Amendments 42 and 43 are very similar in nature. Rather than relying on people’s good intentions, there is nothing like a duty to pay to increase people’s adoption of a culture. Here we are looking at duties to pay for the private sector and, indeed, the public sector. That is just an extension and a tidying up of some of the Bill’s provisions to give it more force by giving people a duty to pay and a duty to report on whether they have paid, what they owe and when they paid it. That should be reported to the Small Business Commissioner who, happily, has a lovely address for them to report it to. There, we have used the Government’s proposal to good effect to provide a duty to pay. It is not discretionary; there is a duty to pay; you do not have a choice.

6.45 pm

Finally, Amendment 45 covers the traditional notion of what a company’s payment terms should be. At the moment there is the notion of a payment term where interest is due at 60 days. We suggest that the Government aspire massively to create a world-leading position and adopt 30 days. Obviously, we would not want to do that tomorrow, we would want some transitionary arrangements to ensure that such a scheme was adopted over a period, but nothing could do more to emphasise our ability to be a world-leading entity than to take a position such as that. The intention behind the Bill is very clear: the promotion of enterprise and economic growth. It would be massively enhanced by a much faster trajectory of cash flowing around the economy.

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Rather than small businesses having problems with late payment, as they do in so many cases, if they were able to employ only one extra person—which is pretty much the scale of most small businesses—what a wonderful position that would be in promoting growth. It will come if we can get a grip of late payments.

This package of amendments is something that the Government could easily and comfortably adopt into their measures. It would not expand the role in the way that they are concerned about but would certainly enhance the powers and companies’ ability to feel comfortable and feel certain that they should be doing the right thing. I beg to move.

Lord Stoneham of Droxford: I will speak to Amendment 41. Our concern throughout has been that the powers of the commissioner are somewhat ineffective. There is a danger that, as a result—this is our fear—he or she may well be side-lined because there are ineffective follow-up powers to deliver on his work. If we are to deal with some of the abuse of late payments, there must be some clout coming down the line.

I accept that the noble Baroness may tell us that it is best to wait and see before we come forward with legislation in future, but here, we provide that, subject to the commissioner’s advice, the Secretary of State may consider regulations which would give power, as necessary, to fine late payers who are not complying with the advice they receive from the Small Business Commissioner to resolve complaints. This amendment, which again includes the public sector, could set definitions of good practice and follow them up with some penalty if they are not complied with. The Minister should consider that in the Bill, so that people see that the commissioner will not be ineffective and side-lined in future.

Lord ONeill of Clackmannan: My Lords, I am very pleased to come in on this point. The problems of small businesses can very often be summed up as that they spend a lot of time financing bigger businesses. They do so because they are not getting paid and the bigger businesses have the money which they should have been paying further down the supply chain. We all recognise that this is an issue and, in some respects, the establishment of the Small Business Commissioner is evidence of that. However, it is equally significant that we have got to give the commissioner a chance from the very start. He has powers and teeth and he has support. Big businesses will not be allowed to set aside their responsibilities in respect of payment. This group of amendments covers both public and private sectors. In many instances, we have supply chains where the initial payment for work done comes from the public sector but there are many casualties going down the chain. The 30-day rule may be applied by some, but not by all. We do not need to wait on the commissioner asking for powers. We need to be able to say that this is the arena in which you will be operating and these are the powers and weapons you will have with which to take on the recalcitrants.

The amendments are a bit imperfect at the moment, but the principle is there. It is up to the Minister to come to us and say that the Government think, like

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noble Lords on this side of the Room, that something needs to be done. If this is not adequate, then by all means let us look at it again at subsequent stages, and in the other House, if necessary. Without this kind of clear backdrop, the Small Business Commissioner will be disadvantaged and will not be able to make the significant take-off, in respect of payments, that everyone would like to see right from the word go.

