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Column 560The small business man has written on the cutting :
"Little wonder Chamber of Commerce are against it--they are the people sitting on my money. Have no sympathy with them."
Mr. David Martin (Portsmouth, South) : My hon. Friend has quoted the example of a real small business, so it is important that we know how he defines "small business" in terms of the numbers of people employed.
Mr. Mates : I am grateful to my hon. Friend. I am coming to that point, but first I am trying to give some illustrations to show the necessity for the Bill before I take the House, as briefly as I can, through the mechanics of what I am trying to do.
One reason why some small business organisations have not come round to my point of view is the speed with which we have had to conduct our campaign prior to today. Members of those organisations have not had time to realise the differences in this Bill and to make their views known to their headquarters. I have no complaint about that, because that is the system that faces us with measures in private Members' time. Another argument for allowing the Bill its Second Reading is that that will allow us a month for mature reflection before we go into Committee. That will give us time for various views to surface and for them to be properly presented. The Minister knows full well that I am not seeking to override any properly conceived views, and that my willingness to meet him almost anywhere to get just some part of the way down this road is absolutely boundless-- [Interruption.] I do not know whether hon. Members are laughing about my reasonableness. Perhaps that is what I am so well known for.
The mechanics of the Bill are simple. It establishes a statutory right to interest on commercial debts owed by central and local government and all the agencies that act for them, and by nationalised industries and large companies--that is, those that are not small and medium-sized enterprises as defined in the Companies Act 1985. There is a clear distinction between small and medium-sized enterprises for accounting purposes, based on criteria of turnover, capitalisation and the size of the work force. Any enterprise that meets any two of those three criteria qualifies in accounting terms and in the way in which its accounts are presented and its tax is paid. Therefore, there is already a clear distinction in law. Those companies that are in the category of small and medium-sized enterprises will not be affected by the legislation except, of course, as beneficiaries.
Interest would run from the payment date agreed in the contract. Once again, I am not attempting in any way to interfere with the way in which contracts are arrived at and negotiations are carried out. The Bill simply states that if no contract date is specified, the interest will run from 28 days after the demand for payment has been made.
I have made two important changes to the provisions in the Law Commission's draft Bill, First, small and medium-sized enterprises, as I have defined them, would not be statutorily liable for interest on overdue payments. I shall explain that in a moment. Secondly, companies will not be able to exclude any right to interest in the contract. The reason for the first change--the exclusion of small and medium-sized enterprises from the statutory interest scheme--is that the bulk of those that pay late are large
Column 561companies, not small ones. In addition I am anxious that the Bill should impose as little in the way of additional bureaucracy on small businesses as possible.
Mr. Michael Colvin (Romsey and Waterside) : I am interested in the comment that my hon. Friend has just made, because therein lies a fundamental flaw in what he is proposing. I say that, although I support the Bill. When I was at agricultural college, we were told that suppliers were a source of credit. In those balmy days, suppliers used to give farmers--I am one--a discount if they paid promptly. I am afraid that those days are gone, which is regrettable. My hon. Friend's case would be a great deal stronger if the concept of interest payable on outstanding debt were to apply to everyone, and not relate only to big businesses that are paying small businesses.
Mr. Mates : If that applied to everyone, it would, indeed, be a counsel of perfection. My hon. Friend is right. In logic, the provision should apply to everyone. However, I ask him to look at what would happen when the chain broke down, because that is why I decided to restrict the provision. Companies such as Rolls-Royce, Marconi and GEC, pay their bills late simply for internal accounting reasons and because they would like to make a bit more money from their cash flow, but when the chain breaks down at a lower level, it adds to people's woes. If one small business man cannot pay another on time because he has been let down, the interest continues to accrue and the small business man gets into an ever bigger slough of despond. We must remember that some of these enterprises consist of only two or three people working part time. As the additional bureaucracy involved in extending the application of the provision would be unreasonable, on the whole, it is better to leave small businesses out. However, if arguments were raised about that in Committee, I should listen to them, as I have already advised my hon. Friend the Minister that I shall listen to him.
Mr. Leigh : I am grateful to my hon. Frienf for giving way again. He is most generous. I should like to put a point to him in the robust language of the market place. The director of the Coventry chamber of commerce, which represents 1,800 small firms, has written :
"It is also our own experience that small companies are every bit as likely to pay slowly as large ones and when it comes to absolute refusal to pay, they come top of the league.
