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4.20 pm
Mrs. Barbara Roche (Hornsey and Wood Green): I welcome this statutory instrument, for which the Labour party has been calling for a number of years. I congratulate the Minister on having finally caught up with us.
The statutory instrument will add to the basket of measures that we plan to introduce and will at least ensure that small firms can find out about the payment practices of the large companies with which they trade. It is four years since Labour first called for the measure and two consultations have been held by Ministers. Given that the first, in 1993, found that 66 per cent. were in favour of acting, can the Minister explain why it has taken him four years to act in this vital area?
It is not too dramatic to say that late payment is the scourge of small firms. It can stop them growing and expanding or--more drastic--it can send basically good businesses to the wall. The Forum of Private Business recently surveyed its members about the issue. I pay tribute to the forum for its sterling work on behalf of its members, in respect of the appalling impact of late payment on small firms. The forum found that one in five of those surveyed had been prevented from growing by late payment. In its response to the Government's response, it explained:
The Minister referred to the Government's record; let us consider it in a little detail, because it is called into question. I note the Minister's offer; only yesterday, my office had a call from a small, high-tech firm that has among its customers several Government Departments and large businesses. A year ago, after waiting more than two months for a bill of more than £1,000 to be paid by the Treasury, the firm was forced to suspend the service that it was supplying. What a wonderful example our Government set to businesses--they cannot even pay their own bills on time.
It was bad enough for the company to be owed money by the Treasury, but it is also waiting for the Department of Trade and Industry--graced by the Minister--to pay
a bill of several hundred pounds. It has so far waited more than 90 days. No doubt Ministers will say that such instances are anecdotal and do not represent the great efforts that the Government are making.
It is interesting that the Government sometimes blame the very businesses that they are talking about. Only last June, the Minister told The Independent:
Stan Mendham, chief executive of the forum, responded to the Minister by saying:
I hope that the explanation that the Minister gives later will be better than that of the Economic Secretary, to whom he referred. She explained in a letter to me that her Department had paid one quarter of its bills late because
Perhaps we can take a look at what the Economic Secretary has achieved. In December, the Government released figures for June to August 1996--they were to show the much-vaunted improvement after the Prime Minister had been embarrassed into telling Departments to pull up their socks, get on with it and see what they could do. Sadly, they were to bring him, and small firms, very little comfort. Nine Government Departments, including the Department of Health, the Department of Transport and the Serious Fraud Office, had a worse
record in that period than in the previous year, 1995-96. The Ministry of Agriculture, Fisheries and Food paid one in five of its bills late.
Even the Deputy Prime Minister, who knows a thing or two about red bills, given his boasts about stringing along his creditors when he was in business, admits that the Government's record is dire. This year's White Paper on competitiveness, referring to the Government's record in that regard, said that there was
As my right hon. Friend the Leader of the Opposition has said many times, unlike the present Government, the next Labour Government will take tough action on late payment. We want to change the culture that allows large companies and Government Departments to treat small firms as a source of free credit, and we believe that it is necessary to have a basket of measures. [Interruption.] The Minister keeps laughing. I fail to understand what there is to laugh about in this serious subject, which drives many small and medium-sized enterprises to the wall.
Although we applaud the efforts of business organisations, banks and others to improve the credit control procedures of small firms, we do not believe such improvement to be the whole answer. A Labour Government will insist that Government Departments and local authorities pay on time and, after consulting about the best way to do so, we shall introduce a statutory right of interest on the late payment of debt above a given threshold. That would remove the financial advantage that large firms have in paying late. Only the United Kingdom and Ireland do not have a general right to interest embodied in legislation in the event of late payment of commercial debt.
I note what the Minister said when he cavalierly dismissed the arguments for a statutory right to interest. The results of all the surveys that have been conducted on that issue make interesting reading. In a Lloyds bank survey in March 1996, a full 75 per cent. of the businesses that responded welcomed a statutory right to interest. A recent "Business Pages" survey, in 1996, found that 69 per cent. of the businesses that responded supported a statutory right to interest.
Closer to home, a quarter of Conservative Members of Parliament showed support for the Labour party policy of a statutory right to interest by signing an early-day motion. Very many of the Minister's colleagues who are Conservative Members of the European Parliament also support a statutory right to interest, and they signalled that support recently.
