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Westminster Hall

Wednesday 14 September 2011

[Mr Jim Hood in the Chair]

Late Payments (SMEs)

Motion made, and Question proposed, That the sitting be now adjourned.—(Bill Wiggin .)

9.30 am

Debbie Abrahams (Oldham East and Saddleworth) (Lab): It is a pleasure to serve under your chairmanship again, Mr Hood. I am grateful to have secured this debate to discuss the effect of late payments on small and medium-sized enterprises.

In the background to how I became involved in the issue and, in particular, launched the “Be Fair, Pay On Time” campaign is a constituent who came to one of my surgeries shortly after I was elected. He was a haulier and had been in business for a number of years. He said that his business was threatened by late payments, in particular from large companies. Although his contractual terms involved payment in 30 days, those companies often took 90 days to pay him.

I decided to see how wide the problem was in my constituency, and I was contacted by a range of SMEs. There was, obviously, an issue, but unfortunately most of them were unprepared to come forward to state their experience, because of fear of reprisals, in particular of being blacklisted for future work. So today it is with mixed feelings that I will discuss my constituents, Ann and Harry Long, and their experience. Ann is in the audience today, with her daughter Janine. They have travelled down from Oldham East and Saddleworth, so I am grateful to them for being present. They are interested to hear about the issue from all MPs and, in particular, about what the Government will do.

In July this year, the plumbing and heating company that Ann and her husband Harry had built up from scratch 35 years ago went bust due to the effect of late payments by larger contractors. Ann told me how larger companies have the buying power to stretch out the time that it takes them to pay their bills to smaller companies such as hers and Harry’s. She said that for most of their 35 years in the business many good local companies such as theirs held strong, honest values about paying suppliers on time. Ann believes that that was because their client base was companies such as theirs—local SMEs who care. When the recession hit, though, the only companies that seemed to have work were the larger ones, so Ann and Harry had to win work with them, even going so far as to compete on eBay for tenders. Last year, however, as a result of bad debts of more than £150,000 from companies not paying promptly or at all—the worst that they had known for 35 years—Harry and Ann’s company went into voluntary administration. With no cash flow, it was impossible for them to continue.

Ann and Harry’s story is not unique. I know about several other businesses which, went into voluntary administration in the summer, primarily as a result of late payments. Nationally, we know from the Bankers

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Automated Clearing System, which runs electronic processing for financial transactions, that £24 billion is owed to SMEs and that more than a third of SMEs say that large companies are not paying their bills on time. To put that into context, high street banks lend SMEs approximately £47 billion, so the late sum is not insignificant and is affecting the cash flow of those companies.

According to data from a recent survey by the Federation of Small Businesses, over the past 12 months 73% of businesses have been paid late, the average SME being owed £27,000 at any one time, with 56% of FSB members having written off invoices of up to £10,000 because of non-payment and 6% in the construction sector having written off more than £35,000. That position is getting worse. The Economy Watch panel of the Forum of Private Business said last November that late payment had shown a “continued decline”. Small businesses have reported that, typically, payment is now taking 50 to 60 days, not 30, with more than a third of a company’s turnover being tied up in late payment.

The FSB’s survey indicates that manufacturing is the worst industry sector for making late payments, followed by the construction industry. Although the private sector is the worst culprit for late payments, according to 77% of FSB members a significant section of the public sector still fails to pay promptly as well, including local authorities and Departments. New businesses, being particularly fragile as they start up, are also more likely to be affected.

Mr Philip Hollobone (Kettering) (Con): I congratulate the hon. Lady on her excellent speech and on all the energy and industry that she has shown in the House since being returned at the by-election.

A small company in my constituency of Kettering is owed £34,000 by Her Majesty’s Revenue and Customs under the construction industry scheme, and yet at the same time it is being pursued by HMRC for a £10,000 corporation tax bill. May I use the hon. Lady’s debate to pass on a message to the Government that they need to get the Inland Revenue in order, to be on the side of small businesses and not against them?

Debbie Abrahams: I agree that the action needs to be comprehensive, and I will mention that at the end of my speech.

The impact of late payment can be disastrous, as we have heard. During the recent recession, an estimated 4,000 businesses failed as a direct result of late payments. Small businesses do not have the cash-flow buffers of larger companies so, in turn, they often pay their suppliers later than they would like, and a downward spiral develops.

The BIS Barometer survey for 2010, from the Department for Business, Innovation and Skills, showed that 60% of businesses have noticeable cash-flow issues and that for 25% of them that is a big problem. The knock-on effects of late payments include the inability of SMEs to access capital from banks and other financial institutions. In the FSB survey, 18% of businesses cited poor cash flow as the reason for a loan application being unsuccessful.

Gordon Birtwistle (Burnley) (LD): I congratulate the hon. Lady on securing the debate. Does she agree that the banks, rather than helping small businesses whose

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cash flow is suffering from late payment, shove the companies down the invoice-factoring route? Invoice factoring is an extra cost for small companies, so the banks make more money out of them without as much risk, and yet they still fail to collect the old money afterwards.

Debbie Abrahams: Yes, a whole range of factors affect small businesses and their viability. No doubt one of those is the transactional costs being passed on to small businesses. SMEs are being affected not only in their cash flow but in their ability to get additional financing from banks.

David Simpson (Upper Bann) (DUP): I congratulate the hon. Lady on obtaining the debate, which all Members surely agree is timely because of the economic difficulties of the country. The hon. Member for Kettering (Mr Hollobone) has mentioned HMRC, and the Northern Ireland Assembly agreed that for any work carried out by companies for the Government, whether it involves schools or whatever, an arrangement would be made for quick payment. Perhaps the Government in this House will look at that idea to help small businesses, because cash flow is their lifeline. It is difficult at the moment for small companies to get credit insurance, so that is an extra cost as well, so some form of quick payment or charging interest if a company defaults on the payment terms might alleviate the problem.

Debbie Abrahams: Yes, that is certainly one of the actions that I hope for from the Government.

Mr Andrew Smith (Oxford East) (Lab): I join the congratulations on how my hon. Friend is putting forward this important case. Does she not agree that the previous Labour Government brought in the target of five-day payment, as well as the ability to charge interest, which was mentioned by the hon. Member for Upper Bann (David Simpson) in his intervention? The problem is that in the public sector not enough Departments, agencies and local councils are complying with that target, so stronger measures are needed.

Debbie Abrahams: I thank my right hon. Friend for making that vital point. Yes, the previous Labour Government did a lot about that, but monitoring and reporting of the five-day target is needed. That is one of my action requests for the Government.

Lorely Burt (Solihull) (LD): I do not wish to prolong the point, or your patience, Mr Hood, but under the Late Payment of Commercial Debts (Interest) Act 1998, which was introduced by the previous Government, small companies may charge interest if the time for payment of a debt is exceeded. The problem is that as soon as a company rattles the chain of a larger company, it risks losing business. There is always a fine balance between the power of big companies and the lesser power of smaller companies.

Debbie Abrahams: I totally agree with the hon. Lady. That is one reason why companies are not prepared to come forward. A concerted effort is needed with a range of interventions to address the power imbalance that she has rightly identified.

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On the impact on businesses that were refused additional finance, 13% said that they had had to lay off staff, and a worrying 40% said that they were having ongoing financial difficulties. There is growing evidence that late payments to SMEs are hurting our economic recovery. Data from the Office for National Statistics show that SMEs comprise up to 98% of the total number of organisations in the UK economy, providing 59% of all private sector jobs, 45% of all employment, and generating 46% of the UK’s income from the private sector—a massive £1,558 billion. If their growth and survival is being threatened, it is inconceivable that that is not impacting on the country’s economic performance as a whole.

One of the favourite myths that the Government like to spin is that the recession was made in Britain and that the public sector is somehow to blame for our flatlining economy and should be made to pay with cuts in public spending and vital public services. No one is fooled by that, because everyone knows that the recession started on Wall street, that it was the result of private sector debt, led by the banks, and that it affects every major economy in the world. It belittles my constituents to try to portray it is as anything else.

A little reported fact is that in 2009 City of London debt was 245% of gross domestic product, compared with public sector debt of 60%. It is time that this Government stopped blaming the previous Government and the public sector for the country’s economic woes and targeted action where it is needed on those who abuse their wealth and power. I want the Government to take action on those who flout their contractual responsibilities and fail to pay their bills on time, because those people are not above the law or untouchable. As the Federation of Small Businesses has said, this is not just an economic issue, because it is ethically wrong.

With the shadow Minister, I am calling on the Government to back the following action to address late payments. First, they should bring forward the new EU directive on late payment from March 2013. It introduces a minimum fixed amount of compensation for late payment and tightens the time period for payment. Secondly, the Government must ensure that all Departments are better at meeting the five-day payment target and have effective monitoring and reporting procedures in place. Thirdly, the Government must ensure that prompt payment is enforced all the way down the supply chain and not just between contractor and subcontractor.

Mr Gregory Campbell (East Londonderry) (DUP): I join the congratulations to the hon. Lady on securing this timely debate. Does she agree that in regions of the United Kingdom where there is higher than average dependency on the public sector for economic activity, the issues that she is discussing are even more prevalent, and require even more assistance? In Northern Ireland, for example, almost 60% of economic activity is directly related to the public sector.

Debbie Abrahams: I thank the hon. Gentleman for his intervention. I agree that that is an issue in some areas of the economy.

We are calling on large businesses to sign up to the prompt payment code, and I can announce today that Oldham metropolitan borough council, which had not previously signed up, has agreed to do so.

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Mr Jim Hood (in the Chair) Order. I have six Back Benchers on my list, in addition to the Front-Bench speakers. I am sure we will find time to fit everyone in, but if we are squeezed for time towards the end of the debate, I intend to call the Front-Bench speakers at 10.40 am.

9.45 am

Lorely Burt (Solihull) (LD): I congratulate the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) on securing this important debate. I am sorry that at the end she accused the Government of engaging in public sector bashing. This debate is much more important than scoring political points.

The “squeezed middle” is a phrase that we do not often use in relation to companies, but it is exactly what is happening to small businesses in this country. They are being squeezed on one side by their suppliers, and the late payments that the hon. Lady so eloquently described, and by the banks on the other side. They cannot obtain credit, and their tragic situation is worsening, as the hon. Lady said, and as the constituents who are here today illustrate.

Small businesses are much more fragile than larger ones, so having to endure late payment costs jobs and inhibits growth. Big companies with more than 500 employees pay, on average, 35 days late, but small companies with fewer than 100 employees pay, on average, 19 days late. Big companies have a great deal more relative credit than small companies, and big companies get fatter while small companies struggle and get leaner. However, as I said during my intervention, coming down hard on big businesses may be counter-productive, and may deter them from trading with smaller businesses.

The hon. Lady referred to the prompt payment code, which was launched last year by the Institute of Credit Management on behalf of the Department for Business, Innovation and Skills. Companies promised to keep to payment terms agreed at the outset of a contract. However, I understand that fewer than 1,000 companies have signed up. What can the Government do to encourage many more companies to sign up to the prompt payment code?

Jim Shannon (Strangford) (DUP): A system that might benefit both suppliers and receivers is the BACS system—bankers’ automated clearing services. It ensures that money goes from A to B quickly and painlessly. Does the hon. Lady believe that there might be some way of incentivising that scheme so that everyone benefits?

Lorely Burt: I am grateful for that intervention. It is an excellent idea, and perhaps the Minister will address it when he responds.

The Companies Act 1985 requires public companies to submit their payment terms, but that has not been properly enforced. The Federation of Small Businesses has suggested that more resources be put into the policing of that requirement. Many companies write warm and woolly words about how socially responsible they are, but if that is not backed up with action and a declaration of their terms so that they can be measured against those terms, their warm words about how corporately responsible they are cannot be measured.

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The House is scrutinising the late payment directive. The Government are challenging the EU to reduce the threshold at which payment is made from 30 days to 10 days, and, if that can be achieved, it will be admirable. It is, however, something that we can impose on ourselves in this country today.

