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Mrs. Gillan: As that matter was mentioned three times earlier in the debate, I think that--by mentioning it yet again--the hon. Gentleman can be accused of boring repetition. Time moves on. When I signed that early-day motion, that was how I thought. However, I examined the problem in more depth, and I examined the Government's action on the matter. I no longer hold that view, although I will approve of any provisions in the Bill that will improve the culture of late payment. Nevertheless, I believe that the Bill is a piece of legislation too far, and that the hon. Gentleman is boring the House to death.
Mr. Cotter: People often say that when they are not very happy. Although time has moved on, improvement in paying debt has not moved on. We are debating a Bill
containing provisions that the hon. Lady strongly supported. Moreover, we are debating the Bill's other provisions, which will deal with the problem even more strongly than the early-day motion suggested.
The Government think that a four-year phasing-in period is necessary to enable small firms to adjust effectively to the legislation. However, that argument has no bearing on the ability of large firms immediately to charge other large firms. The hon. Member for Putney mentioned large firms' ability immediately to incorporate the legislation. We could at least consider, in the first phasing-in period, allowing large firms to charge against large firms.
The Bill contains a definition of a small business--which was identified in the other place as a matter of some concern. A small firm is defined as one that employs no more than 50 persons, which implies that a large business is one that employs more than 50 persons. That seems ludicrous when one considers that there may be only one or two people on the payroll and that payrolls can vary. We must be concerned about that issue and consider whether we should have a different definition of a small business. There are many definitions; the European Community uses a different definition from the one used in this country.
I turn now to the problems, to which other hon. Members have referred, that debtors face when they are taken to court. The small claims courts need to be responsive to the Bill if it is to be effective. At present, the system is very ineffective for several reasons. A survey in a recent CBI brief pointed out that
Even if a claimant is prepared to go to all the initial effort and expense of taking a debtor to court, the effort and expense do not end there. The majority of those who win their claim experience extreme difficulty in receiving their payment because the responsibility lies with them, not the court. The claimant has to pay a further fee to make the court try to enforce the judgment. That makes a mockery of the whole system, especially as the powers of the bailiff are very limited, and companies end up throwing good money after bad.
As hon. Members will know, the Lord Chancellor is reviewing proposals, which were referred to earlier, for the reform of the civil justice system, with a view to reducing delay and costs. That is welcome because court access and the enforcement of judgments are vital to the Bill. I urge the Government to ensure that future legislation on the matter will tie in neatly with the Bill, so that it is worth pursuing a debtor through the courts system. The system must be simple, quick, accessible and effective.
I have been assured that there should be no problems regarding the Bill's compatibility with European legislation. However, we need a cast-iron guarantee from the Government that the Bill will be compatible with the European directive that is being formulated on this issue.
Of course, as other hon. Members have said, the Bill will not solve the problem of late payment. It is a cultural problem which requires more than legislation to solve it.
There should be published lists of known, regular late payers. The Government seem keen to implement that proposal, which is welcome. If a business appeared on such a register, its credit rating could be affected, which might induce prompt payment. The hon. Member for Putney referred to the possibility of having an ombudsman to support such a requirement. That is a proposal, which I had not thought of, that we might consider.
Small firms need greatly to improve debt collection and the general running of their financial affairs. Many companies have no systems in place and operate ad hoc. They do not make proper credit checks; delays and errors in invoicing are common; and they do not promptly pursue debtors. Late payment is viewed as a burden, but often as inevitable, so businesses should be educated to realise that that need not be the case. Businesses need to be made aware that it is no good their taking on work if they are unlikely to be paid for it within a sensible time.
Improved credit management procedures are needed so that the late payment culture dies. Credit checks on potential new customers, credit limits, clearly defined payment terms, account monitoring and prompt action on debtors are some of the many ways in which businesses can improve their financial operation.
The 1996 Grant Thornton document on good payment practice states:
Mr. Eric Forth (Bromley and Chislehurst):
My only claim to any background or expertise in this matter is that I was a buyer and a credit controller. That was some time ago, but the principles remain substantially the same as when I grappled with them in the private sector before I became a politician.
What bothers me about the Bill is that, like so many Bills being considered by the House, there is more than a smack of a quick fix and easy solution about it. I completely absolve the Minister from that accusation, because she said that the Bill was no panacea. I am more concerned for those business men who, as has been claimed repeatedly throughout the debate, are asked in surveys, "Wouldn't you like interest to be payable on late payments?" and reply, "Yes, please. That sounds like a very good idea." They would say that, wouldn't they? Most business men do not stop carefully to ponder the contents or implications of surveys. They read them and reply, "Yes, I like the sound of that." That is perfectly understandable.
It is surely our job to study the proposals and consider whether they are likely to benefit the business community. In that regard, I am always puzzled by the suggestion--particularly if it is alleged to have emanated from the business community--that the law will be helpful. The Conservative party and the Labour party have recently fallen over each other, claiming to be the party of
deregulation; yet, time and again, against that claimed background, measures such as the Bill are put before the House. They are clearly regulatory and are always justified as a special case or part of the general scheme. The words must follow the action or the action the words. We cannot get away for much longer with claiming repeatedly to be the party of deregulation while putting our names to measures such as this.
The key to the matter is the relationship that exists in a trading context between large and small businesses. The suggestion that all or most small businesses are virtuous in that regard and pay their bills on time, and that it is only the large businesses that do not, does not reflect my business experience. Perhaps events have moved on since then and most or all small and medium firms are paragons of virtue in that regard. I wonder how many of them have considered that they, like larger companies, could get caught by the Bill. That is a matter for their judgment.
Mr. Breed:
Does the right hon. Gentleman accept that many small businesses are unable to pay their bills because they have been unable to collect money owed to them? That is a cash flow problem: the fact that many businesses will not pay results in many that cannot pay.
Mr. Forth:
I fully accept the hon. Gentleman's point.
Reference has repeatedly been made, not least by my hon. Friend the Member for South-West Hertfordshire (Mr. Page), to a change in culture. The assumption in the debate and underlying the legislation has been that the Bill will bring about a change in culture that we all desire and would approve of--businesses paying more promptly.
My fear is that the Bill will have precisely the opposite effect. There is at least a possibility, perhaps even a probability, that, as a result of the Bill, large firms will seek to change the terms of trade that hitherto have been normal in British business--net 30 days. They will argue that, if they are forced to pay interest on late payments, they will unilaterally change the terms of trade to net 60 days or net 90 days.
Mrs. Roche:
When the right hon. Gentleman reads the Bill carefully, he will realise that we have thought of that important point, which is why we have said that terms in a contract that amount to a de facto contracting out of the provisions of the Bill will be void.
"larger firms were more likely to have used the courts than smaller firms."
The courts system should be accessible, regardless of business size. The courts need more teeth, and judges could do more to encourage defendants to pay up.
"A sale is not a sale until it has been paid for."
Businesses should bear that motto in mind, and business links should make credit management an absolute priority when advising small firms.
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