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14 Dec 2004 : Column 253WH—continued
Small Businesses (Swindon)
3.47 pm
Mr. Michael Wills (North Swindon) (Lab): This Government have been the first—
Mr. Deputy Speaker : Order. I must interrupt. It looks as though there is to be another Division after all. I apologise to the Chamber.
3.48 pm
Sitting suspended for a Division in the House.
3.59 pm
Mr. Deputy Speaker : Order. To help hon. Members, I should say that one minute has so far been expended on this debate. I regret having started it; I felt that there was not going to be a second Division. In this instance both the Clerk and I were wrong. There was a Division, and I hope that there will not be a third.
Mr. Wills : Thank you, Mr. Deputy Speaker.
This Government have been the first to recognise in a sustained way the importance of small businesses to the British economy and to support them. For example, the pre-Budget report last month further lightened the burden of regulation, and followed on from previous measures such as the reform of audit regulations, which allowed small businesses to spend their own money as they wished, rather than having the state dictate to them. The creation of the Small Business Service has helped to improve the quality of the business advice and support available to small businesses and the Minister has been an indomitable and—if I may use the word—indefatigable champion of small business.
One of the most important measures taken by the Government on this issue was the Late Payment of Commercial Debts (Interest) Act 1998. Cash flow is the lifeblood of all businesses, and that is particularly true of small businesses. The Federation of Small Businesses estimates that one in three business failures are the direct result of interruptions to cash flow. The Act was intended to be the building block for a change in business culture. As such, it has been widely welcomed by small businesses all over the country.
It has always been recognised that the ability to charge interest on late payment would not work on its own, and that that was to be the start of a change in culture. Welcome as the legislation has been, we need now to look at it with a cold eye to ascertain what more can be done to effect that change in culture. Earlier this year, I consulted small businesses in my constituency about their problems. The chairman of the local Federation of Small Businesses, Mr. Poole of the Minuteman Press, told me that his company has relatively good statistics on payment: some 10 per cent. of large companies pay within 30 days, 45 per cent. pay within 30 to 60 days and another 40 per cent. take 60 to 90 days to pay. Those statistics are relatively good, but only so good, Mr. Poole told me, because he spends
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40 per cent. of his working time chasing payment—40 per cent. of the time that he could spend growing his business. That is not good enough.
Of course, some payers are exemplary. Mr. Poole said that Honda Logistics and the Swindon primary care trust stood out because of their awareness of the need to be timely with their payments to small businesses. I hope that the Minister will join me in congratulating them on setting such high standards of corporate responsibility. Unfortunately, not all large firms appear to be following their example. Thames Water, for example, has been described locally as having an appalling record of late payment, and I have constituents who have suffered greatly from late payment by Taylor Woodrow. I hope that the Minister will join me in urging all large businesses to match up to the standards set by Honda and the PCT in Swindon.
There is clearly more to do. Work by the credit management research centre at Leeds university suggests that the percentage of invoices paid late in the UK rose from 52 per cent. in 1996 to 56 per cent. in 2002, and that large firms and overseas customers were most likely to pay late. Late payment by central Government worsened by 10 per cent. between 1998 and 2002, although I understand that much of that is down not to Whitehall Departments—they have, by and large, raised their game—but to central Government agencies.
Late payment to small firms is wrong. It represents an abuse of power, exploiting the vulnerability of small firms. It is also inefficient. Large firms are late payers for two reasons: either because their finance departments are in chaos or because they deliberately exploit their suppliers. Sometimes, regrettably, both reasons apply. Good firms, which will thrive and prosper in the long term, make their money by producing as efficiently as possible goods and services that people want to buy at prices that they want to pay, not by exploiting their most vulnerable suppliers.
Late payment gives small firms a difficult choice between accepting possibly terminal damage to their cash flow and spending the sort of time spent by my constituent on chasing payment. This does not help small firms to realise their potential or to make the sort of contribution that they could make to improving still further the economic performance of this country.
