Enterprise Bill [HL] — House of Lords, 2015-11-25
Topic: Domestic Commerce
Jonathan Mendelsohn (Labour, Centre-left): My Lords, we support the thrust of the argument presented by the noble Lord, Lord Stoneham, that it is very important to put some significant measures behind the attempt to arrest late payments. We are supportive of the Small Business Commissioner trying to do something, but we are realistic that the evidence and pattern demonstrate that it will insufficient I will identify one particular aspect. I am grateful that the Minister wrote to me about late payment data—a matter that we discussed in Committee. Late payments are already defined in law, and that definition has been largely in force since the introduction of the Late Payment of Commercial Debts Regulations 2013, which amended the Late Payment of Commercial Debts (Interest) Act 1998. This establishes that, where a public authority purchases goods or services, statutory interest—the determination that there is a late payment—will start to run on an outstanding payment from 30 days after the supplier’s invoice is received. For other organisations and businesses where a payment period has not been agreed, statutory interest will start to run on outstanding payments from 30 days after the supplier’s invoice is received. Where a payment period is specified in the contract, statutory interest will start to run from that date. However, if the agreed payment period is more than 60 days after the events listed, the regulations state that statutory interest will begin to run from 60 days The important principle is that we have already established in law that, as far as we are concerned, late payment arises, at a maximum, at 60 days in relation to private sector organisations. I say that largely because we have had a variety of data problems regarding the extent of late payments. I am extremely sceptical about the data on which the department is relying—namely, the Bacs data on late payments. The reason I am sceptical is that that body makes it absolutely clear that it considers late payment to be 30 days after the agreed payment date between two parties. Even if you have a payment date of 90 days, Bacs will only consider a period of 30 days after that as being a late payment, so it purposely excludes all those other payments which are technically defined as late payments under the existing law. That is why the Bacs figures always come out as significantly lower than those of any other survey. In fact, over the last three months, the range of late payments is identified as being between £41 billion and £61 billion. Bacs identifies the sum owed to small businesses as £26 billion. I do not think that those figures are reliable. We should deal with the problem that we have defined in law—namely, that a late payment is a late payment after 60 days This is an important amendment as it tries to give a sense of the extent of late payments that we have to deal with and the measures that we and noble Lords throughout the House believe are required to arrest that situation. The velocity of the increase in the incidence of this problem continues to rise without any material abatement It may be useful to give a real-life example to illustrate whether soft or hard measures are required. In December 2013, Debenhams was roundly condemned when the chief financial officer, Simon Herrick, sent out a so-called "Santa tax" letter to suppliers just eight days before Christmas imposing a unilateral 2.5% cut on their prices. At the time, analysts saw that as a last-minute attempt to boost falling profit margins. In January 2014, the store chain issued a profit warning, following a disastrous Christmas trading period, and the CFO resigned. He had previously come under fire in October, when Debenhams’ half-year results revealed that it had spent an astonishing sum moving its headquarters to a very opulent site in Regent’s Place, Euston. Analysts and investors said that the scale of these costs had not been flagged and that the £25 million refurbishment of the Oxford Street store was completed just in time for Christmas but had caused considerable disruption to trading Over the intervening period there have been complaints about the continued extension of Debenhams’ payment terms. It was a real concern to read that the Federation of Small Businesses rightly criticised Debenhams after it emerged that the department store chain was asking for discounts in return for making earlier payments. In fact, Debenhams insists on a reduction of nearly 2% in suppliers’ prices in exchange for making payments 30 to 60 days earlier. That gives noble Lords some idea of the extent of its current policy on payment terms. This is the second time in three years that the retailer has unilaterally proposed changes to suppliers’ payments in the run-up to Christmas I was very interested to hear the noble Baroness, Lady Wheatcroft, say that PR and publicity drive culture change which changes behaviour. I do not think there has been a company more in the headlines for its poor practices on changing suppliers’ prices than Debenhams but that has not changed that company’s behaviour one bit. It has done exactly the same thing again. I am a student of some great public relations practitioners. Indeed, we have such a practitioner in this House in the person of the noble Lord, Lord Bell. He has always made the great point that good PR is always founded on substance. That has a strong part to play in the issue we are discussing. Clear adherence to regulation will determine whether or not change will happen. It will not be determined by whether or not companies can withstand a bit of poor publicity. The noble Baroness, Lady Wheatcroft, referred to the glare of warm publicity surrounding Lidl’s decision to pay its staff the living wage and said that that demonstrates that all is well. I would be interested to hear whether she knows the payment date terms that Lidl applies. They are extremely long. In fact, Lidl has been roundly criticised for them. Clearly, one bit of glaring positive publicity does not obviate or change the culture of the company It is important to note that the amendment contains a variety of significant powers. In fact, it is a few amendments pushed together into one, as those who attended any of the Grand Committee sessions will know. We have done this to make the point in a number of ways that we are failing to address some of the most serious principal issues, the first being that, despite there being a clear law that allows people to charge interest, they do not do it for fear of retribution. Despite having clear rules about payment terms, people still do not adhere to them because they can get away with it by unilaterally determining a payment term. Even when companies extend payment terms to, for example, 120 days, as many do, they will not be able to charge interest for fear of retribution We also have a huge concern about the variety of ways in which companies add terms, unilaterally change terms and create the sorts of commercial arrangements that penalise small businesses, because they can get away with it. Be it marketing charges or warehousing costs, a variety of methods are used to reduce the amount outstanding to a smaller business. All those sorts of matters act as a massive impediment to the growth and development of small businesses. Frankly, even if it is not about growth but about justice for someone trying to run a small business and having to make sure that they do not suffer the terrible consequences of trying to borrow on credit cards—as far too many do, and they suffer enormous costs for doing so—when a large supplier fails to live up to its side of the bargain and the small business has limited options with which to address it, these are the matters that we need to address. It is the sheer size of the problem that we have to address, and there are a number of ways in which this can be done Our amendment suggests that the Small Business Commissioner can play a useful role, although not the only role. We also support measures in their own right to try to ensure that it is the obligation of the larger company—or indeed anyone who owes money—to pay it and not to have to be chased. In our view, it is not going to be a question of whether, in dealing with 500 cases and having a very active press officer, the Small Business Commissioner will be able to make a dent in £40 billion, £50 billion or £60 billion-worth of late payments. He or she has to be able to make sure that we build a culture whereby if you are meant to pay, you pay.