The FSB suggests that we should introduce a social clause for sub-contractors. First-tier suppliers are often paid promptly but keep the little guys further down the supply chain waiting. If first-tier suppliers are being paid quickly it should be extended to everyone down the supply chain, and the further down the supply chain a business is the more important prompt payment is to it. I should be interested to hear the Minister’s views on that.

On public sector procurement, there is an aspiration to simplify applications for approved supplier status and make them manageable for small businesses. What progress have the Government made with that? If small businesses can contract directly with Government bodies, their cash flows will be much improved.

I should like to ask about the enterprise finance guarantee, the aim of which is to make £2 billion available to viable small businesses without credit history or collateral. The Minister might not have the figures to hand, but I should be interested to hear how that is going.

The Government have an aspiration to award 25% of their procurement to small businesses. We are making great progress towards achieving that self-imposed target, but will the Minister update Members on it, either this morning or later?

9.52 am

Fiona O'Donnell (East Lothian) (Lab): It is a pleasure to serve once again under your chairmanship, Mr Hood, our having served on the Health and Social Care (Re-Committed) Bill. I know that we can look forward to a firm but fair hand in proceedings today.

I join Members in congratulating my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) on securing this debate. The issue is of concern not only for my constituents but for us all, so I am pleased to see Members from all nations of the United Kingdom present to participate in this discussion.

I thank the shadow Minister, my hon. Friend the Member for Streatham (Mr Umunna), for the work he has already undertaken in his new post in reaching out to businesses across the UK. I apologise for the fact that so far I have not provided him with information from my constituency, but work is ongoing. I am working with my political partner, the MSP, Iain Gray, to assess the challenges facing businesses in East Lothian. Although that is good for joint working, it is not so good for meeting deadlines.

This issue is vital, especially in my constituency, because the hope for economic recovery, for growth, for more money to go into the economy and, importantly, for more jobs lies with the public sector and SMEs. The issue is relevant to my local employers when they are considering taking on new staff.

The one bill that employers must meet every week or every month is that for wages. We have seen evidence of slippage in Whitehall Departments achieving the five-day

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target. The impact of a Department being a couple of days shy in meeting the target might be viewed as small, but, bearing in mind the fact that private companies may not have signed up to the target, many companies were assured by the good practice set under the previous Labour Government because they knew that money would be in their accounts. That security meant that they could meet their wages bill.

Labour’s opponents criticised its manifesto and plans to increase national insurance tax, saying that it would inhibit growth in jobs, but confidence in the economy and in their cash flow is far more important for SMEs considering taking on new staff. If youth unemployment in my constituency is to be targeted, with an increase in the number of apprenticeships for young people and those retraining and reskilling, it is vital that the Government support the health and stability of SMEs.

My hon. Friend the Member for Oldham East and Saddleworth spoke of the danger of a contagion, and in this respect I can draw on my experience of working in the private sector. As a company’s cash flow starts to become restricted, it must start to decide which bills to pay, and when. The health of the small business sector is under threat because many companies are now having to make such decisions.

SMEs face a resource issue. We did not have the capacity vigorously to chase late payments or to send threatening legal letters, which meant that larger companies and the public sector, aware of our dependence on them, could feel secure in not making payments on time.

David Simpson: Although not all the public sector signed up to the five-day target, I acknowledge that it is a good thing, but does the hon. Lady agree that the problem is that if a private sector company is not being paid it will go to the man behind and say, “I’m not being paid quickly enough to pay you”—a chain reaction? How do we ensure that the chain works as we would want?

Fiona O'Donnell: I thank the hon. Gentleman for his intervention. It is the job of the Government to set the tone and encourage businesses to change that culture by making it clear that late payment is not acceptable.

The issue must be set in the context of the many challenges facing SMEs in my constituency, across Scotland and across the UK, such as rising energy and fuel costs—having to fill vehicles at the pumps, which particularly affects large rural areas—VAT increases and a shrinking public sector. I appeal to the Minister to recognise that, yes, we need to rebalance the economy—especially in Scotland, where we are far too dependent on the public sector—but also that many small businesses are dependent on the public sector for their health and economic activity and if we shrink the public sector too quickly they will not have a chance to adapt to the challenges the Government are setting them.

We welcome the Vickers report and the prospect of more effective bank regulation, but I appeal to the Minister to ensure that it is not SMEs that pay the cost of that regulation in increased credit charges and more restrictive access to credit.

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The Government can act on this issue and make a real difference. Labour started that work in government, but the danger is that we are slipping into reverse. I therefore hope that the Minister gives a positive response to the proposals set out by my hon. Friend the Member for Oldham East and Saddleworth. There is an opportunity for Government to change the culture and to give a lead. I look forward to the Minister’s response.

9.59 am

Anne Marie Morris (Newton Abbot) (Con): This is an excellent debate and very timely. The focus to date has been on the challenge in the public sector, but as the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) explained at the outset, the biggest offenders are in the private sector. They are the large British corporates. My comments will therefore focus on what we might be able to do there.

RSM Tenon examined the figures and found that in the first quarter of 2011, 80% of SMEs were paid late. A lot of evidence has been given about the length of those periods. The points made have referred to 30 days, 60 days and 90 days. What we have not put on the table and should is that some SMEs are waiting six months. That is not in any way acceptable.

To deal with the problem, we need to understand why it exists. This has already been implied, but I think that it is worth putting on the table the fact that one of the main problems is the imbalance of power. The large companies have significant trading power over the smallest, and as the recession has bitten, so all the very small companies are fighting for every contract that comes through the door and do not necessarily think as strategically as they might about whether a contract is a good one or a bad one.

Small businesses could do a couple of things to help themselves. I was interested to learn that a large number of small businesses enter into no form of written contract. The consequence is that they are then dependent on the Late Payment of Commercial Debts (Interest) Act 1998. That is excellent legislation, but as has already been expressed, it depends on the willingness to enforce it, because clearly there is a cost to litigation.

I was also surprised by how few small businesses do any form of credit check. According to the Institute of Credit Management, 25% of businesses make no checks at all. If people make those checks, they can be a little more streetwise in terms of how they negotiate the contract and they might think about some form of part-payment in advance.

Mr Andrew Smith: On contracts, does the hon. Lady think that there would be merit in exploring the idea of a default contract that automatically applied if one had not explicitly been negotiated and in legislating to that effect?

Anne Marie Morris: I think that it is very difficult to imply a contract, because contracts are inevitably quite complex and varied and depend very much on the nature of the business. However, the 1998 Act gives protection. I suspect that in terms of legislative moves, that is probably as far as it is sensible to go.

May I now consider the current solutions? Credit insurance was mentioned. Clearly, that is expensive for the smallest businesses. I spoke yesterday to one of the

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agencies, which told me that the average cost is 45p for each £100 of turnover. That makes it almost a luxury for the smallest businesses. The other challenge is that those schemes have to some extent been discredited, as they have been withdrawn, sometimes in a rather prompt manner, leaving some of the smallest businesses with particular problems.

However, the schemes do have a place. I am pleased to say that in my own constituency, Westaway Sausages has taken out credit insurance, which has made a huge difference to that business. It suffered a bad debt of £22,000 and now annually pays £10,000 to ensure that the business is protected. It has also considered the trade terms that it enters into and is very diligent in what it does.

With regard to current solutions, we have talked briefly about the prompt payment code. I certainly agree with the comments that we need more corporates to sign up to that. The challenge, of course, is whether they comply when they sign up and, if they do not comply, whether the small businesses that suffer act as whistleblowers. As has been well evidenced in the Chamber, the challenge, given the imbalance of power, is the extent to which those small businesses are willing to do that. Therefore, I am not sure that the answer is necessarily a greater number of people signing up to the code, although I would like that to be encouraged, because I think that it is morally the right thing to do.

The Companies Act 1985, which has been referred to, requires public companies at least to submit payment term details to Companies House and to list on the register their average payback time to SMEs. The problem is that getting all that information into Companies House is a mammoth task, requiring substantially more resource than is currently available. It might be desirable, but I have a suspicion that it might be unaffordable. In a minute, I will make a suggestion that might be equally effective but not as expensive.

Questions have been asked about whether the best way forward is through compulsion or through an additional voluntary code of practice or steps to impress on companies the fact that there is a better way to behave. Compulsion has been tried in California with the public sector, but the experience in Australia and the European Union is that it has not really worked. I suspect that that is partly because of the cost of litigation.

So what about voluntary solutions? What could we do in that respect? Clearly, we could consider a league of shame, which I think was one of the things suggested by the FSB, but at the end of the day, we have to come up with something that will put pressure on and change the attitude of the customers of the offending companies, rather than the suppliers. That is really the challenge.

I have three suggestions. First, I think that local enterprise partnerships have a role. We have asked them, on a region-by-region basis, to consider how they can support private sector growth. I believe that they have a role in providing advice and training for SMEs and that they could well collect information about bad payers. That information could then be shared among SMEs.

Mr Chuka Umunna (Streatham) (Lab): I am grateful to the hon. Lady for giving way during a very useful contribution. How does she envisage LEPs doing what she has described, given the sheer lack of resource that they have to fulfil all the other responsibilities with which they have been charged?

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Anne Marie Morris: I am delighted to report that I have found LEPs to be excellent at doing an awful lot with very little. Let me give an example. In my own constituency, we have a mentoring system, Teignbridge business buddies, which is supported and endorsed by the LEP. No one is paid anything, but we support new businesses, including people who were formerly unemployed, and it is a very good system. A lot can always be done if the will is there.

David Simpson: I am not being critical when I say this, but does the hon. Lady really believe that a voluntary system will work? We are talking about money, about people and about the natural instinct of companies to hold on to their money for as long as they possibly can. In addition, does she agree that among the biggest offenders in creating cash-flow problems are the major supermarket chains in the United Kingdom? All hon. Members help to get planning approval for them, but it is between four and six months before they make their payments.

Anne Marie Morris: To an extent the hon. Gentleman has anticipated my further comments.

David Simpson: Great minds think alike.

Anne Marie Morris: Indeed. Things can be done that are not simply voluntary, and I will expand on those. As for the supermarkets, I think that the plan is to have a supermarket ombudsman at some point to consider just this issue.

I hope that my second suggestion will give the hon. Gentleman some comfort. The Government could consider introducing Government-backed credit insurance for micro-businesses. Clearly, that would be unaffordable for the whole of the sector, but it could be done for the smallest businesses—those with fewer than five employees and a turnover of less than £250,000. That could be edged up to just under 10 employees and turnover of £500,000, but either way we are talking about a relatively small part of the economy. I am pleased that the Government have already introduced export credit insurance for the first time in 20 years. I say “Well done” to them for that, but we could do more.

I come now to my third suggestion. There is something that we could do to make large companies change their behaviour—change the accounting standards. I believe that in the annual report and accounts, there should be a report on the debtor days with regard to SMEs that are suppliers to a company. Clearly, it would be inappropriate for a report of debtor days to be too extensive, although any good company will keep such records. However, it would be helpful if it applied to any supplier providing more than, say, £100,000 of goods and if the number of debtor days was limited to 30, because that would ensure that it was included in the auditor’s report.

In the 1997 debates on this issue, it was suggested that the policy adopted by companies should go into the director’s report, and the proposal was subsequently implemented. However, it was decided not to include any information about debtor days in the auditor’s report. If such information were included, it would be in the accounts filed at Companies House, and the Federation of Small Businesses, the Forum of Private

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Business and other groups could easily look through the reports and accounts for the top 250 companies. They could then begin looking at how to campaign and raise the issue of the bad boys in the press. That might be a cheaper and more viable approach than simply dealing with Companies House filing requirements, laudable though that is.

Finally, small trade groups must begin to take ownership of, and responsibility for, the problem. We can sit here and say there is too much of a power imbalance, and it is easy for a small SME to say, “We can’t rock the boat, because X, Y and Z Ltd down the road will simply get the contract instead,” but power comes from acting together. Clearly, companies will not do that in every case, but it will be worth standing up together against some individuals and large corporates.