We have no current mandate from the membership to support this Bill and I must warn that, once the legal experts translate your aspirations into statute, the by-products in terms of buggeration' are more easily handled by large firm accountants than by the small trader."
Mr. Mates : I am most interested in the temperate language of the Coventry chamber of commerce, which I should have hesitated to use. However, it is evidently wrong, because no legal experts will do any picking over and there will be no increase in bureaucracy for small businesses because the provsion will not apply to them. My hon. Friend has just produced a resoundingly clear argument in favour of my distinction between small and medium-sized firms, which will not be affected by the liability to pay interest. They will suffer no difference
Mr. Favell : Will my hon. Friend take it from me that he puts his Bill in jeopardy with that provision, because some people, such as myself, believe that prompt payment is a good thing and should apply to everybody?
Mr. Mates : I agree absolutely with my hon. Friend. It is a counsel of perfection. However, my hon. Friend must ask himself whether it is better to try to introduce a massive change such as that--he may say yes--
Mr. Mates : --or that the alternative is better, which is to do nothing and not to try to beef up what the Government have done which is being so blatantly ignored by so many large businesses which, frankly, should know better. I am aware that I am not going as far as some people would like, but I hope that my hon. Friend will come with me part of the way down the road. If, in a year or two, we find that the provisions are working so well that we can extend them, that will be another matter. My hon. Friend might even be as lucky--or as unlucky--in the ballot as I have been.
Some of the Bill's critics have misunderstood the right to interest. Any company statutorily entitled to interest could waive its rights if it so chose. Likewise, if someone owes me money and I choose not to charge interest on it, I am free to do so. If that is my relationship or friendship with the supplier I can opt out of the provisions. What the Bill states is that the big man cannot opt out of his liability. Again, that is an advantage for the small man, which I hope that the House will feel is a reasonable way to go about things.
Mr. Mates : I have made it quite clear that the creditor can opt out in just the same way as if my hon. Friend owed me £100 and I chose to say, "Give me only £50" because I like the cut of his jib so much. I am free to do that. It is a freedom which a person who is owed money has always had. He can ignore the debt if he wants to. However, the Bill must not allow the big man to opt out of his liability by contract because the whole thing would be rendered worthless if that were to happen. Indeed that ability was included in the Law Commission's proposals and in the Bill that Richard Ottaway sought to introduce.
Mr. Kenneth Hind (Lancashire, West) : While I agree with my hon. Friend that the big man should not be allowed to opt out, it is, in my experience--I declare an interest as chairman of a group of companies that often deals with medium-sized companies tha are often under-capitalised-- the medium-sized companies that are the worst offenders in this area. They take credit from other suppliers, which they would not be able to get from the bank, and they do not have to pay for it. From my reading of the Bill at the moment, I understand that quite a lot of those companies will be outside the provisions that we are discussing.
Column 563Mr. Mates : Yes, we are about to come to a point on which we can have a useful debate both this morning and in Committee. I am not saying that the Bill is perfection. I have acknowledged the counsel of perfection already. The logical conclusion of what several hon. Members have said would be to make the provision apply to everybody, but I do not think that that is practical politics. The large firms instigated, in conjunction with the Government, a voluntary code of practice. We should seek to regulate them first because, statistically, they are the worst offenders.
"We have concluded that an agreement to exclude the right to statutory interest should be no less effective than a provision for the payment of contractual interest, at whatever rate. The creditor should not be entitled to recover statutory interest where the right to it has been excluded by contract. We recommend accordingly." Would my hon. Friend like to reconsider?
Mr. Mates : That was written in another day--1978. I have read to the House a letter from Marconi saying that it automatically increased the period from 30 to 90 days. If it then added that no statutory interest would be payable if it were late, which it would do, the Bill would become meaningless. I came to that conclusion largely because of the change in climate during the past 12 years. I have taken the rate of interest payable on the debt which already applies. It is the rate of judgment debt-- currently 15 per cent.--which is set by the Government from time to time and varies as circumstances change. The rate is well understood. It is the same rate that we have to pay if we are late in paying our tax or VAT. Once again, it is sauce for the goose as well as sauce for the gander.
