Ashdown.

Mr. Ashdown : I thought that the hon. Gentleman might like to know that perhaps the Minister's look of surprise came from the fact that although he had received the letter, he had not yet read it.

Mr. Mates : I should have listened to your ruling, Mr. Deputy Speaker, and I stand corrected.

Among those not in favour of my Bill is the National Federation of Self- Employed and Small Businesses. I find that most surprising as I have received letters from many members of that federation all of whom have said that they are 100 per cent. in favour of the measure. At a meeting of many small businesses at which I was present, Mr. George Thorpe of the national federation said that he ran a small business and that he was so fed up with late payment by local government with which he mostly dealt, that he had simply refused to work for local authorities any more. He made those remarks in the context of his opposition to the Bill. I find that a little difficult to understand, but perhaps he, too, had not realised how different this Bill is from the Law Commission's Bill and the Bill that Richard Ottaway attempted to introduce four years ago. One must ask whether in this case headquarters speaks for its members.

Let me now come to the point raised by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh). Less puzzling to me now that I have learnt more about the matter is the fact that the Association of British Chambers of Commerce is not in favour, although more than a dozen individual chambers of commerce, not all members of the association, have indicated their full support. I started to understand why the association is against the Bill when I realised to what extent large companies are members--often controlling members--of chambers of commerce in their areas. One must not look at the association as purely a small business organisation.

Mr. James Arbuthnot (Wanstead and Woodford) : My hon. Friend will have seen the press release from the Association of British Chambers of Commerce which says that nine out of 10 of its members have small businesses.

Mr. Mates : I did not say that the majority were not small businesses. I said that some of the controlling members--those who get the chairmanships and offices--come from large businesses. I am not cavilling at that ; I am simply pointing it out, and I want to give the House an example.

A small business man wrote to me to say :

"All the best with your prompt payment' Bill. I run a tiny firm--two part- time girls and me part time also yet I am owed over £30,000 beyond my 30 day settlement request (f my turnover)". The business man enclosed a cutting from The Northern Echo, which deals with my Bill and the ABCC's view of it :

"Mr. Giles' views are held by the Association of British Chambers of Commerce which yesterday told small firms minister Tim Eggar it cannot support Mr. Mates' Bill."

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