10.11 am

Owen Smith (Pontypridd) (Lab): It is a great pleasure to serve under your chairmanship, Mr Hood. I congratulate my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) on securing the debate, which has been extremely interesting so far. We have heard a huge number of positive and constructive ideas from both sides of the Chamber, which is a measure of the interest in SMEs and the recognition that they are, as we heard in the statistics which my hon. Friend has mentioned—I will not repeat them—the backbone of our economy.

I have experience of running an SME. I worked in a television production company, although not for a huge amount of time. I have also worked in quite a few large companies, so I have seen the interaction from both sides of the fence. The obvious lesson that came from that experience was, first, that turnover and cash flow are critical for small companies, especially in the early days. Late payment is therefore central to their viability in not only the long term, but the short term, especially in the early days. Secondly, as several hon. Members have said, large companies have enormous power to make or break small companies through the contracts that they dictate and put in place and through the payment structure that they observe.

In a recession and a downturn in the economy, all those problems are compounded. Small companies’ cash-flow problems become exponentially greater. Larger companies—here we come to where the late-payment culture intersects with a wider culture of irresponsibility in our corporate sector—are instantly tempted to renegotiate contracts, and they are often encouraged to do so by their procurement, supply and legal teams. They are tempted to pass on their problems to the supply chain and to screw down on smaller suppliers by squeezing the maximum amount out of them to insulate themselves. I have seen that; it is a common occurrence, and late payments are part of it. It is no surprise, therefore, that late payments have increased in the recession; indeed, that is inevitable because they are standard practice among large firms. Although they do not happen only in this country, they are a particular problem and cultural issue here.

One interesting aspect of the debate is the number of hon. Members from different parties who have said that the Government have a large role to play, rather than that the best thing for our economy would be for the

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Government to get out of the way. In this instance, there is clearly a real interest in the Government intervening and playing a leading role.

Fiona O'Donnell: May I say that television production’s loss is our gain? There was a large gathering of Eurosceptics last night—[ Interruption. ] I am disappointed. However, does my hon. Friend agree that introducing the EU directive on late payments would be one way for the Government to ease this problem?

Owen Smith: Yes. Indeed, they should think of introducing it earlier than anticipated. Europe clearly recognises that late payment is an issue. The Government should recognise that it is an issue, as the Opposition do, and they should introduce the directive. I hope the Minister will tell us he is interested in doing that.

The Opposition have long recognised that late payment is an issue. As we have heard, several pieces of legislation were introduced in the late 1990s. Initially, there was legislation allowing small companies to charge interest and seek compensation. Subsequently, the Labour Government sought to set an example by setting targets. They also talked about the need for a greater culture of responsibility on the part of all businesses. They set an example through the targets that they set Departments, although they should have gone further and pushed that right out across the public sector. The current Government would do well to look to that example. They believe in a big society, and they could use a bigger society to bring about that public good.

Late payments also relate to a wider issue: the culture of dog-eat-dog, devil-take -the-hindmost, beggar-thy-neighbour irresponsibility—call it what you want—that is an absolutely common feature of corporate life in this country. Suppliers are vital for all large firms, but they are inevitably and invariably low on the list of priorities for large firms. Some people, including Government Members, might say that that is inevitable in a system predicated on the primacy of shareholder value, but that system should not preclude other objectives, such as social responsibility. The most immediate form of social responsibility that larger firms can show is responsibility towards the welfare and viability of smaller firms. That is a matter not only of late payments, but of the way in which larger firms move their investments.

In my constituency, there is a filters factory called Sogefi. It is now Italian-owned, having been purchased from a British company a number of years ago. It is downscaling because its order book is declining. Two hundred jobs will probably be lost at that firm, which is in the Rhondda—a part of the country where there are all too few well paid and secure jobs. The knock-on effect of that company cutting jobs and potentially eventually moving on is enormous, because 12 or 13 suppliers throughout the area rely on it. One thing that we have failed to impress on the company is that it has a responsibility to those suppliers, because it clearly does not feel that it has. The culture of feeling that a company’s primary job is to look after its own shareholders and that it is for other companies to worry about themselves is precisely what motivates and underpins the culture of late payment in our country.

What do we need to do? Clearly, the Government need to set a better example. The hon. Member for Kettering (Mr Hollobone) has mentioned HMRC, and

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other hon. Members will have had builders in their area tell them that the chaos at HMRC—especially over the construction industry scheme—has resulted in enormous backlogs in the reimbursement of taxes already paid by small construction firms. That is but one example where the Government need to intervene to provide the resources to ensure that small firms—in this case, construction firms—do not go under.

This is also a question of the Government pulling their socks up when it comes to hitting the five-day payment target, because they are falling back right now. My understanding is that in the last quarter of the Labour Government we were hitting about 90% of the target figure for five and 10-day payment, but we are now somewhere south of 80%. That looks like falling back to me, but if my statistics are wrong the Minister can correct me—I would be delighted to learn that the figures are better than I thought.

We should be looking at introducing the European directive early and expanding that payment culture to the whole public sector. However, other aspects of intervention and legislation should not be off the table. It is not fashionable to talk about regulation, but clearly regulation is required in the present context; there seems to be a huge amount of consensus about that. I thought that the idea that we heard a moment ago about changes to accounting standards, and naming and shaming, was excellent. It would not necessarily require changes to legislation. Filing requirements at Companies House should also be looked at. Although the hon. Member for Newton Abbot (Anne Marie Morris) has rejected the notion of standard default contracts, the Government should look at the idea of minimum standards in contracts to try to marshal larger firms’ behaviour, so that they do not instantly fall back on screwing people lower down the food chain, which inevitably happens.

The Government have an enormous role to play. It is a myth, as the debate has shown, that the most effective way to get growth and efficiency in the economy is for Government to get out of the way. That myth has been wholly exposed by the recent crisis in capitalism. Late payments are a small but telling example of how the Government have a vital role to play. I hope that the Minister and his party recognise that.

10.21 am

Simon Hart (Carmarthen West and South Pembrokeshire) (Con): I shall be brief, given the time.

I want to deal with the so far unexplored issue of late payments due to legal disputes and to touch on one example from west Wales, which highlights that point. RWE npower is constructing a £1.6 billion power station, using Alstom as its main contractor, which in turn is using SOMi Impiante, a company based in Italy. That company is using a range of local subcontractors. Because of a legal dispute—I will not go into the rights and wrongs of it; the legal process will unfold—a wide range of subcontractors to SOMi Impiante, which has now gone back to Italy, have found that the money due to them for work done in good faith in accordance with their contract has not been paid. It is uncertain when it will be paid. They face the prospect of a considerable wait for the legal process to unfold.

Those companies are important to our local economy. They tendered competitively for the work, and their margins are extremely tight at the best of times. They

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have a sensitive and vulnerable cash flow, and their local reputation is important to them. Yet they are the victims of delays that are way outside their control and beyond the terms of the contracts that they signed. The delays are also outside the terms of the prompt payment code, but those companies do not have the money to engage in expensive and long-running legal battles against major companies based in foreign countries. Even if they had a reasonable chance of success, the sensitive cash flow that I have mentioned is hardly on their side. Of course, typically at such moments, the banks are facing in the opposite direction just when they are needed.

If the Minister were in my shoes, advising companies in my area that are victims of late payment as a result of others’ legal disputes, what advice would he give me?

10.24 am

Andrew Griffiths (Burton) (Con): It is a pleasure to serve under your chairmanship, Mr Hood. I congratulate the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) on securing this important debate. I have tried unsuccessfully on several occasions to secure a similar debate, so I must talk to you afterwards to find out how you were so successful, while I failed miserably.

Mr Jim Hood (in the Chair): Order. The hon. Lady may have applied for such a debate, but I did not.

Andrew Griffiths: Thank you, Mr Hood.

The hon. Lady had all of us in the Chamber nodding in agreement and support. We all—from all the parties, and all the nations represented here—want to do more to support small and medium-sized businesses, but such businesses in my constituency, and, I am sure, in the hon. Lady’s, do not want us to engage in party politics. They want us to work together and not to make party points.

I know that time is short and others want to speak, but I want to focus on an issue that has been raised with me in my constituency several times. We all go and talk to people who run small businesses, who tell us that things are tough, but that they are surviving. They tell us about difficulties with finance and the banks, and they have faced difficulties with late payments for many years. My family had a small engineering business and had to endure the “cheque in the post” argument when we chased payment of invoices after waiting a long time. However, a new phenomenon has begun to hit businesses in my constituency, and elsewhere. Large companies are arbitrarily extending their supplier payment terms. In recent months some larger businesses have decided to extend their normal payment terms of 30 days to 60, 90 or, in some cases, 120 days. Small businesses, which are desperate for the contract and do not want to lose the potential for future business, must live with having to finance an extra two or three months while they wait for payment.

I pay tribute to the Federation of Small Businesses, which has done a great deal of work on the issue.

Fiona O'Donnell: Does the hon. Gentleman agree that in that competitive and hungry market many SMEs take the risk of doing business with companies that they know may not have the best record of invoice payment, because that is the reality in these tough economic times?

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Andrew Griffiths: The hon. Lady makes a good point. It is a case of better jam tomorrow than no jam at all. Many businesses must make difficult decisions, and take risks to keep their work force ticking over and to sweat their assets.

I want to draw the Minister’s attention to a survey by Touch Financial. It surveyed 200 businesses and found that in the past year half of those had had their credit terms extended. The Forum of Private Businesses has a hall of shame of companies that have extended credit terms in that way. It includes well known businesses such as Dell, Argos, the Co-op and United Biscuits. Molson Coors in my constituency recently extended payment terms to suppliers there. That has a devastating effect, particularly when many of the businesses affected are being rung up by their banks, and told that their credit facility is being reduced—sometimes by up to half. It has a massive impact on cash flow, which as we know is the life blood of any small business. If we cut off that cash flow, those businesses will bleed to death.

10.28 am

Justin Tomlinson (North Swindon) (Con): I realised that there might be a bit of a gap, Mr Hood, so I thought I would try to build on some of the excellent speeches that have been made. My remarks will be brief. Before I became a Member of Parliament, I ran, for 11 years, a small business that would have fitted excellently within the category that my hon. Friend the Member for Newton Abbot (Anne Marie Morris) has championed through her work on micro-businesses.

In the spirit of praising the public sector, we should recognise that if a small business can secure a contract with the public sector it has a far better chance of being paid quickly. As several hon. Members have said, cash flow is king, and that makes a difference. However, it is extremely difficult for a small business to secure those public sector contracts, which are nearly always snapped up by the big boys who then subcontract the work on to small businesses. I welcome moves from the Government towards opening up the books and the contracts to smaller businesses, but I should be interested to hear more about how that will work in the real world.

Many businesses that struggle are either start-up businesses or are simply caught unawares. Those who start up businesses believe that, with a bit of hard work and some graft and enthusiasm, things will be great. They do not anticipate other businesses paying late or choosing deliberately not to pay. I therefore have a couple of requests. I understand that the Government want to create 40,000 business mentors for start-up businesses. I urge that the No. 1 priority for those mentors should be to teach start-up businesses about the necessity of invoicing quickly and using contracts and other available methods, because all too often new businesses are caught unawares.

Banks, too, have a role to play when start-up businesses ask for a new business bank account. The banks could provide training—or at least information on how to invoice and chase up late payments. I have often championed financial education in Parliament. I predominantly want to equip the next generation of consumers, but I also want to encourage entrepreneurial skills, and part of that is about basic accounting and ensuring that businesses understand how to invoice.

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A tip from my own experience is that one should talk regularly to customers and suppliers, because there are times when even good businesses will struggle because of the knock-on effect of some of their customers not paying. If others are aware that there are likely to be problems, everyone can plan accordingly. There is nothing worse than waiting on a cheque from a supplier or customer when you have to pay the wage bill, but one can at least talk to the bank about it.