Baroness Byford: My Lords, I have a couple of questions for the noble Lord who moved these amendments. The theme of our discussions in the Room today has been that the powers in the Bill are felt to be ineffective. That made me think back to the discussions we had when we set up the Groceries Code Adjudicator not so many years ago, when the powers and effectiveness of that role were discussed fully. My first question, which is also for the Minister, is whether we learnt anything from that adjudicator that might have a bearing on the issues raised in our discussions. Secondly, in light of that, might a transitionary scheme be an advantage in the long term? It seems a shame not to learn from things we talked about in great detail in the past. One of these was the question of whether the powers were sufficient and would bring reward.

I know there is a slight difference between the Groceries Code Adjudicator and the commissioner we are setting up here. A lot of the adjudicator’s role was trying to solve the problems between suppliers and the people they were supplying. Fines and enforcement were nearly a last resort, but it was very important that they were there. My question, to both the Minister and the noble Lord, is about whether lessons have been learned, or whether there are other schemes out there which would give us more guidance on what the Bill proposes.

Baroness Neville-Rolfe: My Lords, we have had a very interesting debate on these amendments. I like the positivity of the noble Lord, Lord Mendelsohn, and will look carefully at his examples before we speak again. However, we believe it is vital to exclude certain matters from the scope of the complaints scheme in order to ensure, as I have said many times, that the commissioner’s work is targeted, does not duplicate and makes the best use of resources.

For example, a complaint will be excluded if it relates to the appropriateness of the price or proposed price for goods and services. The commissioner’s function is not to consider whether either party is getting a good deal financially but whether the approach to payment matters is fair and reasonable. I also agree very strongly with what the noble Lord said about the importance of what I would call working capital. By reducing late payments, you increase working capital. The noble Lord, Lord O’Neill, made essentially the same point. That is the background to this, where I think we have a lot of common ground. We think it is good practice for such a scheme to set out certain parameters, as we are doing here.

Amendment 45 is about imposing a maximum payment term. Obviously, I understand the intention behind this amendment. It seeks to address, as we are trying to do, the misuse of payment terms by larger companies when contracting with smaller firms. It seems quite

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wrong for larger companies to use unduly long payment terms when dealing with smaller suppliers. Indeed, frankly, you would expect them to do the opposite, because small suppliers have less capital behind them and are forces for innovation.

In the UK, legislation mandates a 60-day payment term for private sector bodies, unless companies expressly agree to a longer payment term that is not grossly unfair. It is true that some EU member states have gone beyond this to impose a maximum payment length. However, at the end of 2013, when we consulted on whether to introduce a maximum payment term, responses showed very little support for this. The most common argument was that companies value freedom of contract, and they need the flexibility to allow for different circumstances, notably the different practices of different sectors. Instead of more draconian measures, our stakeholders wanted to see increased transparency on payment terms and practices.

The Small Business, Enterprise and Employment Act does just that: it enables us to introduce a new reporting requirement for the UK’s largest companies. When implemented, this reporting requirement will see the UK’s largest companies reporting six-monthly against a comprehensive set of metrics, including the proportion of invoices paid beyond agreed terms, and the proportion of invoices paid within 30 days, between 31 and 60 days and beyond 60 days. We can legislate so that the Small Business Commissioner, once the office exists, will monitor and enforce this requirement—I think somebody asked about that. The commissioner will also make inquiries about payment terms, where a small business makes a complaint.

Amendments 42 and 43 concern the duty to pay. I have outlined our powers to implement a new reporting requirement for the private sector. The Act sets out how we can use the reporting power in relation to payment performance and interest owed and paid in respect of late payment. As we discussed earlier, the Public Contracts Regulations 2015 have recently introduced a requirement for all public sector buyers to have 30-day payment terms in their contracts and through their supply chains. They must publish annually on their payment performance, including interest paid to suppliers due to late payments and, from 2017, debt interest payments.

None of this is easy but we are striking a balance between ensuring transparency in this area and placing burdensome requirements on private sector companies and public sector buyers that we fear could have perverse effects on the UK’s largest companies and their supply chains.

