Draft Companies (Directors' Report) (Payment Reporting) Regulations 2025
(1 day, 16 hours ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Blair McDougall)
I beg to move,
That the Committee has considered the draft Companies (Directors’ Report) (Payment Reporting) Regulations 2025.
It is a pleasure to see you in the Chair, Ms Vaz. It is also a pleasure, as the new Minister for small business, that this is the first statutory instrument that I am speaking on, as someone who ran a small business and suffered from late payments at times.
Small businesses are the backbone of our economy, employing millions of people and enriching our lives, yet we know that the scourge of late payments has been holding them back. Late payments are estimated to cost the economy almost £11 billion per year and to lead to 14,000 businesses closures annually. That is an average of 38 businesses every single day. This cannot go on.
That is why this Government has already taken action to improve payment practices. In December 2024 we launched a new Fair Payment Code and introduced secondary legislation requiring construction businesses to publish reports on their retention payment practices. In July we launched a public consultation considering additional legislative measures to hold businesses to account on payment performance.
The consultation considers measures that go even further than today’s statutory instrument, and will be the most significant legislation to tackle late payments in over 25 years. It will give the UK the strongest legal framework on late payments in the G7. These measures will include removing flexibility around maximum payment times, which disproportionately impact small businesses, and introducing mandatory interest on late business- to-business payments. Our consultation closes on 23 October—Thursday this week—and we intend to take forward primary legislation as soon as parliamentary time allows.
Today we are making a down payment on those wider legislative reforms. We are going to build upon the existing payment transparency regulations for large companies by introducing payment data headlines into directors’ reports. Large companies are already under a duty to report biannually on their payment practices and performance. These draft regulations will require large companies to disclose payment reporting data within directors’ reports required under the Companies Act 2006, further increasing the transparency of payment performance to their boards, stakeholders and auditors.
Businesses that are already adhering to current payment regulations will not be significantly affected, as it is data large firms are already required to collect and publish through Gov.uk. The Government want to shift the focus from small businesses wasting hours of their time chasing late payments, and instead put the onus on the boards and stakeholders of large businesses to ensure they are paying their suppliers fairly.
I will now outline the key elements of this statutory instrument. These regulations amend schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and introduce the requirement for large businesses to report information about their payment practices within their directors’ reports. The payment data headlines will include statements on payment practices, average time to pay, and the percentage and sum of payments made before 30 days, between 31 and 60 days, and after 60 days. They will also include the sum and proportion of payments that were not paid within the agreed payment period.
This data will publicly illustrate a company’s approach to payment. It is only a small ask for large businesses, but will help with continuous improvement of payment times. The Government are committed to ensuring that this legislation continues to work and this instrument will be subject to a review within five years. I hope hon. Members on the Committee will see the benefits that these draft regulations provide and agree with the introduction of this affirmative statutory instrument.
Gareth Davies (Grantham and Bourne) (Con)
It is always a pleasure to see you in the Chair, Ms Vaz. I welcome the Minister to his place; it is a great appointment, and it is good to know that he comes to the position with a good deal of experience, which I know will be valuable to both officials and the House more broadly.
I also welcome this opportunity, on behalf of His Majesty’s official Opposition, to address this issue. No matter where we represent, MPs across the House all know, from our meetings with constituents and businesses, that late payments are a scourge on small and medium-sized businesses. At the very least, we must appreciate that late payments cause a tremendous amount of short-term cash-flow problems that prohibit investment and, in turn, economic growth—and at worst, they cause existential liquidity problems for the market as a whole. British small businesses are owed an average of almost £21,500 in late payments, and an almost unbelievable 62% of small businesses report being impacted by them.
I therefore completely appreciate that the aim of these regulations is to boost the transparency around how large companies pay their suppliers, so that suppliers will be able to make a more informed choice about who they partner with, while also imposing accountability and positive incentives for large companies. As the Minister will know, this measure builds on a lot of the regulatory work the previous Government in particular did in support of small businesses, which he kindly alluded to; he will also know that the Reporting on Payment Practices and Performance Regulations 2017 already require companies to release much of the same data required under the proposed regulations before us today, via a web portal.
The 2017 regulations were extended beyond their initial sunset date for a further seven years, following a consultation led by the small business Minister at the time, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). With that in mind, having companies report annually on their payment practices and performance should not in theory have an unfair or overbearing impact on companies over and above the existing requirements. That was a view shared by many companies that fed into our 2023 consultation, which the Minister will be aware of, which said that this measure would be a step in the right direction.
It will not be a surprise to you, Ms Vaz, that the Opposition will not be opposing the regulations today, but I want to ask a couple of questions of the new Minister. First, given that companies are already required to report this information as part of the Government portal under the 2017 regulations, can he share the Government’s assessment of how effective this additional regulation will be in further reducing late payments? We both agree that they are an issue, but I did not quite hear him outlining the Government’s intentions, plans and ambition for how effective these measures will be, or over what time period.
Secondly, the regulations do not appear to require companies to include the same amount of information in the annual reports or directors’ reports as they do in the twice-yearly Government portal findings. There is a slight inconsistency there, which I hope the Minister can address and clarify for us. How will he ensure the consistency of the information provided both to directors’ reports and through the web portal?
Daisy Cooper (St Albans) (LD)
I welcome the Minister to his place.
When it comes to the treatment of small businesses, there are two things that get right up people’s noses. The first is the big David and Goliath fights that sometimes happen between big companies and their small suppliers; the other is regulators that are tasked with tackling those problems, but can do nothing about them, because they do not have the teeth. Fundamentally, we are a country that believes in fairness, and late payments are a problem that is deeply unfair and unjust, and can be existential for some small businesses.
The Liberal Democrats welcome this extra transparency on payment practices and performance; it will really help. We support this measure, and we hope very much that the Government will power ahead with introducing additional powers for the Small Business Commissioner so that they can launch proactive investigations, rather than passively receiving complaints. Would the Minister like to say a word or two on that?
If I may test your patience for a second more, Ms Vaz, it is Small Business Saturday in just under seven weeks’ time, on 6 December—just a few days after the Budget. We know that transparency and improved regulation matter to small businesses, but the tax burden matters too. I urge the Government to ensure that, by the time Small Business Saturday arrives, there is some more good news for small businesses to be happy about.
Blair McDougall
I am grateful for the support across the House on these regulations. It is clear from hon. Members’ constructive comments that we all agree that this is a serious problem that we need to tackle.
To respond to some of the specific questions, the hon. Member for Grantham and Bourne made a powerful case with his statistics about the impact of late payments on the economy. In terms of the burden on business, we think it will be a very small one, in return for potentially a bigger prize—I think it is 133 million hours spent across the economy chasing late payments. To his point on consistency, there is some overlap between the data that people already have to report and the data that we are suggesting be put into the annual reports through these regulations.
On the question about the powers of the Small Business Commissioner, part of the consultation we are currently running is on proposals to give the commissioner more powers to investigate and resolve late payment cases. With these regulations as part of the wider package of measures, we will be delivering the biggest reform to late payment regulations in 25 years; as I say, this measure is very much a down payment on what is coming. I urge hon. Members present to look at the proposals and to take part in the late payments consultation over the next couple of days.
These regulations are just the first step, but they are potentially the start of making a huge difference to what is a huge problem for small businesses. I commend the regulations to the Committee.
Question put and agreed to.