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Mrs. Gillan: Given what she has just said, can the Minister explain the position in Spain, where the contractual period is 68 days and payments are made after an average of 74 days? Can she explain that anomaly?
Mrs. Roche: Yes. The problem is that, in different European countries, there are different legislative systems
and different payment periods arising either from contract or common practice. The UK's late payment period is longer than that of the average European Union country.
Mrs. Gillan: Looking at the Spanish position, does the hon. Lady admit it is possible that a statutory right to interest could extend the contractual period?
Mrs. Roche: No, not given the way in which we have drafted the Bill. The hon. Lady is right to mention that point--it is one of the issues raised whenever a statutory right to interest is discussed. We looked seriously at the issue and provided for it in the Bill; if I am allowed to make a little progress, I shall explain those provisions.
The regulatory appraisal published by my Department in December last year demonstrated the extent of the problem. The same appraisal reported studies which related to the harm that late payment causes small business. Let me give one or two examples. In a 1996 Intrum Justitia-sponsored NOP survey on European payment habits, 72 per cent. of respondents showed that overdue debts caused them a problem or serious problem with their cash flow. In the same study, loss of profit as a consequence of late payment was cited by 62 per cent. of respondents as a serious problem.
I am sure that the House shares the Government's view that late payment is not just a question of economics. There are strong ethical arguments that necessitate action to combat late payment and improve the payment culture.
Paying late is wrong and unfair. Any business that pays late as a matter of course is effectively saying that it is acceptable to abuse the provision of trade credit and the good faith of its suppliers. It seems not to value its suppliers or care enough about them to foster or maintain good relations. Those who pay late should realise that supplier relations are key to the continued profitability of their own business. When an agreement on payment has been reached, not only is it right and proper to ensure that the agreement is honoured; it is also an act of enlightened self-interest.
The Government acknowledge that late payment is not always deliberate, with the intention of frustrating the process. It is not always a case of some Goliath stepping on a defenceless David, and there is often no malicious intent. Various reasons may exist for late payment. We listed them in our Green Paper, "Improving the Payment Culture: a Statutory Right to Claim Interest on Late Payment of Commercial Debt." However, we see no good reason why, aside from their own errors, suppliers should have to bear the cost of late payment. We believe that it is right and fair that the cost of late payment should be put back into the hands of those who control it: the customers.
It has been said--this deals with some of the hon. Lady's comments--that the new right will lead to extensions of credit periods. We have thought of that. Where an agreed credit period amounts to de facto contracting out of the provisions of the legislation, it will be a void term in the contract and the courts will be able to strike it down.
It has also been said that businesses will be too worried about losing a customer to exercise their right to claim interest. I do not believe that business sees that it makes any commercial sense to drop a supplier simply because the supplier made a claim for interest.
Businesses generally understand the value of good suppliers. All our great household names have got where they are because they value and invest in their supply chain. They also know that it is administratively time consuming and expensive to replace good suppliers.
Mr. Michael Fabricant (Lichfield):
As the Minister knows, I was in business before entering the House in 1992. How does she reconcile her comments and the situation of a small supplier, perhaps supplying to a very large corporation--I shall mention GEC, and there are others--which sometimes took up to 120 days to pay small suppliers? That was the case not just with plcs, but with the BBC too, although I believe that it has changed its ways. As a small business man trying to make an inroad into a market, I would not have dared to say, "I am sorry, but I insist that you pay within this particular time," when I knew that other suppliers were not doing that.
Mrs. Roche:
The hon. Gentleman raises an important issue, and I am interested to hear of his experience, which illustrates some of the difficulties. I know from my postbag, which contains letters from hon. Members from all parts of the House, what late payment means to their constituents, especially their business constituents.
We are giving businesses the right to claim interest, but it is up to the individual business to make the commercial decision whether to enforce it. As part of a package of measures that I shall describe later and which I am sure will interest the hon. Gentleman, that provides an important lever in the hands of a small business. I believe that, rather than drop their supplier, debtors will go for the simple solution, and try to ensure that they pay their bills on time.
Action to tackle late payment can wait no longer. The Government believe that it is time to provide, in the context of a wider package of measures, a statutory right to claim interest on late-paid commercial debt, aimed at improving the payment culture in the UK now.
We stated in our Green Paper that, to help small businesses in particular, the statutory right to claim interest will be exercisable, initially, by small businesses against all large enterprises, including the public sector. We envisage that the right will be extended, after a period of two years, for use by small businesses against all enterprises, including the public sector. Finally, we envisage that the right will be extended, after a further period of two years, to all enterprises, including the public sector, to use against all enterprises, including the public sector.
Responses to the Green Paper showed business support for phasing at 87 per cent., with support for the proposed timetable only slightly lower at 85 per cent.
The Bill will encourage customers to pay on time, and, in conjunction with the wider package of measures, will help to combat the late payment problem. Part I creates an implied term in contracts, where no explicit remedy for late payment is provided, for a statutory right to claim interest; specifies the contracts and debts to which the term may apply; sets a default credit period and procedures for remission of interest; and provides an order-making power to set the statutory rate of interest.
Part II describes the extent to which parties to a contract can exclude or vary the right to statutory interest in relation to a qualifying debt. It will not be possible for parties to contract out of the Bill unless the contract provides a substantial remedy for late payment. Part III provides general and supplementary measures necessary to give effect to the Bill and ensure that it operates effectively. The final clause includes a commencement power to enable the Bill to be brought into force in stages.
The effect of the Bill will be that the cost of late payment will no longer have to be borne by the supplier. It will instead be borne by the party that can control it: the customer.
I can reassure the House--this answers the hon. Gentleman's point--that we do not see the legislation as a panacea. It is one important element in a package of measures that the Government are adopting, in partnership with the private sector, to improve the payment culture. The Government have regularly referred to the wider package of measures that can be seen in the annexes to their publications related to the Bill. Those include support for the decision by the Federation of Small Businesses to publish league tables of the payment performance of public companies; support for the development of the national vocational qualification in credit management; ensuring that small businesses can access credit management information and advice through the enterprise zone; and the establishment and co-ordination of the better payment practice group, which is a vital part of the Government's commitment to work in partnership with the business community to promote a better payment culture among British businesses.
The better payment practice group promotes best payment practice among all businesses and will help to shape both the private and public sectors' measures to tackle late payment. Members of the group include the Forum of Private Business, the Institute of Directors, the Confederation of British Industry, the British chambers of commerce, the National Farmers Union and the Union of Independent Companies. The group has met regularly and has already produced a substantial body of work.
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