Nearly everyone agrees on the importance of the 1998 Act in setting new standards. However, six years on, the time has come to revisit it. I hope that the Minister will respond positively to the following four suggestions on how the situation for small businesses might be improved. Justice Louis Brandeis once said:
and transparency is the key to this issue. The Minister will be aware that the Companies Act 1985 requires a statement by large companies in their directors' report on the company's policy and practice on payment of its suppliers. That requirement could be effective in exposing late payers if all companies complied with it, and as such it would help to transform the culture of payment. The problem is that although many large companies do comply, others do not or comply only with the requirement to state their policy and do not state their practice.
I understand that Companies House cannot find the resources to monitor compliance comprehensively. Recognising the inevitable constraints, will the Minister
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discuss with Companies House the possibility of regularly and systematically monitoring a sample of plc reports and publishing the findings, together with the names of late payers? That would be a significantly lesser burden on Companies House than comprehensive monitoring, but the threat of getting caught in such a sample and of subsequent exposure as an exploiter of small firms might act as an incentive to some plcs to comply with the spirit and the letter of the law. That is my first suggestion.
Secondly, will the Minister consider introducing at an appropriate time in the legislative cycle a requirement on holding companies to produce a statement about the policy and practice on payment of suppliers of all the companies within the holding group, so that a device that is currently available to holding companies and that is used by some large companies to avoid such statements is no longer available to them?
Thirdly, will the Minister consider ways to force auditors to take greater responsibility for ensuring compliance with the provision? If the accountancy profession will not agree to work with him to that end, will he consider legislation to bring in penalties for the failure to secure such compliance?
Finally, will the Minister consider writing to all Government agencies and Whitehall Departments to ask them to ensure that they are prompt payers, highlighting those who are not compliant, and will he consider continuing that correspondence on an annual basis? Action in all those respects would continue the excellent work already put in place and could help to bring relief to hard-pressed small businesses in Swindon. I hope that the Minister will consider them.
4.7 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths) : I am grateful to my hon. Friend the Member for North Swindon (Mr. Wills) for securing the debate. It allows me to outline the steps that the Government have taken to cut the length of time that it takes UK businesses to pay suppliers, and to urge further improvements on companies that have failed to adopt best payment practices. I wonder whether Hansard could sort out the sound system; I am hearing an echo.
Mr. Deputy Speaker : I am sure that the Minister's comments have been noted by those who control the system.
Nigel Griffiths : I am still hearing an echo.
Mr. Deputy Speaker : It is all right.
Nigel Griffiths : In 1997, the average time taken by businesses to settle their accounts was 49 days. That was simply and wholly unacceptable. I pay tribute to my hon. Friend the Member for Hornsey and Wood Green (Mrs. Roche), who championed that cause and who, as the Minister responsible for small businesses, crafted the legislation to tackle the late payment of commercial debts. I also applaud the significant contribution made
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by my hon. Friend the Member for North Swindon to ensuring that small businesses have prospered, and his championing of that legislation.
I know from first-hand experience the tremendous work done by small businesses in Swindon. The vice-president of a large business in Swindon—Honda—told me that his factory depended on more than 100 small businesses as suppliers. I am delighted to acknowledge the support that my hon. Friend gives local small businesses. Business Link Swindon, which the Government fund through the Small Business Service, has been working closely with start-up and growing businesses. The number of small businesses in Swindon soared by 23 per cent. in less than a decade—double the national average. Manufacturing employment, which you and I feel passionately about, Mr. Deputy Speaker, continues to be above the national average, and the service sector is strong too. Swindon has the highest employment rate in the south-west, with almost 84 per cent. of the eligible population in work, and small businesses are one reason why the economy around Swindon has been among the fastest growing economies in the UK.
As my hon. Friend rightly points out, this Government were the first to recognise the damage that late payment causes to firms. They were the first to listen to the pleas of small businesses and the first to act. Prior to 1998, there was no specific protection for companies that suffered at the hands of other organisations that delayed settling their accounts.
First, we enacted the Late Payment of Commercial Debts (Interest) Act 1998, which gives suppliers the statutory right to claim interest for late payment.