The majority of suppliers that I knew which had folded, folded because their customers continued to spend money even though they knew that they were highly unlikely to be able to pay, and in the end it dragged them down. I would be interested to know the Government’s thoughts on that.

Fiona O'Donnell: I thank the hon. Gentleman for giving way. Will he indulge me by going back to what he said about the pay roll? The Government say that their Work programme is about not only creating jobs, but making those jobs sustainable. Does he agree that those SMEs that we hope will create jobs for the unemployed in our constituencies are far less likely to create sustainable employment if they have cash-flow problems?

Justin Tomlinson: Absolutely. Cash flow is the most crucial element for small businesses. In my case, I did not even have an overdraft. There were times when things were comfortable and times when we were anxiously waiting on customers to pay us. If they did not pay, that had a knock-on effect for suppliers. Access to cash is crucial, and banks need to be sympathetic and not simply say that the computer says no. The banks should take account of the fact that a business with a successful track record has a couple of customers who are taking longer than normal to pay.

There are some customers who continue to spend money that they do not have. If I go into a high-street shop as a customer, put things in my bag and walk out without paying because I cannot afford to do so, I will be done for stealing. All too often, however, I see good businesses that have traded for many generations being brought to an end because some of their customers have taken advantage of their credit terms, knowing that they could not pay. The consequence is that many jobs are being lost, and things need to be tightened. I would welcome the Minister’s comments on that.

10.33 am

Mr Chuka Umunna (Streatham) (Lab): I congratulate my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) on securing this debate. Frankly, the subject has not received the attention that it deserves, given the adverse impact of the fact that the economy has flatlined over the past nine months.

Everybody knows that there are disagreements about the Government’s economic strategy, but the Opposition agree that growth, which we all hope will return, will ultimately be driven by the private sector. If Britain’s 4.47 million small and medium-sized businesses do not thrive and prosper, our economy will not thrive and prosper. The simple reason is that they are the bedrock of our economy. Many of the owners and entrepreneurs running these businesses have identified a gap in the market, left their jobs and risked all to set up shop. They have had to cope with a difficult economic climate and have had many struggles.

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My hon. Friend the Member for East Lothian (Fiona O'Donnell) spoke of the problems of SMEs in accessing finance. At the end of the day, they work hard and employ local people. They treasure every customer. It is not only about making money and a decent living; many of them have a huge passion for their businesses and many of their customers are the large companies about which we heard so much during this excellent debate.

The eight speeches that we have heard so far amply demonstrated the trials and tribulations of businesses in this country, but many of those businesses are going under not for want of sales, but because they have been let down by their customers. The culture in this country is that customers and those who receive supplies seem to think that it is okay not to pay for goods and services on time. I shall give an example of that attitude.

About 20 years ago, a well known businessman famously said how skilful he had been in stringing along his company’s creditors. That businessman was Lord Heseltine, currently the chair of the independent advisory panel for the regional growth fund. When challenged about that statement, he did not withdraw it but said:

“Anyone who has started a small business knows they are likely to need tolerance. Small business people know it, creditors know it, bankers know it”.

The problem is that such unacceptable attitudes still continue today. It is not surprising that 73% of members of the Federation of Small Businesses, responding to a survey in May, reported that they experienced late payments.

The Opposition carried out a survey in July and August of more than 150 businesses, and 83% of them said that the problem had become worse over the past year. My hon. Friend the Member for Oldham East and Saddleworth cited the situation of Ann and Harry Long, whose business was forced under by late payments. The hon. Member for Burton (Andrew Griffiths) spoke of his family’s engineering business’s struggles in dealing with late payments.

The consequence of all this, as my hon. Friend said, is that SMEs are owed a staggering £24 billion—more than the entire budget of the Department for Transport. It is not only a question of lost cash. There is also a huge loss of productivity; 158 million man hours are wasted every year in chasing bills. The latest figures from the Department for Business, Innovation and Skills show that 18% of business failures are a direct result of late payment.

I turn to where the problem resides. We know that it is primarily a business-to-business problem, although we heard today from many Members that it is a problem also for the public sector. Indeed, the hon. Member for Kettering (Mr Hollobone), who is no longer in his place, referred to the irony of HMRC owing moneys and paying late, yet demanding the payment of taxes. My hon. Friend the Member for Pontypridd (Owen Smith) also referred to HMRC.

Shortly after Lord Heseltine made his famous comment, the Labour Government responded to the growing problem with the Late Payment of Commercial Debts (Interest) Act 1998. That Act enables firms to charge interest and obtain compensation on overdue payments. If a firm has agreed a credit period with the purchaser of its goods, interest applies from the expiry of the credit period until the invoice is paid; if no credit period is

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agreed, a default credit period of 30 days applies instead. I appreciate what has been said, but although that Act serves as a deterrent it requires a certain amount of courage for businesses to litigate in such circumstances.

Following the 2008 crash, the Government worked with others to set up the prompt payment code. In the March 2010 Budget, shortly before the election and leaving Government, we tightened the existing rules governing payments by the public sector, setting Departments the goal of paying 80% of undisputed invoices within five days, and requiring them to do so within 10 days. Departments were also compelled to include clauses in contracts with suppliers, to ensure that contractors paid any subcontractors within 30 days.

Clearly, more needs to be done. In her excellent speech, the hon. Member for Newton Abbot (Anne Marie Morris) talked about some of the things that SMEs can do themselves, including ensuring that they have a written contract. When I worked as a solicitor, I always encouraged my business clients to have a written contract. She also talked about the need for SMEs to carry out credit checks.

The hon. Member for North Swindon (Justin Tomlinson) also talked about the need to ensure that invoices are chased in a timely fashion. A number of suggestions have been made about what more we need to do. I have publicly said that I welcome the Government’s decision to carry on with our prompt-payment code. I should like to work with the Minister and his colleagues on a cross-party basis to get more companies, particularly large ones, signed up to that code.

We need to ensure that not only Whitehall Departments but all public sector organisations meet the 10-day and five-day targets. It is interesting to note that in the Federation of Small Businesses survey, those who reported problems with late payments from local government exceeded those who reported problems with late payments from central Government Departments and agencies.

Fiona O'Donnell: Given that the health and strength of the economies of the devolved nations of this country benefit from being part of the United Kingdom, is it not important that the Minister should also work with them to ensure that the practice is spread across the UK?

Mr Umunna: How could I possibly disagree with such a fantastic suggestion?

The Government need to be ever vigilant in enforcing the public sector targets because the figures obtained by the Opposition in July showed that seven Departments had not paid around £3.5 billion worth of invoices within the five-day prompt payment target. The Government must improve their monitoring of Departments to see whether they are meeting the target. At the moment, monitoring is quite patchy.

The hon. Member for Solihull (Lorely Burt) said that the prompt-payment target should be enforced all the way down the supply chain, and I could not agree more. The EU directive has also been mentioned. Although some Conservative Members are not famed for their love of Brussels, the Minister himself is. Perhaps he will ensure that the EU late-payment directive is transposed some time before the March 2013 deadline.

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In conclusion, successful firms with sound business models are going under because customers abuse their position of power and disregard their contractual obligations to pay on time. Given that we all agree that SMEs have a key role to play in contributing to the future prosperity of the country—I should be careful to say here that I know that the micro, the small and the medium-sized business are all very different—we must do all we can to ensure that they are paid in a timely manner.

10.43 am

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): This has been a fantastic debate, Mr Hood, and we all owe a debt of gratitude to the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) for introducing it. In pursuing this issue, she has shown both her knowledge and her determination. I am sure that she will agree with me that all Members here have not only shown knowledge of what is going on in their own constituencies and in the sector but contributed some interesting ideas and a number of questions. I will try to do justice to this debate by explaining what the Government want to do.

I was economic researcher for the Liberal Democrat party during the recession between 1989 and 1992, and late payment was one of the biggest issues on which we pressed the then Conservative Government. It is depressing that this issue has not gone away. In 1998, Labour passed legislation allowing compensation to be paid in cases of late payment. I never thought that measures such as that would be a silver bullet, but I hoped that they would begin to change the culture. I therefore welcomed that legislation and felt that it was the right approach. None the less, legislation can never sort out a problem. It can begin to change attitudes, particularly in an area in which millions of contracts are made between many different companies of all shapes and sizes.

Things are slightly better than they were in the early 1990s. Nevertheless, we have heard from some eloquent speakers that there is still a problem here, so we need to tackle it. Sometimes, however, the debate on late payment becomes a little simplistic and lacks real evidence. That is not to decry today’s contributions, but we must look at the evidence to ensure that we get to the real causes of late payment so that we can identify the best means of tackling it. We need to diagnose the problem properly.

Late payment is not exclusive to any sector or to any style of business. Although I sympathise with those who say that this is big business abusing its power, an awful lot of payment is between small businesses. The majority of contracts that any small business has are with other small businesses. We should not say that it is just a big business problem against small businesses, because the issue is about more than bully-boy tactics. Research shows that of the moneys owed by large businesses, around 40% is overdue compared with 30% for small businesses. The problem therefore affects businesses of all sizes.

I acknowledge that it is important for large businesses to give a lead here, to step up to the plate and set a good example. There is support across the Chamber for the Institute of Credit Management’s prompt-payment code,

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which is backed by the UK’s leading businesses and finance bodies. The code requires signatories to pay according to agreed terms, and there are now more than 1,000 signatories. People may say that that is not many, but they represent more than 60% of the total UK supply chain.

The Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), who normally speaks on such matters, launched the new “Be Fair, Pay On Time” campaign in June, which backs up the prompt payment code. I agree with the hon. Member for Streatham (Mr Umunna) that we should work on a cross-party basis to encourage even more signatories to this code. Certainly, that is the Government’s aim. We very much want actively to encourage new signatories to this important code.

I agree with those Members who argue that the public sector should be an exemplar. Indeed the previous Government played a role in developing that policy. At the time, the Opposition parties argued that they should develop that policy, too.

There is some confusion over how the Government are performing, which is mainly due to the confusion over the pre and post-election targets. The pre-election target from the previous Government was 90% in 10 days. The target that we have been operating is 80% in five days. We felt that a quicker period was important. My own Department is paying 93.6% of our bills within five days, which is significantly faster than the target. Our evidence shows that the performance in this area across Whitehall has been continuously improving. Private business is also saying that local authorities are improving and paying faster than ever. On average, they pay in 18 days.

Mr Umunna rose—

Mr Davey: I am happy to allow hon. Members to speak, but I must say that our record is rather better than it was portrayed.

Mr Umunna: One of the other areas of confusion is that the five-day target is an aspiration; the 10-day target is a requirement.

Mr Davey: I believe that that is correct, but we are beating our aspirations.

Fiona O'Donnell: Some of the most vital SMEs in all our constituencies are local post offices—I have debated this issue with the Minister before—and they depend on the Government for their health. Has the Minister carried out any assessment of the weakening of the requirements on Government Departments on local post offices?

Mr Davey: I must confess to the hon. Lady that I myself have not made any assessment of Government Departments in relation to local post offices. I will see whether my Department or Post Office Ltd have made that assessment. If Post Office Ltd has made that assessment, I am sure that it will want to share the information with her.

The hon. Lady said earlier that the Government should work with the devolved Administrations on this issue. The whole of government—whether it is the

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devolved Administrations, local authorities or even parties working on a cross-party basis—needs to send out a clear signal that we want companies to pay their bills on time. That would make an important contribution towards ensuring that this economic recovery is as strong as possible.

There is an important point that was not made as often as other points during the debate, but it is none the less important to stress, which is the need to improve the way that companies manage their invoices. Obviously, many companies manage their invoices well, but some companies create the problem of late payment for themselves. Better management of invoices is something that we should emphasise. We believe that more than half of all UK business transactions take place with no pre-agreed payment terms, which is astonishing. Barclays has done some analysis in this area and its data suggest that only one in 10 suppliers regularly credit-checks their customers. Clearly, companies themselves need to do some work.