Let me rehearse some of the arguments of those who are against the Bill or have reservations about it. Some particular points of difficulty have been raised and I shall be more than happy to listen to arguments in Committee, to consult all those involved and to make changes that are seen to be necessary.
The first fundamental argument against the Bill is that it is both unnecessary and undesirable. Some say that it is unnecessary because the problems are exaggerated, that there is no great problem and that such problems as exist are caused as much by small companies being poorly run as by large companies choosing not to pay on time. All the small business organisations accept, as I do, that, in the long-term, education in financial management is important. However one considers the statistics, it is clear that there is a problem and that it is getting worse. Some people seem to forget that those who fail routinely to pay within the agreed time are routinely in breach of the law of contract. That should not continue.
The second argument is that it is undesirable for Parliament to impose extra regulations on industry and commerce. I have covered most of that with some of the examples that I have given. I have great respect for that argument. It has merit and I do not dismiss it lightly. The weakness in the argument is that we have tried the voluntary way. I hope that I have shown the House that the voluntary way does not work I see no alternative to legislation.
I dealt with the argument that the measure will be unenforceable in referring to what my hon. Friend the Minister of State said on the radio this morning. I shall
Column 564make two points briefly. I am sorry to have detained the House for so long. First, the Minister is well aware that only three countries in the European Community apart from Britain do not have some form of legislation covering late payment of contract debt. They are Greece, Portugal and Ireland. I make no comment about that, in case we run into other arguments about the Community. I simply state the fact and ask the House to bear it in mind.
Legislation on late payment of debt will come. When the time comes, there will be a harmonised practice, just as there will be a single market. It is almost unthinkable that harmonisation will not happen. My argument is that we must put something on the statute book now so that we start from a position where we have a modest base. We should not be one of the few countries that does not have legislation. To have legislation would be greatly to the Government's advantage, as well as ours.
Many people say that the Bill would impose a great deal more work on the courts. That would be important if it were true. If it were true, I doubt whether I should be here today. I have consulted about it. Dun and Bradstreet advised me about it. It does more debt collection and, presumably, more court appearances than anyone else. It is absolutely sure that the Bill would not impose more work on the courts. On the contrary, it might save court time. No one will go to court to obtain the interest that I propose should be charged. People will have to go to court for the debt. That would be subject to precisely the same process as we have today-- cajolement, persuasion, threats and writs.
Mr. Favell : The only way in which one can claim interest, unless it happens to be provided for in the contract, is by obtaining a judgment debt. The only way to start interest running is to go to the courts.
Mr. Mates : That is what my Bill will avoid. It will unclog the courts. If the interest has started to run statutorily, no one will have to go to court. I am grateful to my hon. Friend who makes that point from his experience. That is another good reason why my hon. Friend the Minister should withdraw his opposition to the Bill, if he can. It is a free country. It is Friday today, he can do what he likes. This is private Members' time. I am glad that my hon. Friend the Member for Stockport (Mr. Favell) made that point so potently. The Bill would create considerably less clogging of the courts. The Bill will not impose a great burden on industry. Far from it ; once everyone has accepted the legislation, it will be a once-and-for-all exercise. That is a most important point. Once late debt became liable to interest there would be no cause for firms to continue to pay late. There would be a vast unleashing of funds once and for all into the system. Large companies would pay on time and that would go all the way down the chain of debt. Hon. Members may be interested to know that the current debt sloshing around the system is £57 billion. That is a huge sum of money. By breaching that dam once, everyone, particularly at the bottom end of the chain--the people we wish to help-- would have the chance to draw breath. From then on, even if the terms of contracts were changed and longer terms were negotiated, people could be certain that they would be paid or, if they were not paid, that it would not cost them money.
Column 565persuasively and with a conciliatory attitude. May I stir matters a little by suggesting, as one of the sponsors of the Bill, that it would be a gross political error of judgment, which would be widely misunderstood outside the House if Ministers and Conservative Members--both those who are here and those who are not here-- prevented the Bill from proceeding either by a closure or a vote on Second Reading? If this Bill cannot be supported, what can be supported? We have all received representation in support of it.
