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Lord Haskel moved Amendment No. 16:
On Question, amendment agreed to.
On Question, Whether Clause 5, as amended, shall stand part of the Bill?
Lord Ezra: Having given notice about Clause 5 standing part of the Bill, my noble friend and I wish to give the noble Lord, Lord Clinton-Davis, the opportunity to say how this clause in particular on interest rates and how the Bill in general would link up with the long-awaited European directive. This was an issue which was referred to in a number of speeches at Second Reading. This directive seems to have been delayed much longer than anybody expected. No doubt the noble Lord himself and his colleagues have had discussions in Brussels about this, and I think we need to be a little reassured that, having gone through this Bill so carefully, it is not likely to be upset in a major way when the directive appears.
Lord Clinton-Davis: This is a matter which gave rise to concern during the Second Reading debate, as the noble Lord, Lord Ezra, has stated, on the part of a number of your Lordships, and clearly it is helpful to enable me to reflect further with your Lordships on the current state of play as far as that proposed directive is concerned.
It is true that at the present time the European Commission is working on a draft directive on late payments, but it will be rather wide in the sense that it will, as we understand it from our discussions with the Commission officials, cover measures beyond a
As far as discussions with the Commission are concerned, I can tell your Lordships that officials of the DTI and my colleague, Barbara Roche, the Minister for Small Firms, have indeed had meetings with the Commission on the legislation which we are currently considering. In July, she briefed Commissioner Papoutsis, the Commissioner with this responsibility, on the proposals we were advancing. We understand very well the point that has been made by a number of your Lordships that it would be unfortunate if we were required by the directive to amend the Bill or the Act after it had gone on to the statute book.
The present state of play is far removed from that. We have not seen the draft directive because it is not yet before the Commission. It is, I understand, hoped by the Commission that it will have a draft before it next month for consideration. We think, from the discussions that have taken place with the Commission, the directive will set a minimum rate of statutory interest less than that which we are proposing under the Bill.
I also understand that in setting the rate the Commission have taken a view, such as we have, of protecting the most vulnerable suppliers and deterring late payment. The fact is that the directive is unlikely to be in force at the earliest for another four years, and there is a great deal of terrain to be covered before that. And even if the draft directive is approved by the Commission, it then has to be considered by the Council of Permanent Representatives, the European Parliament and the Council of Ministers, and it is by no means certain that the directive will be supported by all the member states. We simply do not know at this stage, and I do not want to have a debate based on conjecture.
We take the view that it is important that we should proceed with our consideration of the Bill at this stage. It does not seem to me that we are doing anything which will confound the purposes, as we currently understand them to be, of the draft directive. Therefore, rather than to wait and see--and nothing may emerge from it anyway--we would do better to proceed with our own legislation and ensure that we play a positive part in the Commission's thinking. The important thing is whether our legislation would be in contradiction to that proposed by the Commission. I see no evidence of that situation being a possibility, and certainly not a probability.
The Earl of Home: I am most interested by what the Minister told us. I am also very pleased that the noble Lord, Lord Ezra, agrees with me that the proposal might be delayed because on Second Reading I made the very point that the Bill was premature.
We are still talking about a fairly short timescale before it is proposed that the directive comes into force. If the Bill continues its course through this House and another place with customary speed, it may well be more or less over just as the directive comes into force.
There is another reason why I said that the Bill was premature. At no stage does the Bill deal with the tax treatment of the receipt of interest or the right to receipt of interest. I would be grateful if the Minister could tell us whether received interest is taxable. Is the accrued debt, even if not collected, taxable? What is anticipated as regards VAT on interest? If the Minister does not have the answers today, I would be most grateful if he would clarify them before the Report stage.
Nor is there any mention of legal costs in the Bill. Unless there is certainty in the supplier's mind that he will, if successful, always receive costs he will be loath to bring an action because legal costs could easily exceed by a long way the interest which he receives. Perhaps the Government have not had time to think these points through, in which case a further period of reflection may be desirable. That might also coincide with the publishing of the directive.
Lord Clinton-Davis: I thank the noble Earl for his additional observations from the bottom of my heart and I will try to deal with them.
First, as regards the prematurity of the Bill, I did not believe that that was the view of the noble Lord, Lord Ezra. I understood that he shared the same thinking. The noble Lord appeared to be more concerned about obtaining information about the current state of the discussions between the DTI and my colleague, Mrs. Roche, and the Commission. I detected no sign that the noble Lord was of the opinion that the Bill was premature, neither in this debate nor in the one that we had at Second Reading.
The noble Earl speaks of the short timescale of the Bill. That is a matter of conjecture. At best there will be a short timescale; at worst there might be no directive at all. That is a factor that has to be seriously taken into account when we consider the need at this stage for pushing ahead with this legislation.
If I were to be wrong about that, I do not believe that harm would have been done in any event. We might have wasted the time of some of your Lordships, but I think we all enjoyed Second Reading and are enjoying the Committee stage; we are rejoicing in the fact that this afternoon we can be here in the Moses Room. I do not seriously believe that harm will have been done, and the purposes we are pursuing are wholly consistent with the directive, if in fact we can be sure that it does not cause a sense to be present that the Commission has gone beyond its competence, which is a possibility on the two issues that I have raised. I am not making a judgment about that; I am just saying that it is a
On the question of the date of the Report stage, I take instructions on this sort of thing and I am told that it is likely to be in the week beginning 16th February.
On the question of VAT, the full price including VAT will bear interest. The interest will be paid wholly to the creditor, who will have paid the VAT up front to the Customs and Excise. I hope that deals with the point which the noble Earl has raised.
On the question of tax treatment of interest, that should be treated in the same way as interest charged under a contractual provision for interest; in effect, it would be a non-tax item and its treatment would be tax neutral. I do not know whether I was asked about how this would be dealt with in the company's accounts; that is a matter for the auditor, of course.
On the question of legal costs, the rule in this country is that costs follow the event; that is to say, that the successful party is entitled to the costs. We have paid attention to one particular matter to which I adverted in the Second Reading debate. It concerns the use of small claims court procedures to ensure that through this fast-track procedure the legal impediments to swift action through a major court action would not arise. We would bypass many of those obstacles.
As to whether a creditor would feel that it was not worth even going through the small claims court, that is a matter about which that individual will have to make a judgment. It is perfectly possible. There are many people who would not wish to use any form of litigation if there was a risk of costs being substantially against them. However, the reality is that it is necessary to ensure that small enterprises are informed about their rights so that they can, on a rational basis, exercise their judgment in that matter as to whether it is worth while going to court to recover the interest element, for example, which is the level which was mentioned, or whether it would be just as well to abandon the matter. This is why there is nothing mandatory about the provisions we are inserting. It is a permissive right. They can take action if they deem it appropriate, and they need not if they deem it inappropriate.
Rather different considerations might arise, although not wholly different ones, about the principal debt as distinct from the interest. Then the interest could be a substantial sum if the principal debt was a very large one. All I can say is that I think it is right that people should have given to them the right information about the remedies that can be sought and the fora in which those remedies might be obtained so they can make up their own minds about the value of these. I hope the noble Earl will feel that I have addressed the points that he raised and that we can now move on.
Clause 5, as amended, agreed to.
Clause 7 [Purpose of Part II]:
Page 3, line 24, leave out subsection (3).5 p.m.
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