Small Businesses: Late Payments: 27th January 2016

The Minister for Small Business, Industry and Enterprise (Anna Soubry)
It is a pleasure to serve under your chairmanship, Mr Owen.

I congratulate my hon. Friend the Member for Reading West (Alok Sharma) on securing this debate on an important topic. We know that late payment is one of the biggest complaints that small businesses have. They rightly complain about what are effectively two types of late payment. One is when they supply services or goods to people, and as part of the terms and conditions of the contract they find themselves almost over a barrel. They do not want to turn away business or fall out with an important customer, so they sign up to terms and conditions that in a modern age are, frankly, unacceptable.

Of course, someone can take action against anybody who breaks the terms of a contract. They can go to court, but for obvious reasons there is a reluctance to go to court. It costs money, and it could also sour the relationship between the two parties, which would not be good for the smaller business. It is important to put on the record that, for our purposes, when we refer to a small business we are referring to any business that employs fewer than 250 people. That ranges from a very small business, or even a microbusiness that employs between one and five people, to companies with much bigger turnovers that employ up to 250 people. The small business sector is huge and, as we know, it is absolutely the engine of our economy.

The second type of complaint comes from businesses that have signed up to being paid within a certain period, only to find that term or condition of the contract is broken. As I have explained, they feel reluctant to go to law, but there is a remedy available to them.

As I say, there are two types of complainants: those who find themselves signing up to onerous terms and conditions in the first place, and those who, having signed up to a contract that may on paper include good terms regarding when payment will be made, nevertheless find that the company’s practice is to breach those terms. They do not really want to go to law. I accept, and the Government absolutely recognise, the case that my hon. Friend makes that the situation we find ourselves in is unacceptable. Things have been getting better, but we know there is more to be done.

It is important that I put on the record my thanks to the Groceries Code Adjudicator for what happened yesterday, which in many ways was astonishing. What Tesco was doing was a scandal, but it was a great day for smaller businesses, which found themselves having a champion who did not pull her punches in criticising and exposing Tesco. After a year-long investigation, she made it very clear what Tesco had done, which was a flagrant breach of the groceries code.​

As we know, since last April the Groceries Code Adjudicator, which was set up by the last Conservative-led Government, has had the power to impose fines of up to 1% of turnover. That is serious money for any business, but especially for big businesses. So credit where credit is due; yesterday was a good day for smaller businesses, and full credit to the adjudicator and to the last Government for doing all of that.

I will deal with a few important points, then I will come to my hon. Friend’s asks in a minute. The small business commissioner, which will be set up by the Enterprise Bill, will have a specific role of considering the problem of late payment. The commissioner might want to look at other things as well, but primarily he or she will look specifically at that problem.

We know that people can go to law if there is a breach of contract. The small business commissioner will look at the practices that lead to unfair terms and conditions and at those that mean people breach terms and conditions and make late payments. What I am looking for in the commissioner is somebody who will take up the complaints of much smaller businesses, which invariably reflect trends in what bigger companies are doing.

The real aim is to change the culture. My hon. Friend said that the problem stems from a culture that is unacceptable in this day and age, and I want the small business commissioner to change that culture. He was right to ask for the commissioner to have some teeth, but then they would turn into a very different creature and we would have to go down the route of having someone whose role was quasi-judicial. In any event, people can take to court a claim for breach of contract, and we will be wildly encouraging mediation. That will be another role of the small business commissioner. We do not want to create a quasi-judicial role, because we would be beginning to get into quango land. I want someone who has respect and authority, so that when a phone call is made the bigger companies do not flinch but pick up the phone. It is about banging heads together and changing the culture.

Alok Sharma
I agree with the Minister, of course; we certainly do not want another quango. That would not help anyone, particularly small businesses. Does she agree that whoever is appointed to the role has to be a serious and hugely respected business figure? They have to be respected by small and large businesses, because it is the office and their individual personality that will help to drive things and get large businesses around a table when heads need to be banged together.

Anna Soubry
I could not agree more with my hon. Friend. He is absolutely right. The person we appoint will be critical in achieving what we want. We want someone with gravitas, so that when a telephone call goes to a chief executive, that chief executive does not hesitate to say, “This is a call I have to take. This is someone I have to listen to.” When I spoke to the Australian equivalent, what struck me was that when he has that conversation with a chief executive and tells them, “Did you know what your finance team are now saying has to be in the terms and conditions for small businesses?”, invariably the chief executive says, “I had no idea what was going on. That is absolutely unacceptable, ​and that is not how we do business.” It is fair to say that the new chief executive of Tesco, for example, was clear yesterday that it will no longer treat smaller businesses in that dreadful way. I welcome the change in policy so that very small suppliers will be paid within 14 days, but we must be clear that they supply only about £150,000 of goods to Tesco. They are very small contracts, and I look forward to Tesco extending its new-found policies to all its suppliers across the piece.