The cynic in me tells me that some attempts may be made to prevent my Bill from receiving a Second Reading and that some hon. Members may have come here to speak against it. I hope that they are now better informed and that they will not raise matters that are not really problems, as my hon. Friend the Member for Gainsborough and Horncastle, did, in all innocence. The letter to which he referred to is fundamentally wrong. If we have cleared up some misunderstandings, perhaps hon. Members who thought that they would help the Government by coming here today will go home and have a good lunch with their wives.
This is not a party political matter--and in saying that, I am not trying to highlight the solitary miseries of the hon. Member for Fife, Central (Mr. McLeish). I am very grateful that he has come along. If there are any serious flaws in the Bill--and there always are flaws in any Bill that has not been drafted by the Government--if the Government want changes and think that I have gone too far, and if they think that they should set the example, I am prepared to listen to all the arguments. I am not telling the House that only the Bill as drafted will satisfy me. However, I want us to take one pace down the road of good practice. The voluntary way has been tried, but it has not worked, as I hope that I have shown. The time is right for some form of legislation. However small a step we take, we shall all take it to help the small business man during this particular difficult period of his life.
Mr. Simon Hughes (Southwark and Bermondsey) : On a point of order, Mr. Deputy Speaker. This morning we have learned of the speech made by the President of South Africa, in which he announced the unconditional release of Nelson Mandela on a date soon to be fixed and the removal of the ban on the African National Congress and of 33 other groups--
Mr. Hughes : I raised the matter, Mr. Deputy Speaker, because there has been no indication this morning that any statement is to be made. The urgency of the matter arises from the interrelationship between the announcement and the current visit to South Africa of the Minister for Overseas Development. She has, perfectly properly, put on record the Government's views in respect of the current tour by British sportsmen and the problems that it has caused. If the Government can find an opportunity to make a statement today, a united, across-the-House view could be represented to those who are undermining the steps being taken in South Africa, which would be widely welcome. I hope that the announcement is deemed to be sufficiently important for the Government to make a response in this House.
Mr. Henry McLeish (Fife, Central) : Given the lack of attendance by my right hon. and hon. Friends, I am enternally grateful to the hon. Member for Hampshire, East (Mr. Mates) for remarking that the measure before the House is not political, only technical. I therefore feel slightly more at ease giving a brief resume of our views. The hon. Member for Hampshire, East referred to the scandal of late payment.
Mr. Favell : On a point of order, Mr. Deputy Speaker. It is absolutely outrageous that the leader of the Liberal party, the right hon. Member for Yeovil (Mr. Ashdown), remained in the Chamber only for as long as a bogus point of order was made by the hon. Member for Southwark and Bermondsey (Mr. Hughes), and then left. Certain people are abusing the Standing Orders of this House for the purpose of achieving television coverage.
Mr. Couchman : Further to that point of order, Mr. Deputy Speaker. It seems to me that the hon. Member for Southwark and Bermondsey (Mr. Hughes) raised his bogus point of order to exploit the televising of our proceedings. He may be the hero of the Rose theatre, but he is not the hero of this Chamber on this Friday morning.
While the hon. Member for Hampshire, East, and I may differ as to the extent of the scandal of late payment, no-one disputes the fact that it is becoming an increasing burden for a large number of small firms. I hope that the Minister, when he responds, will go further than was suggested in The Daily Telegraph of 26 January, which stated :
"The Government says it is adopting a neutral' approach to the Bill. But Tim Eggar, small companies minister, is
Column 567making it clear the Government is against the measure and there is concern that he will use the differences to argue the Bill has only limited support."
It would be a mistake for the Minister to adopt that approach. Although there are differences of opinion about the Bill's implications, that will always be the case with any legislation that is brought before the House.
We can surely agree that there is a problem, and that was emphasised in a debate in April 1987, when the then Minister with responsibility for small businesses, the hon. Member for Rossendale and Darwen (Mr. Trippier), said :
"First, we agree that there is a serious problem. During my time as Minister responsible for small firms, few issues have struck me as forcibly as this."--[ Official Report, 10 April 1987 ; Vol. 114, c. 641.]
The Bill attempts to highlight the best way of tackling that problem
The hon. Member for Hampshire, East, referred also to the history of the matter, which stretchs back to the then Lord Chancellor's interest in 1974 and the Law Commission's report in 1978. Certain changes were made in the Administration of Justice Act 1985, but otherwise Governments of both parties have resorted to codes of practice to encourage prompt payments of business debts.