The noble Baroness, Lady Byford, asked about the Groceries Code Adjudicator, who of course administers the Groceries Code, which was a remedy for a competition problem. The Groceries Code Adjudicator has adopted a similar approach to that which we intend for the commissioner. She has used informal approaches as a means of influencing behaviour and has had some success; for example, in retrospective forensic accounting.

The GCA, the pubs adjudicator and the new commissioner are each addressing particular issues identified after evidence-based research and full consultation. The Government have taken a proportionate

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response to these problems in each case. The first review of the GCA will take place in March—unfortunately, a little late for the Bill but in good time for the emerging work of the commissioner—and will give us the opportunity to consider the lessons further. I am sure that there is some other learning, but those were some first thoughts.

In Amendment 41, there is an important issue about further payment legislation; I am grateful to the noble Lord, Lord Stoneham, for his explanation of the way he sees this working. It permits the introduction of further legislation to tackle payment practice, so it would allow for a maximum term to quibble an invoice, for example. It would prohibit unilateral changes to payment terms and payment to join supplier lists.

7 pm

The Government are wholeheartedly committed to tackling poor practice. However, we remain unconvinced that additional detailed legislation of this kind—detail rather than goal-based, as it were—is right. Let the commissioner get to work and make some well-judged decisions on payment issues, and that will quickly change the ground rules. In addition, bans on certain practices could be sidestepped and substituted with others, so you would get a whack-a-mole situation. They would apply economy-wide and could inadvertently prohibit mutually beneficial arrangements. Having said that, I should address the issue of retrospective changes to payment terms.

As a matter of law, it is not possible unilaterally to change contract terms; changes can be made, as I think we all know, only by mutual agreement. In practice, when companies complain of unilateral changes to contract terms they mean that they were put in a position by other businesses where they felt that they had no option but to agree to a change in contract terms. This means that prohibiting unilateral changes to contract terms will in practice not catch the very practices it might seek to prevent. However, that practice will be in the purview of the Small Business Commissioner if it is about payment and terms in the contract. That is an important area.

This is an important set of amendments. We are driving forward a suite of measures to tackle the payment issues. We are committed to achieving real change and to make it unacceptable for large companies to exploit their small suppliers. There will be a reporting power. I am not sure that I have made clear that a specific reporting power will allow the commissioner to report on an individual case—totemic decisions, for

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example. Then, under the annual reporting power he will draw his lessons together and improve the system and the culture. The change has to be wide reaching and long lasting. On that basis, I hope that the noble Lord will withdraw his amendment.

Lord Mendelsohn: My Lords, that was not entirely the response I had hoped for, but one I could have expected. There are a couple of elements here. First, we were asked about whether we had much to learn from the Groceries Code Adjudicator that is relevant to this. Indeed, we have learned a huge amount from that adjudicator that is entirely relevant to the Small Business Commissioner.

In the past couple of weeks, five years into its existence and two years into the current person responsible for it, the adjudicator has been shocked by suppliers’ ignorance of the code and all aspects of it compared and contrasted to the knowledge that larger businesses have of what they can do and how they can get round it. We are dealing with a very small number of companies who are the target of the code, but still, suppliers in any survey, in massive numbers, talk about these problems. The largest and most recent survey may well have been on Tesco. Somewhere in the region of 30% to 40% of suppliers said that Tesco was failing more often than not to live up to its obligations under the code, when, by dint of what the Groceries Code Adjudicator said, it had had extensive department education on what it should be doing, but it still failed to comply. Indeed, we have the issue we will come to later about the fears of retribution. We continually have extensive surveys by the Groceries Code Adjudicator about the number of suppliers feeling mistreated. I think that that has reduced, in the entirety of its existence, by only 9%.

We took some of that into account and that is why the Small Business Commissioner should have a much more extensive role and this should be much clearer. If we hope for everyone to be happy, resourceful and feel comfortable, we need something with some teeth.

The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab): My Lords, there is a Division in the House.

Lord Mendelsohn: Forgive me. I beg leave to withdraw the amendment.

Amendment 15 withdrawn.

Committee adjourned at 7.06 pm.