Under the previous Government, my Department undertook some research with Experian to look at payment of invoices to suppliers by four large FTSE 100 businesses. The total value of the sample invoices was more than £1 billion. There was no evidence at all of systemic late payment by those four companies. Typically larger companies in the UK have moved to electronic purchasing and invoicing, which means that late payment is no longer an option for them. I am not saying that there is not a problem with smaller companies; clearly there is, and we have heard contributions to the debate that show there is. However, it is worth putting on record that electronic payment systems in some of the largest companies are beginning to change things.

That research, which was carried out under the previous Government, identified clear evidence of poor invoicing by some suppliers. By that, I mean that invoices were completed incorrectly or submitted late. Consequently, data on payment across the UK economy are generally flawed, because of a single factor—due dates for payment are collected using the date provided on supplier invoices and more often than not those invoices reflect the terms assumed by the suppliers rather than the terms assumed by or contractually defined by the customer. So, there can be confusion about how that type of payment operates in practice.

That is why we see the average time for payment in the UK economy coming out at around 16 days beyond agreed terms. What typically happens is that suppliers assume a 30-day payment period, while the period adopted by the majority of larger businesses is 30 days net monthly; that is, 30 days from the end of the month in which the invoice is received. So we need to work really hard to ensure that suppliers have the information support that they need to manage their customer relationships and cash flow. Work is being done to try to help suppliers not only by the Department but by outside organisations. For example, since 2010 there have been more than 250,000 downloads of the simple checklists developed by the Institute of Credit Management to help suppliers manage customer relationships.

Inevitably, legislation was discussed during the debate. As I mentioned earlier, the UK was one of the first countries to introduce legislation setting out the rights of a supplier to agree payment terms and to secure payment. When we consider what other legislation might

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be introduced, I must point out that the majority of business bodies oppose any strengthening of the current legislation. Partly that is because many suppliers have long-standing relationships with their customers and—as has been mentioned—they are unlikely ever to resort to legal action to chase up payment from those customers. Where suppliers seek to use legislation to secure payment, weak invoicing means that all too often the courts are unable to intervene meaningfully. It is not that the courts are unwilling to intervene to enforce the law. Instead, when these matters have been examined, it has emerged that sometimes it was the supplier that failed to invoice the customer properly.

That is not to say that I do not see legislation as being entirely unimportant for setting the environment in this area. I encourage suppliers to set out their invoices with the agreed payment terms, stating very clearly the fee that will accrue if payment is not made by the due date. That is what the hon. Member for Streatham (Mr Umunna) was advising his clients to do when he was in the legal profession. It is very important that these contracts are set out clearly. If they are not set out clearly, suppliers have no chance of using the legislation, whatever it might be.

There was a question about the European legislation on late payments. Actually, UK legislation on late payments has played a really important part in shaping the EU legislation, and the recently revised EU directive on late payment very much mirrors UK practice. Because the revised EU legislation follows UK practice so closely, we are seeking advice on whether it will entail any changes whatsoever to existing UK legislation.

Mr Umunna: I agree with the Minister that the EU regime is essentially very similar to our existing domestic regime. However, the EU regime introduces minimum fixed amounts of compensation for late payment, and I think that it also slightly tightens the time periods for payment.

In the five minutes that the Minister has left to respond to the debate, can he say what more can be done about expanding the compliance with targets of the public sector organisations beyond Whitehall? In Whitehall, the worst offender on late payment is the Department for Communities and Local Government and surely that Department has a role to play in getting local authorities to pay suppliers promptly and on time. As I said in my speech, in some senses local authorities are a bigger problem than central Government in terms of public sector bodies failing to pay on time.

Mr Davey: The Secretary of State for Communities and Local Government is keen to ensure that all Government Departments are doing their best, and I am sure that when he reads this debate he will note the hon. Gentleman’s comments.

Regarding the hon. Gentleman’s comments on the EU directive, we will undertake a second consultation in the winter of 2011-12 and will then transpose the legislation into UK law in the first half of 2012, which is earlier than we are required to do. I hope that that addresses some of the concerns that colleagues have expressed during the debate.

In the final minutes that I have left, I want to try to address some of the points that I have not yet dealt with. For example, my hon. Friend the Member for

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Solihull (Lorely Burt) asked how we are progressing with the approved supplier status, having committed ourselves to trying to simplify the application forms. I recommend that she reads the Cabinet Office report published in July that shows that 14 out of 17 Government Departments have removed the requirement for pre-qualification questionnaires for contracts for less than £100,000. As she is aware, those questionnaires were the really big bugbear that many companies complained to us about. The remaining three Departments are piloting an open group process. So there has been some real progress. Clearly there is more to do, but we are going in the right direction.

There were a number of excellent contributions to the debate. I particularly liked the contribution of my hon. Friend the Member for Newton Abbot (Anne Marie Morris), who showed a lot of knowledge of this issue. She made the point that late payment is, in many ways, a private sector issue, because both this Government and its predecessor have made some headway on late payment within the public sector. She also referred, quite rightly, to the issue of trade credit insurance. That is one of the issues that I asked about in preparing for this debate. In many ways, trade credit insurance is a private sector solution. The market for trade credit insurance is relatively small and—almost by definition—those people who use it tend to be more educated and better trained in managing their cash flow and invoicing. She referred to the sausage firm in her constituency, which is obviously now growing with a bang, and she was quite right to say that trade credit insurance is not the answer for everything.

My hon. Friend was right to say that we should be very careful before we go down the compulsion route. That has always been my view too and the examples that she referred to from Australia and other EU countries that have gone down that route showed that in the end compulsion is not helpful to businesses on either side of the late payment issue.

My hon. Friend also talked about accounting standards. She will be aware that the Government do not want to tie up business in red tape, but as I am the Minister with responsibility for corporate governance and as I am looking at narrative reporting, I will certainly take on board her points and consider them very carefully.

The Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford, who is the Minister with responsibility for small businesses, will read this debate with relish, because of the quality of the contributions to it. I thank hon. Members for their contributions, and I particularly thank the hon. Member for Oldham East and Saddleworth for ensuring that we had the opportunity to debate this issue.

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Media Ownership (Regulation)

10.59 am

Mr Graham Allen (Nottingham North) (Lab): As always, it is a pleasure to serve under your chairmanship, Mr Hood.

Media ownership in this country is massively over-concentrated, and that has resulted in a number of problems, some of them profoundly unhealthy for our democracy. The media are so over-powerful that they have frightened and corrupted Governments of all political colours, and have chilled and intimidated Parliament and Members of this House in the performance of their duties. Vibrant British politics has shrunken into a grotesque tango between the press and No. 10 Downing street, who are unwilling but inseparably locked partners in a duopoly that diminishes all others, including Parliament, local government and civil society. For me, the ownership problem is not about the corruption techniques that have recently been exposed; it is part of the broader question of the settlement of our democracy: a democratic agenda, and a Britain in which people know their rights, own their politics, aspire to better for themselves and their families as citizens, and are less subjects and placid consumers of low-grade trivia.

The problems of the press pre-date hacking. There are a number of problems with the role of the press, including the constant denigration of individuals, the culture of cynicism, the trashing of whole classes of people—Members of Parliament know a little about that—the demise of the inspiring and investigative journalism that I was used to in my youth, the dumbing down of once-great newspapers, and the international reputation of our press. Those problems deserve a hearing, but I will not go into them in any detail here. All too often, the press will lead and the rest of the media pack—TV and internet—will fall behind the very low standards that are set. We deserve better from our media.

Today I want to focus on the greatest threat to a free and independent media: the over-concentration of ownership. When one person or organisation can become so insulated by its own power from scrutiny of its behaviour, and so important that Prime Ministers of all colours go cap in hand hoping for its approval, our already feeble and unwritten system of checks and balances becomes more obviously ineffective, and we should fear for our democracy and take action to protect it.

Much of the recent debate has been about symptoms not causes, about the things that the press themselves are interested in, including hacking and intrusion, and unhealthy links and relationships, rather than about what we as politicians should focus on: the power that distorts markets and politics alike. It is that distortion that drives the practices that we have recently seen, such as hacking and a tendency to be loose with the truth and protected from the consequences. The answer is to create a broader diversity of ownership of media outlets and let good, professional, effective journalists blossom and get on with their job of standing up for ordinary people and getting the truth our there for us all to consider and reflect upon.

Now is a good time to make progress. I congratulate the Prime Minister and the Secretary of State for Culture, Olympics, Media and Sport for picking up on this

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problem, along with the Minister present today—the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey). In the middle of the hacking scandal, the Opposition day motion on Mr Rupert Murdoch and News Corporation’s bid for BSkyB contained no reference to ownership. I amended it by adding that the Prime Minister

“should consider a statutory settlement for the press based upon the principles of diversity of ownership, fairness and honesty”.

That was happily superseded by the Prime Minister’s amendment to the motion, which set up the review of media ethics and regulation that we now know as the Leveson inquiry, and included

“the issue of cross-media ownership…more effective way of regulating the press—one that supports its freedom, plurality and independence from Government”.—[Official Report, 13 July 2011; Vol. 531, c. 312.]

I am pleased that the Government have developed a position that includes those matters.

We all await the results of the Leveson inquiry, and I very much hope that it will balance its examination of the symptoms—some of the sexier press behaviour—with that of the causes, such as the lack of plurality of the media, and media and cross-media ownership. It should not be an incestuous inquiry, giving the media prurient stories about the media and thus feeding the cycle. It should look outwards at the media’s involvement in and relationship to our constitution and our politics. It should seek to lay the ground rules of a strong, independent media, with the possibility of opening up a new chapter and restoring the media’s reputation as a key contributor to the plurality of institutions in our democracy. That is what the media need to be, and Justice Leveson might help to nudge us all towards that better position.

Susan Elan Jones (Clwyd South) (Lab): Does my hon. Friend agree that a plurality issue in Wales concerns the fourth channel, S4C, which is Britain’s only Welsh-language television channel? Many people fear that the proposed Government changes to the channel will jeopardise its independence. That is important, not just because of Welsh-language broadcasting but because of the plurality of media ownership. Many of us fear that the channel will be subsumed into the BBC, and that monolithic way of broadcasting cannot be good for any of us.

Mr Allen: My hon. Friend makes her point very eloquently, and the Minister will no doubt wish to refer to it in his concluding remarks.

Those of us who support effective regulation are the friends of an evolving, developing, vibrant and refreshed media and will not be painted as people who do not want diversity. On the contrary, the people who object to diversity and plurality are the very people who have a monopolistic settlement that they wish to preserve. It is very important to consider this matter, and that Lord Leveson, with the Minister’s encouragement, looks at proper regulation, not by the Government but by a strong, independent regulator that is respected by all parties. That should not be feared. We can consider the ethical codes that apply to the BBC and to independent television. Those codes are fair, uncontroversial and totally accepted, and there is absolutely no reason why we should not aspire to the same sets of ethics for the press.

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Tougher media ownership laws are required in this country; the ownership of the press needs to be at the forefront of the debate. I hope that Lord Leveson does not decide that there has to be a totally comprehensive and coherent cross-media ownership set of rules, or that he is paralysed by dealing with sectoral ownership in the press, television or other media outlets. There should never again be the concentration of unaccountable power in this country that we have seen in the media in recent years.

While there is a well-documented history of the rich and powerful abusing media ownership and resisting regulation, there is also a history, from this place, of efforts to attempt to tackle the abuses. I would like to pay tribute to a former colleague, Clive Soley, who in 1992, when he was the MP for Hammersmith, called for a new independent press authority to investigate and monitor ethical standards of the press, distribution of newspapers, ownership and control of media, access to information, restrictions on reporting and any related matter that that authority might consider. He could have been speaking at the end of the recent hacking scandal, and I hope that Mr Soley feels that his day may soon dawn.

