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Lord Meston: I support this amendment. I believe it is important that the risk of the timetable drifting is taken into account. I accept, of course, that the Government have been good enough to provide us with drafts of the commencement orders. That gives some comfort to those who are anxious about the date when the Bill will come into operation, at least its first phase.

There is a need for certainty; there is a need for the period to be as tight as possible; and there is a need to avoid distortion between large firms and small firms as to the terms on which they can contract. A further reason, I suggest, for making the period as tight as possible is that the phasing depends upon definitions to be contained in the order, a draft of which has been provided to us. Definitions of a small business, a public sector body and a large business are no doubt necessary, but are extremely detailed and in marginal cases can be hideously complex. Unless a simpler way can be found to define in particular a small business, the shorter the period this regime has to exist the better.

The Earl of Home: The phasing-in process of the Bill has led to much debate in industry and was raised by several noble Lords at Second Reading. I am aware that there was a certain amount of support for phasing during the consultation process, but I doubt whether any of those consulted realised what an extremely complicated procedure this would turn out to be.

In the context of phasing, the draft order makes a genuine effort to explain what is a large company and what is a small one, but I agree with the noble Lord, Lord Meston, that this has resulted in an incredibly difficult formula. For instance, if a supplier wants to claim interest from a purchaser employing about 50 people, how is he to know whether that purchaser is big or small? Does the purchaser have to say whether he is big or small? If he is obliged to do so by law, when does he have to do so? Does he have to inform the supplier immediately? If he does not do so until a court hearing the supplier may have wasted a good deal of time and money putting his claim together.

In the case of an expanding company, I understand, a supplier may not be able to make a claim on 31st March but can make a claim in relation to the same debt on 2nd April. A new company may not be able to be sued on 30th June but can be sued on 1st July for the same

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debt. How will the supplier know when that company breaks through the barrier? Presumably, the same problem applies in reverse as regards a purchasing company which is laying off staff; the supplier may be able to claim interest on 31st March but cannot do so on 2nd April.

Then there is the question of small subsidiaries. These may be offenders as the result of parent company policy. Surely they should not be allowed to get away with it? I hope that the Government will agree with me on that one. If the Government do agree, when is a subsidiary not a subsidiary? Is it when it is less than 51 per cent. owned or when it is not equity accounted? I do not believe that this problem is addressed in the draft order.

I believe that other difficulties are associated with the phasing proposal which I will not go into now. None of these problems needs arise if the Government simply give all companies sufficient time to adjust their minds to this legislation and prepare themselves accordingly. I have suggested a period of four months in my amendment as various bodies representing small and medium-sized enterprises have advised me that that would give small companies time to adjust, but there is no particular science in my four month proposal, and it may be that six months or even longer might be better.

It is, however, arguably better that SMEs should address this issue while it is still fresh in everybody's mind rather than put it into the bottom of an in-tray and forget about it, and suddenly find that the phasing period is over for them and they are not ready. A great amount of complicated, time-consuming and possibly expensive work could be avoided by bringing this Act in its entirety into operation on the same day.

As an alternative, although I hope the Minister will consider what I have raised seriously, as I understand it, it is proposed that after a three-month period from the passing of the Act, small businesses will be able to take action against each other, against the public sector and against big business. However, big businesses cannot go against each other or the public sector on day one. I cannot believe that the Government want the public sector to be able to shelter from big business by using this clause, and I do not see why big businesses should be immune from each other. I believe my proposed wording takes care of these points.

5.30 p.m.

Lord Clinton-Davis: I hope noble Lords will feel that it was helpful that we placed in the Library of the House the draft order under Clause 15(2), which I believe all noble Lords will have received. The reason for doing so was that, not only should we give noble Lords advance notice of what we had in mind, but that this debate should stimulate the possibility of our thinking further about the draft order itself. I am grateful for the comments which have been made, which have been very helpful and which I can assure noble Lords I and my colleagues will consider with great care.

It is right to say that this is another of the most important areas of debate that were covered at Second Reading. Further to that debate I have had discussions with the noble Earl, Lord Home, and with the noble

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Lord, Lord Ezra, on, inter alia, this issue, and it is right that that should have been the case. Our concern is to ensure that, when we have concluded our deliberations on the Bill, it will be the best Bill that we could have produced through the debates in this House because all of us are ad idem--if I may use that term and defy my own previous logic--on the objective of ensuring that small enterprises should be protected initially.

One of the points I made in the debate at Second Reading was that we recognise that one of the most important matters is for small firms to be able to establish their credit management systems so that they are able to meet all their payments on time. I rehearsed on that occasion the measures that were being introduced to help them in that respect. After all, they have limited management resources and it takes time to develop the necessary systems to deal with that particular matter.

We, of course, as I also said at Second Reading, went out to wide consultation on the Bill, particularly on the question of the phasing proposals. Rightly or wrongly, 87 per cent. of business respondents supported phasing and 85 per cent of business respondents supported the timetable that we were proposing. I say again that I will certainly read very carefully what has been said, and I am always prepared to consult further with noble Lords who have raised this point, and others, but unless there is a very good reason for changing our position on this matter we would be reluctant to do so. It would be inconsistent of the Government to recognise that small businesses need credit management help if we were not to allow them sufficient time for the measures to take effect before requiring them to pay interest themselves on overdue debts.

Phasing will put businesses on notice that they should take action if their systems are inadequate. That is an important part of this debate. We simply cannot expect small businesses to develop these systems in just four months, as the noble Earl, Lord Home, has suggested. These are technical matters. There are training matters that need to be addressed, and, in addition, those with IT systems are already under pressure to ensure their systems are compatible with the year 2000. So they need time, and the Government feel that, despite the arguments we have heard so far and as I stressed, before this Committee stage, we should give that time to them so that they can prepare themselves more effectively for the legislation coming into effect.

The noble Lords, Lord Meston and Lord Ezra, suggested that two years would be an appropriate period. We feel that it is not only a question of developing systems, but also allowing businesses sufficient time to make sure that those systems are viable. That is why we have suggested two phases before commencement of the Act.

The noble Earl, Lord Home, suggested giving large businesses the right from commencement. This legislation is, of course, essentially designed to help small firms. That is how it was announced; that is how we reacted to some of the consultations that took place; and that was the message that we sought to get over. The fact is that large businesses are very well able to

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look after their contractual relationships, and therefore I am not sure that the amendment proposed by the noble Earl is necessary.

I ask the noble Lords to reconsider their amendments, though of course we will deal with them if they feel that is necessary.

On the question of large against large, which is another part of the noble Earl's case, I assume that his amendment would also extend to the public sector; he may have overlooked that, but I do not blame him for that--that happens. I see that the noble Earl is nodding affirmatively that that was his intention. I will look again at that, because it is an important matter.

Notwithstanding what I have said about the primary purpose of the Bill being to support the interests of small enterprises in the first instance, I will look again at what the noble Earl said about large businesses being able to utilise the provisions of the Bill against other large businesses. We can come back to that at a later stage. However, I want to make it very clear that I give no undertaking that I will come round to that view. Certainly, I can give the undertaking that we will reflect on the matter before the Report stage--which is at least a couple of weeks ahead--but I can give no undertaking as to the result of those reflections.

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