Peter Kyle has issued a defiant message to Britain’s corporate chambers: the government’s long-awaited crackdown on late payments will not be eased, no matter how hard big business tries to fight it.
In an interview with Business Matters, the Business Secretary said he “will not stop delivering” what he described as “a step change in the relationship between all large businesses and their supply chains” as the Small Business Protection (Late Payments) Bill was tabled in parliament on Tuesday.
The law, billed by Whitehall as the biggest shake-up of commercial payment rules in more than 25 years, caps 60-day payment terms for big companies paying small suppliers, imposes mandatory interest of 8 per cent above the Bank of England’s base rate on overdue invoices, and gives the Small Business Commissioner to investigate a new wave of criminals. It also rejects the controversial use of “retention” in the construction sector, a practice where major contractors withhold a portion of the supplier’s bill, ostensibly as a warranty against defects, but which the government argues has long been misused to improve cash flow.
According to government figures, poor payment methods drain around £11 billion a year from the UK economy and contribute to the closure of around 38 small businesses every day.
A line in the sand
Kyle did not argue when asked if ministers would soften the bill in the face of pressure from British companies. “I’m fighting to bring fairness to our economy,” he told Business Matters. “Sixty days is a strong, reasonable limit for paying a small business.”
He said the changes would give the UK the “strongest legal framework in the G7” for commercial payments – a point ministers have made repeatedly since the package was first implemented earlier this year.
“An unhealthy economy is one where businesses are exploited or strangled to death,” he said. “I don’t think there are many people in their lives, let alone their jobs, who think it makes sense to wait more than two full months to get paid.”
His comments come amid unease in Westminster that the bill could be scrapped at committee stage. Both the British Retail Consortium and the Confederation of British Industry have raised concerns. The CBI warned last week that the new rules must be “carefully balanced against the need to protect the competitiveness of large businesses – particularly those operating across complex supply chains”.
Supporters of the bill, however, see that intervention as a reason for ministers to withdraw. Craig Beaumont, executive director of the Federation of Small Businesses, pulled no punches. “Many big businessmen use small businesses to get free credit, while others are busy and want to keep it,” he said. “Since this bill is going through parliament, it should never be repealed. Victims do not want to work well with abusers.”
A commissioner with teeth
For the changes to stick, much will depend on enforcement – and on Emma Jones, the small business commissioner appointed last year to take on Britain’s payment culture. Until now his office has been seen by critics as toothless, having not used its existing “name and shame” powers since Labor came in. The government said that was because no complaint from the suppliers warranted such action.
Kyle insisted that would change once the new bill became law, and made it clear he expected Jones to use his new powers assertively, including fines of up to tens of millions of pounds on “persistent” late payers.
“I give him the power to do these things, and he fully supports me to do things as quickly as possible,” he said. “We need to have faster inquiries, faster judgments, and we need to have faster enforcement. And that will lead to the behavioral change that we need.”
A drag on growth
Kyle’s political sense is clear enough. Cashflow remains a major stressor for Britain’s 5.5 million small and medium-sized businesses, and the latest figures suggest the problem is getting worse, not better, as UK firms hit records for late invoice payments and SMEs collectively left out of pocket more than £100 billion last year.
For a government that has sidelined its growth agenda in opening up the supply side of the economy, the message that businesses can no longer treat their small suppliers as a free line of credit is, by ministerial standards, unusually sharp. Whether the bill survives parliament without significant amendments will be the first real test of how serious Kyle is about that promise.