Certainly, the long-running weaknesses of the Press Complaints Commission have recently been starkly exposed, and it is here that self-regulation most clearly fails. Many of us may have suffered from being traduced in the media. We complain, and then the complaint disappears into the bowels of the PCC. Many months later, if we are lucky, we may get a microscopic apology on an obscure website. That is frankly no longer acceptable in a modern democracy and needs to be examined. Lord Leveson also needs to look at a right of reply that can be fairly and practically implemented, so that people feel that they have redress if they are wronged or feel wronged by the press.

I was pleased that the Secretary of State for Culture, Olympics, Media and Sport stated that we need to look carefully at cross-media ownership laws and whether the merger rules for media takeovers work as effectively as they could. Consideration must also be given to the suitability of those who push for greater slices of the media pie for themselves. Does the Minister support my call for a negative resolution of this House that would explicitly enable his boss, the Culture Secretary, to take the public interest into account, and which would give him the ability to order a fit and proper person test to be carried out in any future media acquisition? It would be a simple and modest safeguard to look after the interests of the broader media family. Also, does the Minister agree that an immediate amendment to the Enterprise Act 2002 to allow the public interest and a fit and proper person test to be taken into account in media takeovers would be a positive step that should secure all-party support? In doing that, along with introducing tougher cross-media ownership laws and ensuring the plurality of the media, we will finally be able to begin to develop a plural and diverse media in the UK and to tackle the causes of some of the gross abuses of power that we have seen from the rich and the powerful who own those organisations.

The key question is whether there is the will to do it. I hope that given the recent scandals, the Government can take courage from the public reaction to take the necessary steps. There is a moment here. Many of us

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have waited many years for it, and if it is not seized, we could wait many more years to give the press and the media the boost, encouragement and boldness to start to be a new part of a wider, broader and democratised constitution. Can the House of Commons, enfeebled by years of subservience to the Government and the media, also help to seize the opportunity? The jury must be out on that particular question.

If we get those two big institutions—the Government and Parliament—to work as effective partners with the media, instead of sour cynicism, denigration and mutual recrimination, we could enter a new partnership between those three institutions, with all of them playing an enhanced role. I hope that that will happen. If we do that, Parliament can be less inhibited in holding the Government to account and, above all, it will increase the potential for the Government to work for the future rather than for the next day’s headlines.

11.14 am

The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey): It is a pleasure to serve under your chairmanship, Mr Hood. I thank the hon. Member for Nottingham North (Mr Allen) for securing this important debate. I hope that he will not mind or become cynical, thinking that I am trying to neuter his remarks, if I use this opportunity to say how much I admire him from afar for not only his sterling work in the House to protect the interests of Parliament, with which I wholeheartedly agree—we need a stronger Parliament to hold the Executive to account—but his valuable work on early-years education and, perhaps most importantly, his support for the great sport of cricket.

The debate raises a number of important issues, and I welcome the opportunity to have a constructive discussion about some of them. Media ownership is a high-profile issue at the moment; questions about the plurality of the media and its implications are live. It is interesting that the issues regarding News Corp’s takeover of Sky and the furore that that created are combined with the rapid changes to the press that new technology is bringing. It is only right and proper for us to discuss such issues and rehearse how the Government intend to address them. We want to look at media ownership constructively, as we do not want to set ownership limits that would have a disproportionate effect on growth.

Before I come to the main points in response to the hon. Gentleman’s debate, let me briefly address the points raised by the hon. Member for Clwyd South (Susan Elan Jones) in her intervention. I understand why she wanted to raise the issue of S4C. She is a champion of that important channel, which was set up in 1982 to promote Welsh language broadcasting and which has many glories to its name. I assure her that the Government intend to ensure that S4C remains a strong and independent force in broadcasting.

Our intention is that S4C should be funded via the BBC, and therefore the BBC should have some space on its board. There is already close collaboration between the BBC and S4C on the provision of news, for example. Nevertheless, there are important safeguards for independent content control for S4C. Discussions are currently ongoing between the BBC and S4C, which I understand are fruitful and productive.

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On the debate secured by the hon. Member for Nottingham North, there are three areas that we need to look at: plurality, the Leveson inquiry to which the hon. Gentleman referred, and media ownership in general. As I said, the proposed takeover of Sky has brought the question of media plurality to the forefront. The News Corp bid highlighted problems with existing media ownership regulations that need to be discussed and debated.

When Ofcom produced its initial report on the proposed News Corp takeover of BSkyB, it identified a potential gap in the media ownership regime, which has been well aired. There is a potential weakness, in that the public interest test that accompanies questions about media plurality can be triggered only when a merger takes place. At present, the system cannot address concerns that arise from the organic growth of one particular media organisation.

We understand the need to look at the current system, but we do not want to rush into a change in media ownership regulations simply as a reaction to one controversial takeover bid. We do not want to make changes that could have knock-on effects further down the line, which we are not able to foresee. However, that does not take away from the fact that we want to investigate the issue thoroughly, rehearse and debate it in public and come to a conclusion as we approach the publication of a communications Bill and the parliamentary discussion of that Bill.

In the context of the Leveson inquiry, the hon. Gentleman also discussed the importance of regulation of the press, referring to the calls that have been going on for 20 years or more for proper independent regulation of the press. I note what he said about the Press Complaints Commission. The PCC has many critics, but it would say in its own defence that it works closely with people who have concerns about the press and often prevents the press from publishing damaging stories when agreement can be reached that a story is unfair. The good work of the Press Complaints Commission does not necessarily get the prominence that it deserves. However, the right of reply and the prominence of apologies are live issues that have been debated recently in the House.

Lord Justice Leveson is now conducting an inquiry focusing on the regulation of the press, the relationship between the police and the press and media ownership and plurality rules. Lord Justice Leveson held his first preliminary hearing last week; his work has only just started, and he has many issues to consider. The inquiry will concentrate initially on the behaviour and practices of the press, but he also intends to consider media plurality, as I said. I assure the hon. Gentleman that my Department will co-operate fully with the Leveson inquiry.

It is important to emphasise that the inquiry is completely independent. It is up to the inquiry to ask my Department for assistance rather than for us to be seen to influence the inquiry in any way. We are responding to information requests from the Leveson inquiry. When the report concludes, the Government will of course listen carefully to its recommendations and incorporate them, where appropriate, in final decisions about the Bill on media ownership and the future regulation of the press. We must be mindful of the time scale for the Leveson inquiry, which aims to examine the issues of press regulation and media ownership within a year. We want to hear what the inquiry says, as it will be a significant piece of work on media regulation.

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In general, we believe that it is important for the media to reflect different viewpoints at national level and to safeguard democratic debate. Media ownership rules are important to prevent any one UK media company from obtaining too great a concentration of media power. Competition rules will usually ensure an outcome that promotes plurality, but not always, because they are designed to prevent abuses of market power. It is possible for someone to be dominant from a plurality point of view without acting in an anti-competitive fashion. Without additional plurality rules, we will be unable to prevent a concentration of media power.

As I said in my opening remarks, we are acutely aware of how changes to technology make media ownership and plurality complicated issues. The media landscape is changing rapidly, as is the way in which it influences debate and informs citizens. It is therefore even more important that the rules do not allow one person or organisation control over the entire media landscape. At the same time, it is also important that the rules do not unreasonably constrain the working of the market. We want a vibrant media sector capable of innovating and of attracting investment, ideas and skills. The challenge is to strike the right balance.

My right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport will make a speech this evening at the Royal Television Society conference. He will outline his early thinking on numerous issues across the media sector, and will address in particular media ownership, plurality and press regulation. As was reported earlier this week and as he will say this evening, the Secretary of State has asked Ofcom to prepare a report on the options for measuring media plurality given the new online world in which we exist, to recommend the best approach and to supply a copy of the report to the Leveson inquiry. That work will form part of our communications review, but I hope that it will also assist the Leveson inquiry.

The hon. Gentleman called on me and the Government to support a change now to media ownership regulations. Specifically, he asked us to support the proposals of the shadow Culture Secretary, the hon. Member for Bury South (Mr Lewis). With the greatest respect, I am not sure that those changes have been entirely thought through. I am not sure whether the shadow Secretary of State has the power to introduce such a change; my understanding is that the Enterprise Act 2002 allows only the Secretary of State to do so.

More importantly, to discuss the substance of the proposal rather than any technical hurdles to its adoption, Ofcom is already required to ensure that any person holding a broadcasting licence is and remains a fit and proper person to hold it. That requirement is ongoing, not a one-off requirement limited to mergers. I am not sure that the amendment is necessary, and it could narrow the scope of the current duty on Ofcom.

My further concern with the proposals of the hon. Member for Bury South, bearing in mind that he is not

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here to defend them, is that they could add to the politics of the situation rather than detract from them. The Secretary of State conducted himself impeccably throughout the News Corp takeover process. He sought legal advice at every stage, he was transparent and he published that legal advice when appropriate. Nevertheless, the fact that a politician had the final say in the takeover proposal allowed people to speculate that undue influence was being exercised. It therefore seems likely that the direction of travel in such contentious takeover proposals is to try as far as possible to remove politicians from the process.

What concerns me about the proposals of the hon. Member for Bury South, well meaning though they are, is that they would effectively allow a Secretary of State to take into account new factors, which seems wide open. Almost any factor could be taken into account and inserted into the current process, which would create enormous uncertainty for every media company in the country—and perhaps inadvertently increase, rather than reduce, political interference in such processes. For that reason, we do not support the proposals. The Secretary of State has written or will write a response to the letter sent to him by the hon. Member for Bury South calling for his support for the proposals.

Mr Allen: Before the Minister concludes, I should say that he is making a sensible and rational contribution to an extremely important debate. Will he say something ridiculous and outrageous so that his comments will be reported fully in the press tomorrow, rather than ignored?

Mr Vaizey: The hon. Gentleman makes a fair point. It is a matter of regret. As he well knows, there is an adage: “If you want to tell a secret, the best place to do it is probably in the Chamber of the House of Commons,” because it is rarely reported. Those of us who love the House of Commons and politics would love for the media to return to devoting a page in the newspaper to reporting parliamentary proceedings. We have to listen to Radio 4’s “Today in Parliament”, or there is, of course, the BBC Parliament channel, which we can watch all day if we want. Many of us—I am sure that you are the same, Mr Hood—prefer nothing to watching the Parliament channel whenever we get a spare moment, catching up on the odd Select Committee appearance by our colleagues and so on. I find it riveting viewing.

I thank the hon. Gentleman for securing this important debate. As I said, a huge number of issues are involved, including media plurality, media ownership and regulation of the press. Our approach is twin-track. We are moving towards an important communications Bill in a changing area of technology, alongside the important and independent Leveson inquiry into the press.

11.30 am

Sitting suspended.

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European Union Fiscal Union

[Annette Brooke in the Chair]

2.30 pm

Mr William Cash (Stone) (Con): In the light of developments not only today but over the past several decades, not to mention more immediate events since the Lisbon treaty and the general election, I am glad to have the opportunity to deal with the question that has been embedded in the history of the European Community and the European Union over a long period. It relates to the creation of a two-tier Europe, which the fiscal union appears to represent. I cross-examined the Prime Minister on the issue in the Liaison Committee about a week ago, and I cannot say that his answers were satisfactory. I therefore take this opportunity to reply, vicariously through the Minister, to the Prime Minister on a number of the matters that remain outstanding.

Mr Barroso, the unelected President of the European Commission, gave a speech this morning, lecturing the whole European Union, and the world for that matter—not to mention the United Kingdom—on what is to be done about the mess that has been created over the past 20-odd years. In fact, it is much more than that, but I shall draw a line at the Maastricht treaty for present purposes; otherwise, we will be here all night.

Curiously, Mr Barroso takes the view that, in the short term, there has to be—surprise, surprise—reinforced economic governance. He also argues that all this can be done only by way of the Community method; in other words, nothing changes. In his speech, he had the temerity, despite the failure of the Lisbon agenda and the 2020 agenda, to say:

“Growth is key and we must use all instruments available to promote growth”.

