Late Payments

Baroness Harris of Richmond Excerpts

Wednesday 19th June 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the noble Viscount for repeating the Statement made in another place.

Do the Government have a problem with SMEs? On the one hand, they say:

“Small businesses are the backbone of our economy. Employing 16.3 million, 60% of total UK private sector employment”,


but on the other, they consistently do not provide SMEs with the legislative and regulatory power they need. Earlier this year, in their response to a Select Committee report, they said:

“The Government is undertaking activity across a wide range of policy areas”,


but they offer,

“a Small Business Leadership Programme and supporting local peer-to-peer networks”.

I do not recall any campaign for that rather recherché approach.

The Government also said:

“The Government understands that tackling late payments is a top priority for small and medium-sized enterprises”,


but they offer a voluntary Prompt Payment Code, which is regularly and consistently ignored by virtually all the major companies, and a Small Business Commissioner with no substantive powers to banish bad payment practice or to act on behalf of SMEs against the large companies that rip them off time and again. The Small Business Commissioner is doing a great job and is to be congratulated on what he has achieved, but where in these measures is a policy response to his observation that, since being in the post, he has been,

“struck by the trepidation felt by small businesses when talking about late payment with their large suppliers”?

This is not a new problem. Where are the measures to resolve this long-standing issue? Why do SMEs not escalate the interest on outstanding late payments? The truth is that the SME not being paid cannot risk legal or other action for fear of being blacklisted by the large company it supplies. The Government need to do much more.

It is true that regulations, which we supported, were introduced to ban large companies from preventing their SME suppliers using invoice finance, but this is small beer compared with what SMEs need. Today’s announcement is just more of the same, although the very fact that BEIS has to announce some minor changes to the role of the Small Business Commissioner is a clear admission of failure.

The call for evidence told us that,

“there is more to do to improve the payment landscape”,

so why not do what is clearly required? Give the Small Business Commissioner not only powers to compel the disclosure of information about late payment but significant powers to fine large companies that do not pay their SME suppliers promptly. Why not go further and make the directors and senior staff of large companies that fail to meet the reasonable terms for prompt payment to SMEs personally liable? Make the Prompt Payment Code statutory, not voluntary. Transfer the responsibility for maintaining the Prompt Payment Code to the Small Business Commissioner—we agree with that—but give him the powers he wants to fine flagrant abuses of the code. Restricting this to compliance is small beer; it should already be a statutory offence.

Although we welcome greater transparency in how supply chain finance is reported in company accounts and in ensuring that it is properly audited—although the FRC may not be around to see it—is that not a case of just falling into the same trap? Is this not an issue of whether payments contracted for and due are being withheld wrongly and to the detriment of SMEs? Is it not time that the Government legislated to ensure that in such cases, a trust fund or a project account is set up with its own bank account, which would ensure that the SMEs supplying a supply chain receive the payments timeously?

This is not an ambitious package of measures as it will not level the playing field for the UK’s 5.7 million small businesses. If the department thinks that this will deliver the modern industrial strategy’s ambition to make Britain the best place to start and grow a business, it is clearly deluded. As I think Paul Uppal, the Small Business Commissioner, has hinted, BEIS is attacking the wrong problem. He has said:

“Ending the culture of late payments will pave the way to boost SME productivity, remove barriers to growth and improve cash flow”.


He added:

“I welcome any additional provisions which will strengthen the influence my Office has in tackling poor payment practice and levelling the existing playing field”.


What we should be doing is ending a culture through strong, effective legislation and regulation. It is a pity that he is not getting the support that he and his office clearly require.

[Baroness Harris of Richmond (LD)]

My Lords, I thank the noble Viscount for repeating the Statement, but I have to tell him that the Liberal Democrats have long campaigned to make the Prompt Payment Code mandatory. Given that, we welcome the new powers that the Government will give to the Small Business Commissioner to tackle late payments through fines and binding payment plans. There are also plans to make company boards accountable for supply chain payment practices, which I understand will be undertaken for the first time. Equally, we support the implementation of a new fund to encourage businesses to use technology to simplify invoicing payments and credit management.

We support these proposals but does the Minister feel that they will be sufficient to mollify the 97% of those who responded to the consultation with SMEs who complained that they had experienced late payments from their suppliers, especially as they felt that the situation had worsened over the past three years? Does he intend to make the Prompt Payment Code compulsory, as has already been suggested, for companies with more than 250 staff, and if not, why not? Will he undertake to ensure that future legislation will be robust and fine large companies that do not pay their suppliers within 30 days? Finally, does he accept that Brexit will cause real damage to SMEs through disruption to supply chains and punitive tariffs?

[Viscount Younger of Leckie]

I thank the noble Lord, Lord Stevenson, and the noble Baroness, Lady Harris, for their questions. I am not sure whether there is broad approval, but I think the answer is that the response is rather mixed. I shall try to answer the questions that have been raised. One of the central points was the question of whether or not to legislate. Perhaps I may answer both noble Lords directly by saying that legislation is not always the answer. The French legislated for maximum payment terms and the unintended consequence of that was that the number of disputed invoices went up. They have also had to amend the legislation subsequently to accommodate the payment practices and complex supply chains of different sectors. It is therefore clear that a one-size-fits-all approach is not necessarily the answer, and sometimes legislating can create perverse incentives in the system. Moreover, legislating in the way noble Lords have suggested could create an incentive which dissuades large companies from contracting with SMEs. If the Government were to set a standard length of time for payment terms—for example, 30 days—companies that pay in seven or 14 days may well extend their payment terms to 30 days.

I turn to the question that was raised about the Prompt Payment Code being mandatory. Again, we believe that more legislation is not the answer here and could lead to unintended consequences in complex supply chains as well as creating perverse incentives. The whole idea is that the Prompt Payment Code is a voluntary code which is administered by the CICM on behalf of BEIS. Signatories to the code sign up to pay 95% of invoices within 60 days. Actually, there is light at the end of the tunnel. In quarter 1 in 2014, according to evidence provided by BACS, the amount of late payment outstanding was £46 billion. That has been reduced through a voluntary process to £13 billion.

Finally, the whole point of these measures is to look to increase the powers of the commissioner and consider the possibility that he could support larger business compliance and better practice in the payment culture, as well as develop greater confidence within the SME community in the Government’s commitment to support small businesses in addressing late payments. Going back to what the noble Lord, Lord Stevenson, said at the beginning of his remarks, we do not have a problem with SMEs at all. That is exactly why we want to get behind the commissioner and look at the possibility of giving him more powers, although not draconian powers, to support a very important part of our economy.