My Lords, I shall speak also to Amendments 4, 6, 7, 10 and 11.
We are concerned with the effective operation of the policy in this legislative framework. We have deep concerns that the legislation as drafted will have unintended consequences that will put small businesses in a weaker rather than a stronger position. The Government’s approach addresses only the information asymmetry and addresses insufficiently the market power asymmetry. This means that the Government’s current proposals are likely to benefit larger entities and to provide little for SMEs other than better knowledge of how weak their position really is.
The huge advantage of our proposals is that they use transparency to change culture by enshrining good practice, reinforcing duties and making enforcement
attractive to large companies. This will not just address the growing problem and impact of late payments but promote a more competitive and effective market where the velocity of the circulation of cash will have a positive impact on growth productivity and business activity. We have been struck by some of the grumblings around the business discussion paper, Building a Responsible Payment Culture, and the feeling that somehow too much weight was given to the concerns and interests of those with the most interest to protect. Our proposals meet more clearly the overall policy objectives of the Government and are consistent with the central concerns of SMEs.
In considering our proposals and given the range of evidence and data the Government have, in the possible event that they remain unpersuaded by the overwhelming logic and attractiveness of our amendment, could BIS make available the evidence demonstrating that our suggestions would be less effective in achieving the outcomes we share? I think that any independent economic model would strongly endorse the positive benefits of our approach.
I would be grateful, too, if the Government’s current consultation for the Bill, when published, were to detail more clearly where the responses were from—the particular areas and sectors, and whose interests they reflect. I also request that the Minister gives some consideration to making our suggestions available to some key stakeholders to integrate as a small addendum to the consultation.
The model we propose is compelling. Has the Minister any current modelling that should dissuade the Government from accepting our amendments? What assurances can she give that the £40 billion—or £45 billion, or £50 billion—in late payments currently outstanding can come down over time with anything like the scale needed to show that these proposals from the Government will succeed? What is the anticipated decline? How strongly can this be addressed? I would be happy for her to test the efficiency of our model against that of the Government. I am very conscious of the exhortation of the noble Baroness, Lady Wheatcroft, that we need action. Certainly, we need to ensure that any measures that benefit small businesses do so as swiftly as possible.
Our amendments work as a package, reflecting the fact that, as all research and experience shows, late payment might be the most egregious practice but it is not the only one. In may be the easiest to identify and quantify, and it may even have the largest economic impact, but it may not be the worst or most shocking payment practice. Late payment is one element of the payment story. There are problems with withholding payments or fines, and with retrospective charges and retrospective payments.
I thank the small businesses, and their advisers and representatives, who provided us with a great deal of background information. The detailed and voluminous stories we have heard and keep hearing—yet which people do not want to go on the record over—provide some evidence of the weakness of approaching this solely by way of transparency, information and exhortation. I will outline in more detail some of the problems in this area when talking about Amendment 10.
Our amendments on this try to provide a more practical framework to meet the objectives of the Bill. Clause 3 provides that:
“The Secretary of State may by regulations impose a requirement, on such descriptions of companies as may be prescribed, to publish … prescribed information about the company’s payment practices and policies relating to relevant contracts of a prescribed description”.
Amendment 3 changes this “may” to “shall” to make it a firm requirement. By the Government’s own standard, changing culture would require a common series of obligations and practices. Has the Minister any data or economic models that would demonstrate that there is a more effective way of making these changes other than by means of a universal provision?
Amendment 4 is a practical way to make culture change. We propose that rather than the Bill being a way to make it acceptable to complain about late payment, we encourage a business operating culture of paying on time and sticking to contracts. By making this a more clear obligation on the part of the companies that are required to pay, we also meet the problems of dealing with the consequences of poisoning commercial relationships and for the exercise of market power concentration and intimidation to allow poor practices to continue. The amendment requires companies to produce quarterly statements that list all payments to suppliers that have been paid more than 30 days after the suppliers agreed payment terms, without a formal query having to be made. We are aware that concerns have been raised with BIS that unless time limits are properly identified there would be an ever-increasing pressure on small businesses to accede to extended timescales for the settlement of payments. I would be grateful if the Minister would outline how the Government feel this would operate in practice, and how small businesses will be able to resist such pressures.
Amendment 6 asks for assurances from the relevant auditor that the company is maintaining accurate and honest financial records and statements. What is therefore expected of auditors is exactly the same as now. We would require them to exercise broader and clearer judgment in these matters. Confirming that the accounts represent a true picture of the economic position of the company and that it is a going concern should be qualified if the only way it can meet its cash flow or profit targets is by late or poor payment practices.