Efforts to improve the situation were also made by the Confederation of British Industry in 1980 and by the Department of Employment, together with business community groups, in 1986, with a document on prompt settlement of business debts. While all those efforts were helpful, the incidence of late payment has dramatically increased. It is difficult to gauge the scale of the problem, but no doubt the hon. Member for Hampshire, East, has much evidence that he has not been able to put before the House to support that contention.
The problem with voluntary arrangements is that they have no statutory back -up, and in an environment in which many small businesses feel that they are the victims of creditors, it is clear that something more significant must be done. In essence, there is compelling common sense in the hon. Gentleman's proposals, but I sense that many right hon. and hon. Members are concerned about the practical aspects of his Bill. Nevertheless, we can all embrace a basic sense of justice.
The problem dealt with by the Bill has been simmering in this House and in the business community for 10 or 12 years, and one wonders why no decision has been taken to deal with it more effectively. I hope that the Bill will receive a Second Reading, because while it may present practical difficulties, it will bring to an end a debate that has simmered on without any conclusions being reached. The Government's activities have been littered with documents such as "Prompt Payment Please!", but it is evident that they have had no effect in the business community.
I was about to quote the right hon. Member for Northavon (Mr. Cope) who states in the document "Prompt Payment Please!" :
Column 568"Everyone in business is concerned about cash-flow. Firms of all sizes need to receive prompt payment, but small firms are more vulnerable and do not often have the cash reserves to carry debts." That highlights the reason why the Bill should be supported. There is increased pressure on small businesses. In an earlier debate this week we talked about interest rates, the prospects of the uniform business rate and the coming together of a number of pressures which make cash-flow more complex and difficult at present. A low level of indebtedness or late payment has a disproportionate impact on many small businesses. They do not have the overheads and apparatus which big companies have to deal with their particular burdens.
There is evidence that not only are large companies, Government, and local authorities indulging in late payments, but they are building it into their systems and institutions. A few hon. Members may have seen a press report earlier this week on Lothian health board in Scotland which--in its eyes-- is suffering from cash cuts. I do not want to go into the merits of the National Health Service, but the health board has gone on public record as saying that it will get through to the end of the financial year by not paying its Bills. It is scandalous that a public authority such as that should state publicly, after a board meeting, that it will not be paying its debts on time as a way of helping its cash-flow until the end of the financial year.
The most telling reason why the Bill should be supported relates to the experience of small companies with these difficulties. I have a letter from a managing director sent to my hon. Friend the Member for Sunderland, South (Mr. Mullin) who has kindly allowed me to use it in this debate. It states :
"I am pleased to learn from the Forum of Private Business of which I am a member, that you support Michael Mates' Private Member's Bill Interest on Debts'.
Given the importance of this proposed legislation to the small business community at large I am writing to ask you to demonstrate this support by attending the Bill's Second Reading on February 2. It would be a tragedy to see such worthy proposals jeopardised by a poor attendance in the House so I trust you will do your utmost to support the Bill. This business owes less than £10,000 to suppliers the rest being paid by direct debit. We are owed an average of £200, 000 per month every month of the year and if this Bill were to go through Parliament it would change our business from standing still to one capable of expansion."
That is a practical illustration of the fact that if there were a faster movement of payment in the business community many companies would feel the financial benefit which would allow them not only to expand, but possibly create more jobs in the process.
The efforts that have been made have had no real impact on what is happening. The Bill is symbolic of Parliament's anxiety about what is happening and, more importantly, it is a demonstration that the Government, who frequently say that they support small businesses, actually do so. The Bill gives them the opportunity, not to welcome the measure with open arms, but to take it into Committee, as the hon. Member for Hampshire, East (Mr. Mates) suggested. If that were done, many other aspects could be discussed. We are discussing a principle, which is why the Bill should be supported.
The debate will send a clear message to the business community that the House is angry about what is happening, especially in relation to central Government
Column 569and the corporate sector. Someone suggested that we are talking about morality in business. It cannot be right for companies to institutionalise processes which they know, by their very nature, will harm companies and--as the hon. Member for Hampshire, East said--force them out of business. That cannot be right. We should send a clear message that this corporate morality must be maintained. If companies could push the flow of debt around quicker, that would ease the burden and would not require legislation. Sadly, we may need to bring in legislation to achieve that.