Secondly, the Act sets a credit period of 30 days, if no other period has been agreed.
Thirdly, we established the better payment practice group to help us highlight the good and the bad payers, and to offer advice on the action it wanted us to take. I am grateful to all the members of the better payment practice group for their efforts, especially the Federation of Small Businesses, the CBI's SME council, the Forum of Private Business, the Institute of Directors and our own Small Business Service. Among other things, the better payment practice group produces league tables to identify the good and the bad players. It is a measure of its success in securing effective legislation that one fifth of the 856 businesses that it surveyed have successfully claimed interest and compensation for late payment.
Fourthly, in 2002, in consultation with the representative organisations of small business, we strengthened the legislation to give every business the right to claim a fixed sum of compensation for pursuing bad payers.
Fifthly, in recognition of some suppliers' fears of retaliation from larger companies, as the Minister I am always willing to write to the chief executive of such companies on their behalf.
There have been a number of completely independent studies of the average time it takes to settle accounts. According to the Grant Thornton European business survey for 1997, the average payment time is 49 days. Its latest international comparisons show the true impact of our groundbreaking legislation; the time taken to settle has fallen by 12.8 per cent. and it is now a full week less than the average time in Europe. The REL Consultancy
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Group surveyed businesses on the average days payable outstanding—or DPO—measure. It lists the payment performance in other countries as follows: 67.9 days for Italy, 63.7 days for France, 42.4 days for Europe as a whole and 33.6 days for the United Kingdom—a full 20 per cent. less in terms of average days payable outstanding.
My hon. Friend gave some figures from Mr. Poole. Since his poll, I have received the latest figures of the Federation of Small Businesses measuring how plcs are performing; they show that it is no longer 10 per cent. but 34 per cent. that are paying bills within 30 days—and that has now increased to 37 per cent. In a survey carried out for the Small Business Service, 65 per cent. of businesses stated that they now have no problems with late payment. In a survey carried out by Stevens and Bolton Solicitors, 84 per cent. of businesses that received a claim for interest continued the business relationship. In 1992, 56 per cent. of companies surveyed by Lloyds TSB reported cash-flow problems; a majority of companies in that survey had cash-flow problems, many of them chronic. The current figure is 17 per cent.—the lowest in the history of its survey. The recently established pay-on-time website has advised 44,000 visitors on this matter.
My hon. Friend mentioned Companies House. I take very seriously complaints that Companies House is failing to ensure that all public companies disclose their practice on average payment times. Indeed, I took that up with the chief executive, and she subsequently investigated 56 companies. That has cleared 20 of them, and it is investigating the remaining 36. She also undertook three specific actions: a publicity campaign to remind companies of their legal obligations to
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disclose their policy and practice; a targeted mailshot to all public companies reminding the directors of their obligations; and individual letters to the Institute of Directors, the accountancy institutes—as my hon. Friend asked for—and other Government bodies, the CBI and the financial reporting review panel. I will certainly ensure that the chief executive gives serious consideration to the other measures suggested by my hon. Friend.
My hon. Friend raised the issue of the payment practices of Departments. He will know that at the end of the Conservative Government's third Administration only 82 per cent. of Government bills, and those of their agencies, were paid on time. That figure is now 96.68 per cent. Again, there is strong evidence of action being taken.
Finally, my hon. Friend asked me to communicate with other Departments to ensure that those figures remain positive. On 13 June I wrote, as he requested, to my colleague in the Treasury who circulated my letter to all the other Departments and I have their replies. I would not want the Chamber to think that I am complacent about that issue or about the concerns that my hon. Friend has raised on behalf of Mr. Poole and other constituents. I hope that I have shown that we are continuing, as my hon. Friend started to, to take this issue seriously and we continue to consider taking action—if not year on year, when the need arises. We shall continue to review the matter and take whatever action is necessary to ensure a fair deal for our small businesses.
Mr. Deputy Speaker : The Chamber thanks the Minister for his reply. We are catching up.
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