Amendment 7 would establish that the financial reporting officer shall be liable for false reporting. If there were false reporting, the business would be liable for a fine equivalent to no more that the amount it owed—the overall value of the invoice—and up to a maximum of £10,000 for false reporting. This therefore provides for not just clearer information but also for obligations to pay to be an audit requirement, and for enforcement to be undertaken through existing government agencies. It also makes shareholders and company boards protecting their and the company’s long-term interests hold their executives properly to account on these matters.
Amendment 9 makes it an offence for companies not to fulfil compensation payment plans which have been made by more than 30 days. It has the effect of empowering small businesses, putting the onus on big
businesses to report themselves. Failure to complete a quarterly return would be subject to a fine upon conviction.
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These amendments provide not just for clear information, but for obligations to pay to be audit requirements, for business practice to focus on proper payment, and for the enforcement to be undertaken through existing government agencies. It also makes shareholders and company boards protecting their and the company’s long-term interests hold their executives properly to account. It is certainly true that in today’s age and through the use of technology in the development of business systems software, this is proportionate and practical.
Amendment 10 ensures that this series of measures does not displace the problem of late payments by transferring it to other practices, and indeed also has the benefit of addressing other detrimental payment practices against small businesses by larger companies such as exceeding payment agreements and retrospective and unilateral actions. Withholding payments or arranging debits on future invoices can be caused by disputes or even because of quality issues. These are rightly matters that should be raised, but that should be done prior to a unilateral fine, debit, discount or withholding of payment, and should be swiftly resolved between the parties. By way of illustration, one online retailer whose payment terms are somewhere between 40 days and 50 days imposes fines unilaterally, insists on communicating only through its electronic systems and ordinarily takes in excess of 90 days to resolve issues. Small businesses complain that big companies use their market power to make them provide their cash flow funding.
Businesses retrospectively impose cuts to the previously agreed supply prices in, for example, their end-of-year arrangements to meet their margins without any regard for the freedom to contract. Of particular concern is the fact that plcs were considered to be among the worst culprits, and many made reference to the conduct identified against Debenhams imposing a 2.5% discount on its supply prices as a last-minute attempt to boost falling profit margins caused, according to analysts, by the company’s failure to report the scale of the costs of its opulent new head office and the disruption to trading caused by the management of the refurbishment of the flagship store. Sending retrospective debit notes on the basis of investments made to provide benefits to suppliers may be a plausible argument, but the manner in which these can be applied and the fact that they rarely have any performance reporting, direct correlation or even requirements of proof of the nature of the exceptional cost, would also need to be addressed.
The contract terms and price negotiations are of course up to the parties concerned. Commercial terms such as marketing discounts, early payment discounts, stock writedowns, rebates and charging for central distribution costs may be of benefit or may distort pricing negotiations, but those are matters for them. These terms can be entered into by parties, but should not be able to be imposed retrospectively and coercively by means of threats or market power. Larger UK
companies use these practices to squeeze UK companies in ways they cannot do to overseas suppliers. Overseas suppliers request letters of credit which generally companies will take out with banks and which guarantee payment. The price is the price, the payment terms are the payment terms and the timing is the timing.
This amendment would empower the Secretary of State with new regulation-making powers to address these issues. It would be helpful if the Minister could set out in her reply the concerns the Government have about these practices, how they should be dealt with, and what protections there are against these being used more favourably as a means of masking the advantages gained by the poor practice of paying suppliers late.
Finally, Amendment 11 is an attempt to ensure that companies are aware that operating late and poor payment practices has the commitment and attention of Government, and that even the very biggest businesses will know that they would all be publicly named and shamed if they do not comply. It would also provide an opportunity for Ministers to name and praise those businesses that do pay on time by complying with excellent payment practices. We have been very encouraged during our work on the Bill that many small businesses are keen to praise those who act well and to encourage others to adopt their practices. Of particular note are John Lewis and Dunelm, who have been praised strongly for how they conduct their business—and there is nothing but acclaim for how Next, so ably and admirably led by the noble Lord, Lord Wolfson of Aspley Guise, conducts its business with suppliers. I would be grateful if the Minister would tell us what the Government’s plans are to encourage and commend businesses and businesspeople whose payment practices deserve it.
This group of amendments comprises effective, proportionate and very workable suggestions which are good for SMEs and those who wish to see growth triggered through the creation of competitive and properly functioning markets. The Government are to be applauded for trying to tackle this issue but it is clear that the Bill is likely to fall short. I hope that they will give full and due consideration to our amendments. I beg to move.