What of the statutory instrument before us? We are pleased that, at long last, Ministers have seen the light. The principle behind it is, from one perspective, a freedom of information measure. However, the Minister has not yet answered all the questions surrounding the
new procedure. The Forum of Private Business and the Federation of Small Businesses are worried about how it will be enforced. Perhaps the Minister will comment.
The British Bankers Association has expressed significant anxieties about the formula used. It points out that the calculated period would be extremely distorted as a result of purchases falling unevenly towards the end of the year. A company that bought 100 widgets for 11 months and 200 in the 12th, and paid in 30 days, would be shown as taking 56 days to pay under the proposed method. As the British Bankers Association points out, that is not an uncommon scenario, as most organisations have an increase in purchasing activity towards the end of the financial year, as budget holders seek to spend the moneys allocated to them for that year. Almost more worrying, a company that paid very late throughout the year and then made few or no purchases in the last month would have a squeaky-clean record and appear a very prompt payer.
Will the Minister explain how he will avoid that situation, so that small firms get the most accurate information possible, and why he did not require large firms to state what percentage of their bills are paid within the given payment policy period, as Departments are required to do? That would mean that firms could easily be compared, just as, for example, we can look at the latest Government figures and see that the Department of Trade and Industry has a worse record on paying its bills on time than the Office of the National Lottery. The Minister may want to dwell on that point later. We could also compare the public and private sectors, which might prove to be an illuminating exercise.
When Ministers finally got round to taking up our suggestion that large firms should state their payment practices in their annual reports, the Under-Secretary of State said in a press release that the aim of the statutory instrument was to
"Late payment undermines certainty in commercial transactions, distorting business decisions . . . Small Businesses . . . are forced by late payment into increased reliance on loan capital. Given the cost of such funding late payment acts as a direct restraint on growth. This not only has a direct effect on prosperity and tax revenue, but also acts as a significant restraint on employment creation."
The Federation of Small Businesses estimated that, of 40,000 firms that had gone to the wall, 5,000 had done so because of late payment. The problem is not theoretical, but is a live issue that confronts many small businesses up and down the United Kingdom every day. I recently received a letter from a small industrial supplies firm in Glasgow, saying:
"We have huge problems and have to struggle day in and day out because of large companies deliberately withholding payments for months at a time. Millions of small firms are in a similar position."
That happens time and again and the bad news is that the problem of late payment in the UK is worsening. The 1996 Grant Thornton European survey found that the average payment period in the UK has increased from 48 days in 1995 to 50 days in 1996.
"Small companies are so delighted about winning an order they forget about getting paid."
More recently, the Minister told The Mail on Sunday that small firms are "unprofessional in credit control". Understandably, Stan Mendham, chief executive of the Forum of Private Business, responded--[Interruption.] The Minister may laugh, but this is what businesses are saying.
"His facts are fundamentally wrong. I am angry and frustrated at these comments on an issue that causes horrendous problems for businesses."
As the Minister finds the subject so funny, perhaps he will comment on the Government's record in the light of remarks made by the Institute of Directors, which recently said in its "Enterprise" newsletter that it is
"well known that the government itself is one of the worst offenders when it comes to late payment.
What a record for the Minister to have to defend in the House.
The fact was resoundingly confirmed in a recent consultation exercise mounted by the IOD on the subject of late payment, with a significant proportion of members telling us that the government routinely pays its bills months late as a matter of course".
"a member of staff fell ill late in 1994/95 and . . . the promptness of payment suffered".
She then told the director general of the CBI that that record was
"not the crime it had been portrayed".
When I meet representatives of small firms, they are incredulous that the Treasury, which at that time employed more than 1,000 people, had such a terrible record on late payment because one person fell ill. Presumably, when that member of the Treasury staff went off ill, he took the Treasury's cheque book with him. The fact that the Economic Secretary is the Minister in charge of reforming promptness of payment throughout Whitehall and in every Government Department makes the record worse.
"a strong perception that"
Government Departments
"were often amongst the worst perpetrators of late payment."
In March 1996, the Prime Minister said:
"I believe we should take steps to generate embarrassment amongst those who wilfully and continually pay late"--
so I hope that from now on the Prime Minister will generate that embarrassment among Government Departments. If the Prime Minister will not do that, the Opposition are determined to do so.
"give small firms more details of the payment records of the larger companies with whom they may be considering doing business."
Yet even with that new measure, small firms will have to collect all the annual reports of the large companies with which they are considering doing business in order to make meaningful comparisons.
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