I hope that when the Minister responds he will not, as The Daily Telegraph article suggested, merely give us platitudes about the benefits of small businesses and their contribution to the economy. He should go further and accept that the Bill, if it gets through the House, will provide a useful opportunity in Committee to air the issues that we do not have time to discuss today. More importantly, it would reassure people who are suffering that the House is concerned. Although my hon. Friends are not jumping up behind me to support me, there is all-party support for this measure.
The hon. Member for Hampshire, East has given many ilustrations for his argument and identified GEC. I think that hon. Members would agree that that company is not alone. It was right to highlight GEC because the institutionalisation of its procedures is folklore throughout the country. However, for the business community to look towards 1992, we must have cohesion in our economic policies to ensure that we obtain the benefits from 1992 and beyond. I appeal to large businesses, whether public or private, to acknowledge that we need the small business community which contributes a great deal to the economy, prosperity and jobs. If the problem of late payment is reinforced by high interest rates and the UBR, the problem will only get worse. some day in the future, as the hon. Member for Hampshire, East said, we shall have to return to the House for legislation. Let us take action now and prevent any further deterioration of the late payment problem.
Mr. Tony Favell (Stockport) : I am grateful for the opportunity to speak on this matter today. As a solicitor I have attempted to recover, on behalf of creditors, literally thousands of debts. I have also sought, on behalf of debtors, to avoid the payment of thousands of debts. I speak with the benefit of some experience.
During the 25 years that I have been in practice I have never understood the argument against an automatic right to interest on bills which are paid late. Therefore, I am broadly in favour of the thrust of the Bill. However, I have some reservations about it and until they are dealt with I cannot give it my unqualified support. Like it or not, there are unscrupulous firms. My hon. Friend the Member for Hampshire, East (Mr. Mates) mentioned one or two firms which I have come across during the course of my professional career. One that he
Column 570did not mention was the British Steel Corporation while it was in the public sector. BSC was referred to by our late colleague Mr. Richard Ottaway, who I hope--
[ Hon. Members :-- "Former colleague."] Yes, former colleague. I beg his pardon, wherever he may be. We hope to see our former colleague, Mr. Richard Ottaway, back in the House soon, perhaps even representing the constituency of Nottingham, North. He mentioned during an Adjournment debate in April 1987 shortly before the election, that Sir Charles Villiers, the former chief executive of the British Steel Corporation, said at a press conference organised by the Forum of Private Business that small firms encountered two major problems when considering their cash flow. The first was taxation--primarily because present legislation requires quick payment and why not? As a taxpayer, I like late payers to pay their bills quickly and if they do not they should pay interest for the benefit of their fellow taxpayers.
Sir Charles Villiers said that the second problem was the late payment of debt. He estimated that of the 2,500 suppliers to the British Steel Corporation during his stewardship, 500 went out of business merely because they could not get their debts paid. That is a disgrace. One fifth of the British Steel Corporation's suppliers went out of business because they were paid late.
Since it was privatised, British Steel has behaved a great deal better. I practised as a solicitor in Sheffield and I had several clients who went out of business because British Steel, the biggest employer in Sheffield, paid late. My clients were often little firms whose sole customer was British Steel, so there was nothing that they could do. They used to ask me what to do and whether I would sue British Steel. I asked what would happen if I did. They replied that they would lose their sole customer. The British Steel Corporation had them in a vice when it was in Government stewardship and doing so badly. All that was appalling and sad, not only for my clients but, in turn, for their suppliers : each time a firm went bankrupt, it took several firms with it.
Mr. Mates : If my hon. Friend feels as strongly as he does, and if he will not give my Bill unqualified support, will he at least give it total support in so far as it applies to central Government, local government and nationalised industries?
Mr. Favell : I would support it if it applied to everyone else, too. There should not be one law for one body and another law for others. Then I would give the Bill my wholehearted support, except as it applies to contracting out. I do not agree with the provision that customers cannot contract out. I agree with the views of the Law Commission, as outlined by my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot).
The Government have tightened up. I listened this morning to the "Today" programme, on which my hon. Friend the Minister--