He went on to talk about using the Single Market Act to promote sustainable growth. Then, somewhat ominously, he referred to his promise—this is not just a floated idea—that

“the European Commission will very soon propose a Financial Transaction Tax.”

The clear implication is that that will apply to the European Union as a whole. It would be interesting to hear what the Minister has to say about that.

Mr Barroso went on to talk about the governance of the euro area, saying:

“A system based purely on intergovernmental cooperation has not worked in the past and will not work in the future. After all, this is why the Community method and the European Union institutions were created by the member states in the first place.”

He continued:

“The Economic and Monetary Union cannot function properly only on the basis of decisions taken by unanimity,”

So there goes that veto. He went on:

“Because if a eurosceptic fringe”—

I suspect that that refers to the likes of me and, I hope, other Members of the Government, and certainly to the majority of hon. Members who have turned up to this debate—

“can determine the position of one Member State and one Member State can block decisions, the result is that we are not credible.”

That raises the question, of course, of whether the policies are credible in the first place.

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Kelvin Hopkins (Luton North) (Lab): On the Eurosceptic fringe, the fact is that, on many occasions when referendums have been held, the majority have voted in a Eurosceptic way, so it is possible that there is a Eurosceptic majority in the European Union.

Mr Cash: Opinion polls in this country have regularly indicated that 70% want a referendum and, moreover, would vote yes against the idea of the continuation of our present relationship with the European Union. People want renegotiation and if they do not get it, they want to leave. That is the position.

We are confronted with an incredibly serious situation that is getting worse. There will be a telephone conference this afternoon—it might already be in progress, at the very moment when we are debating this question—between Monsieur Sarkozy, Angela Merkel and Papandreou, because the system has failed. If, however, we raise the question of its failure, the response is, “We don’t want less Europe; we want more,” so they want more integration, not less.

Jake Berry (Rossendale and Darwen) (Con): Will my hon. Friend concede that the system was set up to fail by the fiddling of figures when it was established?

Mr Cash: Yes, I certainly will. In the case of Greece, it is perfectly clear that, to put it bluntly, misrepresentations —and even lies—were contained in the statistical base on which it was brought in. Indeed, even the present German Chancellor has criticised the way in which it was allowed to come in when it did.

In his speech, Mr Barroso said:

“The conclusion I draw is crystal clear—The only right way to stop the negative cycle and to strengthen the euro is to deepen integration, namely within the Euro area, based on the Community method.”

He went on to say:

“What we need now is a new, unifying impulse—‘un nouveau moment fédérateur’”.

Let us get this clear—he means a new moment of federal fervour, although that is my translation. He continued by saying,

“let’s not be afraid of the word, moment fédérateur is indispensable.”

He went on:

“It has become clear that we need an even greater integration of our economic and budgetary policies.”

Do not get the impression that he is referring exclusively to the proposed fiscal union. His ambitions extend to the whole European Union. This is a call to arms by the Eurofanatics—let us be in no doubt about that.

On eurobonds, Mr Barroso, having said that we need even greater integration of our economic and budgetary policies, confirms that the Commission, again, on behalf of the European Union,

“will soon present options for the introduction of Eurobonds”,

on which, as it happens, the German constitutional court has cast grave aspersions. Indeed, I understand that the President of the German Republic has also said that he regards them as illegal. I could spend a lot of time going into that, but I do not need to for the moment. Mr Barroso said:

“Some of these options could be implemented within the terms of the current Treaty”—

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that is the abominable Lisbon treaty, which we accepted after we had opposed it as a party, united together, and called for a referendum that we never got—

“and others would require Treaty change.”

I wanted to draw all those matters to the attention of my colleagues, because they are the latest emanations from the European Commission. This is what it is about and, as we speak, none of it is being reported.

Graham Stringer (Blackley and Broughton) (Lab): The hon. Gentleman is describing something that is not surprising; we are getting milk from the milkman in terms of the statements that he has read. Does he, like me, find it depressing that the Front-Bench representatives of both main parties argue for less democracy, rather than more, in the eurozone?

Mr Cash: That is absolutely the case, and it is very depressing. The whole objective of the treaty arrangement, from its inception and the days of Jean Monnet onwards—and as evidenced by recent treaties, including the Lisbon treaty—is essentially undemocratic.

Implementing the measure would create a situation in which people in this country, who in general elections have voted through their own free choice at the ballot box for policies, were denied those policies because the proposals brought forward by majority voting in the European Union are inimical to growth and deficit reduction.

I shall explain why it is so fundamentally wrong for the Prime Minister, the Chancellor of the Exchequer and the coalition Government as a whole—under the baleful influence of the Liberal Democrats—to advocate the idea of a fiscal union. For reasons that I will explain, fiscal union is immensely damaging to the national interest and our economy.

Mrs Anne Main (St Albans) (Con): Does my hon. Friend share my concern that it is the language surrounding these new moves that is deeply worrying? I believe that those people who had a chance to vote on whether they wanted to join what they thought was the common market would never have done so at any time if the rhetoric that we are now hearing had been used then. The language being used relates to deeper fiscal integration, eurobonds and basically subsuming what the British people want. That is why we need to ask the people again whether they wish to embark on this experimental project.

Mr Cash: I am grateful for that intervention. Indeed, when the Chancellor of the Exchequer made his statement—which he slipped in, as it were, in the middle of the emergency debate on the riots—he said that he was going to promote the idea, and that the Prime Minister had already spoken to Mrs Angela Merkel and Mr Sarkozy and had encouraged them to go ahead with fiscal union.

In addition, he said that he, as Chancellor, had already made overtures to other Chancellors in other member states advocating the idea of fiscal union. When he said that, he was ignoring the fact that the consequences of going down that route would, as I said at the time, have been such that even Edward Heath would not have proposed it back in 1971-2. Indeed, if hon. Members look at the White Paper produced at that time, they will

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see that it says that we would retain the veto in our national interest and that to fail to do so would not only be immensely damaging to the United Kingdom, but would even endanger

“the fabric of the European community itself.”

Since then, we have had an accumulation and aggregation of policies in defiance of the democratic issues and principles to which the hon. Member for Blackley and Broughton (Graham Stringer) referred—and, indeed, in defiance of the wishes of the people of this country and, as the hon. Member for Luton North (Kelvin Hopkins) said, of other member states such as Ireland, Denmark, Holland and France. Every single time a referendum, which shows the democratic wishes of the people in question, has been overriden, we are being taken down a route that, above all else, does not work. That is the problem.

Apart from the matters of principle, the real problem is that such an approach does not work and is now causing immense damage. For example, there are incredibly high levels of youth unemployment in places such as Spain, where 47% of young people are unemployed. There are similar levels of unemployment in Greece and Italy, although the figures are not quite as high as 47%.

I do not need to read all the figures out, but the official statistics for unemployment among youths under 25 are 46.2% for Spain, over 23% for eight countries and 32% for one country. This is not a working system; this is a system that is destroying people’s aspirations and prosperity.

Mr Gregory Campbell (East Londonderry) (DUP): I commend the hon. Gentleman for securing the debate. I agree with what he is saying, particularly his comments about the system simply not working. However, does he agree that part of the problem that the United Kingdom is faced with is that we need to have a cohesive alternative to the total integration policy that he is outlining, which I am sure is completely different from the approach that he will discuss shortly? A practical coherent alternative needs to be laid out by our Government to try to lead ourselves out of the mess into which we have got over the past 20 years.

Mr Cash: I am extremely grateful to the hon. Gentleman. He may recall that I raised the matter in Prime Minister’s questions, when I asked when the Prime Minister would lead us out of the mess that had been created by the existing treaties. This morning on the “Today” programme, we heard Lord Lawson of Blaby echoing that call and saying that he had always had grave reservations about the political union. I can only say that when the Maastricht treaty came and went, a lot of those arguments developed at the same time. The hon. Gentleman is completely right in saying that we must have a constructive alternative.

I have always advocated the idea of our working effectively with a European system capable of producing the right results. In fact, I hope that no one will mind my holding up a copy of a book that I wrote in 1990 called “Against a Federal Europe: the Battle for Britain.” I think I can confidently say that there is not very much in there that I would change and that most of it appears to have come true. To answer the question asked by the hon. Member for East Londonderry (Mr Campbell), I should say that it is very alarming to note that the first chapter is entitled “Britain for Europe”; it is not only a

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case of “Britain for Britain” but of “Britain for Europe,” because it is certainly true that we are affected by what goes on in the other member states.

As I have said many times before, the answer to the question is to go down the route of having an association of nation states, whereby we would return the right and proper power to this Parliament to make judgments on behalf of the people who have chosen us in a ballot box, to follow through policies, and to try to work in a form of understanding made on the basis of trade and political co-operation.

That was the situation anticipated by the 1975 debate when we had the referendum, which people understood. However since then, there has been onward and continuous progress towards ever further integration in an ever more undemocratic and ever more dictatorial manner. The time has come when we have to draw a line. It should have been drawn a long time ago. We drew it as a party over Lisbon. We said that we would not accept that treaty, but now here we are implementing it like there was no tomorrow.

A rather intriguing article by Camilla Cavendish was published on 8 September—only a few days ago—in The Times, which also had rather a good leader, either on the same day or the day before. It is rather amusing that she says:

“It’s no longer cuckoo to take the Swiss road; Britain and the EU are no longer going in the same direction. We should grab the chance for an amicable divorce”.

She then explains how that would be done. Essentially, she is arguing for an association of nation states, as many of us have. We are at a dangerous crossroads. A particular reason for this debate is the fact that the idea of fiscal union is being promoted. In our opinion—or in my opinion, anyway—that is entirely the wrong direction to take in the context of the broad landscape that I have been seeking to identify.

Henry Smith (Crawley) (Con): My hon. Friend is making a persuasive argument. On the point of European nations not being members of the EU but being very successful, the article that he mentions refers to Switzerland, but there have recently also been articles about how the Norwegian krone is attracting a lot of investment. That is another example of a successful European nation outside the EU, which reinforces the point that an association of nation states rather than a political union is the best way forward.

Mr Cash: I endorse entirely what my hon. Friend has said. We are at a crossroads and it is a very dangerous crossroads. We have to get it right. It simply is not good enough to appease the European institutions by going along with their ideas when we have our own national interest to stand by, support and protect. We are not just talking about institutional arguments; we are talking about real people, their real daily lives, the unemployed and the people who cannot increase the enterprise of their businesses.

I was deeply concerned in my exchanges with the Prime Minister. I put a question to him on the question of the single market. In reply, he made it clear that he was conscious of a fact, which I had put in a pamphlet that I had published the day before. The pamphlet, by

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the way, is called “It’s the EU stupid”, because we have got to a stage where it is obvious that the EU is at the root of so many of these problems.

On the question of the single market, I pointed out to the Prime Minister that if there is a fiscal union of certain member states it is inevitable, as a matter of solidarity, that they will use the treaties to transfer their own wishes, through majority voting and a block vote, in a way that will be contrary to our own domestic economic interests. What would be the point of a fiscal union if, when it came to questions of legislation relating to the economy, the member states were not prepared to vote together? They will. When they do, and they outvote us, that will gravely undermine our competitiveness and our ability to grow small and medium-sized businesses. It will affect our growth. It will damage and destroy our prospects of reducing the deficit, because it will lead to a reduction in growth, which is already stagnant.

Mr John Redwood (Wokingham) (Con): Does my hon. Friend think that we should allow the fiscal union to go ahead, for those who wish to join it, if our Government negotiated for us independent democratic control over everything here that mattered to us as the price for making that sacrifice?