The small business commissioner will be expected to have a website. I want it to be a series of portals that will show small businesses where they can go for advice, especially on mediation. I am not sure about the idea of turning it into a sort of TripAdvisor. I always get a little nervous about people being able to post things, which would require a lot of regulation to ensure that no one was saying anything defamatory. I want to make it absolutely clear that the small business commissioner will produce an annual report, in which they will be expected to name and shame all those who are not doing the right thing by small businesses, especially in relation to prompt payment. What happened with Tesco yesterday was so important because it was all across the media, and damage to a business’s reputation is hugely important and hugely powerful.

Alok Sharma
The Minister is being generous with her time. I hear what she is saying about the potential risks of a TripAdvisor-type website, although such websites of course operate already, so I am sure that it is possible to construct something that might work. Whatever mechanism is used, we need to ensure that there is a way of getting complaints in and processed in a timely and fast way. I reiterate that the last thing we want is a quango, and I know she does not want that either.

Anna Soubry
My hon. Friend is absolutely right. Speed is of the essence. We have reduced the maximum size of company that can make a complaint. The limit will be around the 50-employee mark, because we anticipate that there will be a lot of complaints. Those companies will be symptomatic of a way of doing things in particularly large businesses and of culture. We think that we are aiming in the right direction to get the sort of results that we want.

We introduced new reporting requirements in 2015 for the UK’s largest companies to report on their payment practices and performance, including invoices paid beyond agreed terms. I want to make it clear that those reports will be published in a central digital location, which sounds pretty ghastly, but most importantly it will do the trick. It will bring in the oxygen of publicity, which invariably cleanses things and makes them better. I am going to say something slightly controversial and be very blunt.

Julian Knight (Solihull) (Con)
Surely not.

Anna Soubry
I know. It is not like me, and my officials are now having huge palpitations, but it says on my brief:

“Government is leading by example by paying its suppliers fairly and promptly.”

I wonder whether we really are. Shall we be truly honest about this? My hon. Friend gave an example of a local authority that is not doing that, and I have examples of ​local authorities that are not doing that. I have an example that was brought to me—I will not go into the detail of it now, but I will be taking it up in a serious way.

We all know that we have to be careful. We can make great headline statements, but when we drill down into the reality—most of us, certainly on the Government Benches, live in the real world—what sounds like a good headline is not borne out in practice. I have seen evidence that by the time something that looks like a Government contract has come through the first subcontractor, the next subcontractor and the next one, the payment terms are something in the region of 120 days, and I am concerned about that. That is not a fault of Government, because we have been clear about what we expect, but the danger with over-regulation is that there is always a way around it. The most important thing is changing the culture and policing it. People will be very clever in looking for the loopholes and different ways of doing things, but we have to ensure that we find them, track them down, expose them and ensure that those sorts of practices cease. I will be keen to take that up so that we practice what we preach.

Alok Sharma
The Minister is always at her best when she is being controversial. She raises the issue of how the public sector deals with small businesses, so can I come back to one point? Will she at least have another look at whether the small business commissioner should cover Government quasi-public bodies as well as private sector companies?

Anna Soubry
I absolutely do not have a problem with looking at that. I place on record, however, that I am looking at that now. I will not bore Members with all the details, but someone who is not a constituent came to see me. He runs an excellent small business called Caunton Engineering. By bad fortune for some of the contractors, he happens to chair the relevant committee ​for his sector. I am taking the issue seriously, and we will look into it to ensure that we are doing the right thing.

The last Government made huge strides forward with the prompt payment code and the publications that bigger companies have to make. The directive that my hon. Friend mentioned is wishy-washy. Am I going to say that we should change it? Actually, I do not want to over-regulate. I would much rather that we changed the culture rather than put strictures on small business, but he makes a good point. I will look at all the points he has raised, and I congratulate him on bringing the matter to our attention.

I feel proud: the Conservative party is undoubtedly the party of small business. We get it. [Hon. Members: “Hear, hear.”] My hon. Friend the Member for Sherwood (Mark Spencer) is here, and he runs a small business, no doubt extremely well. We know the area and we understand it. What we now have to do is this: I ask all Members to bring me their examples, and I will not hesitate to take them up with bigger companies and be the champion of small businesses, to ensure that we deliver in the way that we want and encourage small businesses.

Alok Sharma
Will the Minister give way?

Anna Soubry
Yes—my hon. Friend can have the last word.

Albert Owen (in the Chair)
There are 10 seconds left.

Alok Sharma
I am really pleased that the Minister has thrown out that challenge to Members. Will she commit to sit down with me over the coming weeks—

Anna Soubry
Albert Owen (in the Chair)
Order. There is plenty of time to sit down with the hon. Gentleman.