Small Business Commissioner: Late Payments

Question

Asked by

To ask Her Majesty’s Government what plans they have to extend the powers of the Small Business Commissioner to deal with late payments for small businesses and freelancers by (1) allowing the Commissioner to deal with complaints against companies with fewer than 50 employees, and (2) requiring the chief executive officers and chairs of offending companies to respond to the Commissioner.

My Lords, we have consulted on extending the scope and powers of the Small Business Commissioner, including extending their scope to deal with complaints against a small business by a small business, and the power for the commissioner to compel information from a business in relation to a complaint. We are working through the impact of any changes with the new commissioner to better understand the resourcing implications of each option and the likely impact on businesses.

My Lords, three-quarters of self-employed people suffer from late payments; many of them do not get paid at all and the situation is getting worse. It adversely affects their business and a lot of their valuable time is taken up with chasing unpaid invoices. Why, on such an urgent issue, when the consultation finished last December, have the Government still not come forward with proposals? When will proposals be forthcoming?

The noble Lord makes a good point, and I very much sympathise with his concern. However, we received a lot of replies to the consultation and are currently working through the options. He will be aware that any proposals in this area will require primary legislation and have resourcing implications for the Small Business Commissioner, so we are currently working through all the options.

My Lords, the tidying up of late payment problems without hurting trade still needs to be addressed by both larger and smaller companies. What does the noble Viscount envisage the Small Business Commissioner needing to help to deal with the problem of requiring senior company officers to explain their position to them? How does he envisage that those arrangements will improve the situation?

I apologise to my noble friend, but I did not quite catch all of his question. This is a serious problem. The Small Business Commissioner is newly appointed, and she is still getting to grips with her role. To be fair to the previous commissioner, since December 2017, the commissioner has recovered more than £7.8 million owed to small businesses. A lot is happening in this area, but I totally accept that we need to do more.

My Lords, will the Minister please say whether, in the trade agreements on which the Government are embarked, there will be some provision so that overseas companies pay their UK customers promptly?

These things are all extremely important. I do not know whether there are any specific provisions in trade agreements on prompt payment, but I shall certainly have a look and write to the noble Lord about it.

My Lords, does the Minister agree that the key problem for many freelancers, including creative professionals, is that they are caught between what sometimes feels like an ingrained culture of late payment and not being able to challenge for fear of losing work? Ultimately, we need a system that automatically penalises late payers without the aggrieved party having to raise its hand.

The noble Earl makes a good point. I remind him that UK legislation already establishes a 60-day maximum payment term for contracts for the supply of goods and services between businesses, although those terms can be varied if they are not grossly unfair to the supplier. We also have the prompt payment code. We have received more than 50,000 reports from businesses that they are abiding by the prompt payment code, but there is always more to do on this.

My Lords, I have been in Parliament for a long time—perhaps people would say for too long. For all that time, late payment has been a problem under Governments of both major parties and the coalition Government. Why is it such an elusive problem? Why is it so difficult to find a solution to what is damaging to small and medium-sized businesses?

I would never say that the noble Lord has been in Parliament too long. We need more representatives from the north-east in Parliament, for as long as possible—says he in a self-congratulatory way. The noble Lord is right. It is a difficult and complicated problem which Governments of all persuasions have grappled with. It is different in different industries, with different suppliers for small businesses and large businesses, but there was a commitment in the Conservative manifesto to crack down on late payment. That is why we launched the consultation. We are currently working through the responses. We will need primary legislation to implement it. The noble Lord will know, from his time in government, how tricky it is to work through those problems.

Can my noble friend ask his department to look at what happens in other countries, to see which countries do better than we do and what lessons we can learn?

That is a very good suggestion. I certainly will do that.

My Lords, the Small Business Commissioner’s role is limited in relation to construction companies. For example, she can deal with complaints from small construction firms about payment disputes only with larger firms which are signatories to the prompt payment code. Why then can she not deal with the same complaints when the bigger firm is not a code signatory? Will the Minister look at extending the commissioner’s role to provide full support to small construction businesses?

I have had this discussion with the noble Lord before. The construction industry is different; there are adjudication processes already set up for it and we are also looking at the issue of payment retention, as the noble Lord knows well. It is a complicated issue. The legislation already precludes the application to the construction industry, because there is an adjudication code process already there.

My Lords, I appreciate the Minister’s candour in this but remind him that, earlier in the year, he said:

“Late payments damage the cashflow of small businesses, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures. Action to stop the damaging practice of late payments remains a key priority for Government.”

But is it, given that it has taken the Government over a year to consider the consultation and we are yet to see any response? Will the Government now commit to providing SMEs with greater protections from insolvencies, including by giving statutory powers to the Small Business Commissioner to chase late payments? This is a very urgent issue.

This is a priority for the Government —there are lots of priorities for the Government at the moment. The new powers that we consulted on include compelling the disclosure of information, including in relation to payment terms and practices, and imposing financial penalties or binding payment terms on businesses. These are important issues that need to be considered properly. We need to go through the consultation responses properly, and we will respond as soon as we can.

My Lords, there is a danger that the Minister’s response might be interpreted as kicking the can down the road and waiting some time for legislation to possibly come in the future. In the meantime, small businesses of the type described by your Lordships are suffering. Will the Minister recognise that the current situation is not as it should be and use current powers and levers to improve it?

We have a newly appointed Small Business Commissioner who is cracking on with the job. She is currently in discussion with my department about the resourcing that she requires. As I said, so far almost £8 million-worth of debts have been recovered for small businesses, so there is a lot of good work going on, but I totally accept that we need to do more.

My Lords, it is two years since the election manifesto, and a year since the review. Can we not inject some urgency into this? Can my noble friend perhaps define his own interpretation of the word “urgency”?

My noble friend is tempting me to get into dictionary definitions and semantics. As he well knows, I cannot give a precise timescale for the processes of government, but we are working on the issues and we will respond as soon as we can.

My Lords, it seems that, if the Government do not want to do something, they set up a review body and then forget about it for a year or two. Would it not be a good idea to set a timescale for any review, so that we can have some accountability in this House?

We do not just set up a review body; we have a consultation, as we are obliged to for all legislative proposals. It is important to get responses from all concerned. I have had many debates in this House where people have criticised us for lack of, or inappropriate lengths of, consultation, so I make no apologies for going through the consultation process. It is important to gain a range of views on this subject. We need to take the time to respond to it properly and correctly, and we will do so.

Are the Government setting a fine example by settling their own payments promptly?

The answer is yes. We have already established a formal payment period for contracts for public authorities.

My Lords, in an earlier response, the Minister suggested that the Government had many priorities, and I am sure they do, but can he say where he thinks this matter sits in the list of government priorities?

It is at the top of our broad range of priorities.