Mr Cash: The short answer is that it would depend on how the renegotiation went. If the renegotiation was entirely in line with protecting fully our own interests, if it were guaranteed that we were not tied to the existing arrangements by a treaty that drew us in to all the adverse consequences of being part of this overall European Union in the shape and form that it has at the moment and if we could manage to achieve the perfect answer, then that would be a good idea. However, I do not think that that is the way it is going to go. I think that we will put forward positions, if we ever get to the point of renegotiating the treaties. A meeting took place a couple of days ago in which it was clear that a very large number of MPs in the Conservative party want renegotiation. Some of us have been arguing for that for 20 years. However, the fact is that that is the position in the party as a whole. The question is not only whether we want to renegotiate, but how that would be done.

Mr Bernard Jenkin (Harwich and North Essex) (Con): My hon. Friend makes an important distinction. The Chancellor of the Exchequer seems to be suggesting that we would consent to a fiscal union provided that we were insulated in some way from the direct effects of that fiscal union. My right hon. Friend the Member for Wokingham (Mr Redwood) is saying something much more profound, which is that we should use this opportunity to recover control over a whole lot of policies that are already damaging the British economy, and continue to damage the British economy, whether there is a fiscal union or not. It is that latter position that has to be, ultimately, subject to a referendum, or the danger is that we will sell the pass on fiscal union and we will not recover very much.

Mr Cash: I agree with that entirely. My hon. Friend is very much in line with the views of many us on this side of the Chamber, which is that if this is going to be done, let it be done properly. Let us not nibble away at some of the minor matters. Let us get down to the real nub of the issue and say that this kind of Europe is not a

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Europe with which we are prepared to continue. The status quo is completely untenable, and so a referendum question that dealt with those matters—including the question of fiscal union, because it will be so damaging, and I will give further examples of where I think it would be damaging in a moment—should be: do we want to leave the European Union all together; or, given that the status quo is untenable, do we want to renegotiate the treaties?

We now know that the bulk of the Conservative party, which, after all, is the bulk of the Government, wants renegotiation. The next question is, are we just going to nibble away and pretend that it is renegotiation, or are we going to get down to the structural questions and really do it? I believe very strongly that the Prime Minister has an obligation to go the next summit and to put forward proposals for renegotiating those treaties in a way that would actually change the entire system. If the other member states say, “No, we are not prepared to put up with that,” then we will deal with that situation at that point in time. The case for a referendum in either event, to my mind, is completely unanswerable.

On the question of fiscal union itself and damage to the United Kingdom, I have already mentioned the problems that will arise in relation to the single market bloc voting arrangements. We are always being told that our trading relationship with the EU is vital to us, and that it represents approximately 50% of our trade. Some dispute that, but the reality is that it is a substantial proportion of our trade. However, if one actually looks at the net results of the so-called benefits of that trading relationship, I am bound to say that in the past year alone, between 2009 and 2010, our trade deficit with the European Union, the other 26 member states, has gone from minus £14 billion to minus £53 billion. The deficit has leapt up by £40 billion in one year.

Those figures are taken from the House of Commons Library and the Office for National Statistics, so I am not going to dispute them—others may wish to do so, but they are official figures. I have repeated them several times and no one has challenged me on them. That demonstrates that our trade with the rest of the European Union is not working. The reasons for that are over-regulation and a system of economic constraints that prevent us from allowing our small businesses to grow. After all, small businesses make up the greatest percentage, by a massive amount, of the prosperity of this country. The downside of our failure to grow is increasing unemployment. We heard the figures today. The truth is that we are not growing because we are trading with a Europe that is bankrupt, except for Germany.

There is also the question of the position vis-à-vis the City of London. The Minister and I have crossed swords on this from the very outset. When the de Larosière report came out—it was about four years ago, I think—I wrote letters to the Financial Times, several of which it published. I argued that we had to keep the City of London within the framework of our own legislation and not appease those in the European Union, such as those in France and elsewhere, who would like to take control over our City of London. The Government caved in, and now the whole City of London is within the jurisdiction of the European institutions and the rules and regulations that will be made there. Every single time there is a new problem in the City of London, we will have to ask ourselves to what extent it is the consequence of that fatal mistake.

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Mr Redwood: Does my hon. Friend agree that the situation causes the electorate to believe that we have a dishonest political debate in this country? We are having a big argument over the Vickers report and how and when it should be implemented, whereas it will all be settled under the capital requirements directive, CRD IV. I do not see the point of the Vickers report.

Mr Cash: That is all part of the problem. I have been on the European Scrutiny Committee for 26 years now, and over and over again I have found that legislation brought to this House is based on European legislation, but that is never disclosed. People do not say, “Oh, by the way, we have got to do this, therefore we are going to,” so we go through a charade of passing legislation as if we have control over it. The Whips move in like the clappers, saying, “You can’t possibly vote against this, because it’s all based on European legislation that we have already agreed to under the European Communities Act.” In reality, we are being governed by Europe, and that is my greatest objection—plus the democratic question, which the hon. Member for Blackley and Broughton has mentioned—and why I got so exercised about the Maastricht treaty. We have gone beyond that now, and what we are faced with is much more critical, but we can remedy it if we renegotiate the treaties.

Mr Jenkin: Before my hon. Friend leaves those shocking trade figures too far behind him, do they not demonstrate another factor? Our European partners, notably Germany, have far more to lose by disrupting the trading relationships between us and the rest of the EU than us. I do not diminish the point that we want to maintain the free movement of goods within a customs union, if we can, but the idea that they simply will not talk to us or chuck us out is absolutely ludicrous.

Mr Cash: Given the growth the rates elsewhere in Europe and the complete mess that the eurocrats and other Governments—including our own—have created, allowing us to get into this parlous state, it is inconceivable that they would dare to argue that somehow or other they could operate without us. That suggestion is simply child’s play and a joke, although it has got beyond a joke because it is so serious. That seriousness might come out this afternoon, but it will certainly come out—as night follows day—over the next few months.

I have been looking into the £53 billion trade deficit. I made some further inquiries, because I wanted a breakdown, and I was given the figures yesterday. In the trade balance of £53 billion against us, £17 billion is in vehicles—cars and lorries. In other words, we have destroyed or have had destroyed our manufacturing base in car making—my hon. Friend the Member for Luton North knows that better than me—and yet our trade in commercial and other vehicles is now on a monumentally adverse basis.

Another point that I am bound to make, which is deeply concerning, concerns the consequences of the departure of one or more states from the European Union, which some advocate. Some will have read Hans-Olaf Henkel in the Financial Times the other day. He is the former head of German industry, the equivalent of the director-general of the CBI, and he said that the “biggest professional mistake” of his life was to have supported the euro process, which is an important

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statement from someone of his standing. He is completely against the idea of the European Union as it now is. Germany has some very important voices, because it is effectively the paymaster for the rest of Europe.

Our negative trade balance with Germany is devastating. I was in Poland the other day, and I looked at its trade figures. I suspect that a lot of people in Poland desperately want to remain within the framework of some protective system but are deeply worried about the imbalance between Germany and Poland. And so it goes on—if we look at the Greek or Spanish situations and at the bottom line, what is happening with fiscal union is also, to use an expression, the creation of a greater Germany. For practical purposes, if we examine what is said at the various meetings, no one can be in any doubt that the Germans call the shots. The Germans are benefiting enormously from the European Union for one reason, which is that they are benefiting from their investment in other countries.

In that context, I have the figures for unit labour costs, if anyone is interested. In the past 10 years, German unit labour costs have gone up by only 2%. The average of all the other member states put together has unit labour costs increasing by no less than 25%. That is worth thinking about. Not only do we have the most monumental trade balance against us with Germany, but its trade balance with the rest of Europe is monumentally in its favour, and the Germans have done that largely through what we might call their skill or commercial nous. None the less, they have managed to do it and so they make huge profits from other parts of the European Union. Let us not be taken in by the argument that, somehow or other, Germany will suddenly go walkabout. The Germans get so much out of the European Union, and Angela Merkel is making it clear that they will continue to do so, and that is one of the reasons why Germany is so committed to political union. That does not mean, however, that it is in our interest.

George Eustice (Camborne and Redruth) (Con): My hon. Friend gets to the nub of the issue—whether it is realistic to expect the Germans to accept mutual liability with countries such as Greece, Spain and Portugal. It was different when they wanted to reunite Germany, and when West Germany was prepared to accept some of the liabilities of East Germany. Does he accept the difference, and that that is why going to full fiscal integration to prop up the euro is a very big decision for the Germans?

Mr Cash: I very much agree with that. I put that same point to the Prime Minister in the Liaison Committee last week. I asked him whether he seriously believed that Germany was going to be able to bail out the other member states. The money is simply not there. To imagine that Germany could carry the weight of the Spanish debt is, as Camilla Cavendish has said, complete cloud cuckoo land. We can see the Italian position getting increasingly out of control, while the Greek situation is beyond critical. Greece should exit the euro—that is perfectly clear—but there are desperate attempts to prevent it happening, although that is literally trying to do something impossible. One might as well believe, as Alice said in Wonderland,

“six impossible things before breakfast”,

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and the truth is that one of them is the idea that Germany will be able to sustain the whole of the European Union or, indeed, that its own people will allow that. All the evidence is that there is a very serious concern that they simply cannot afford to do it and that they do not want to do it. I will not give all the instances, because they are so well reported in the newspapers and other media.

Mr Richard Shepherd (Aldridge-Brownhills) (Con): One of the reasons that things have worked quite well for Germany is that, without the southern countries, the exchange rate of the euro would have been even higher. They therefore helped suppress the exchange rate in the free markets, to some extent, which has been of benefit to Germany.

Mr Cash: Absolutely right. Germany has gained much, but now the chickens are coming home to roost. The system is not working because the Germans have made investments in other countries. If we look at the Greek sovereign debt situation, an enormous amount of investment—by far the greatest amount—is from Germany, followed by France. So the sovereign debt question is now part of the overall problem of Europe as a whole, and the mess created, which many of us predicted, is now with us. Any sovereign debt default will become all the more serious the longer that the European Union attempts to sustain the euro. Economists such as Tim Congdon and others have made that case, but it is absolutely clear that the situation will get worse the longer that the European Union tries to put sticking plaster over what is a clear case for complete renegotiation of the treaties to get some sanity back into the situation.

The idea that those of us who are eurorealists and who have argued this case for so long would take any satisfaction from the fact that the situation might implode is complete rubbish. Of course we do not want it to implode; we want to get stability back, to reduce our deficit and to increase growth, but none of those things can happen if we have over-regulation, too much integration and too much governance from European institutions, which prevent oxygen reaching our small and medium-sized businesses. That is an issue not only for this country, but for other countries, which all face greater and greater unemployment. I therefore strongly urge the Prime Minister to sort this out at the next summit.

We cannot create growth unless the money to pay for the public sector comes from reasonable taxation on private enterprise. It must be reasonable taxation, because growth must come from the development of small and medium-sized businesses. There is no way we will reduce the deficit if we continue trading as we are with a Europe that is bankrupt, with the exception of Germany. Incidentally, while we had a £53 billion trade deficit with the EU in 2010—that went up by £40 billion in one year—we had a trade surplus with the rest of the world of £7 billion, and it could be much more if we made the big strategic change that I am proposing. That, too, underpins my resistance to the idea of fiscal union.

Fiscal union will lead to greater implosion, greater sovereign debt, more defaults and more trouble. It might also—I say this cautiously—lead to the rise of the far right, because that is the consequence of implosion in democracies and of their being forced into situations where their people start saying, “We’re not going to put

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up with this any more.” One has to be careful about what is done. That is the dangerous crossroads we are at, and the Prime Minister must make the right call.

Mr Denis MacShane (Rotherham) (Lab): As I understand it, the Chancellor is rather keen on fiscal union. Does that mean that the hon. Gentleman opposes the Chancellor’s point of view?

Mr Cash: The answer is yes. I did not say it so emphatically, but I said so when the Chancellor made his announcement in the House. I said that even Edward Heath would not have done what we were seeing now, so that probably sums the situation up quite well.

In my exchanges with the Prime Minister about fiscal union—I understand that these things can come out of the blue, but I wonder about the extent to which that was the case—he said: