Latest government late payment crackdown: More white noise or the real deal? Why new small business minister Kelly Tolhurst means business.
As conference season for Britain’s two main political parties closes, small business owners found themselves side-lined ahead of party leadership debates and national issues such as the housing crisis. On the penultimate day of conference, however, business secretary Greg Clark threw SMEs a lifeline.
At the Conservative Party conference this week, on-stage dance moves distracted from the key issues of business rates and late payments for small business owners. One thing was clear, however – the government’s post-Brexit immigration policy could spark a serious labour shortage. Both the Confederation of British Industries (CBI) and the British Retail Consortium (BRC) immediately warned that an end to “unskilled migration” would limit access to workers and hurt businesses across all industries.
However, there were signs of small business issues being discussed. At a fringe event in Birmingham, Clark hinted at reform to the business rates system, in recognition of the role of high street retailers in Britain’s towns and communities, before he announced a fresh attempt at tackling late payments. Meanwhile, chancellor Philip Hammond said the UK could “go it alone” and introduce a digital tax to level the playing field between online and offline retailers.
Following the party’s conference, substance has been added to the late payments debate. The Department for Business, Energy and Industrial Strategy (BEIS) announced new proposals designed to pull small companies out of the damaging cycle of late payments and unpaid invoices.
Late payments facts
• £2.5bn lost to economy annually
• Causes 50,000 businesses to fold each year
• End to late payments could create 3.4m jobs
The government’s proposals include measures to allow trade bodies to highlight the worst offenders in payment behaviour, encouraging firms to open positions specifically for prompt payment practices and helping small business owners access up-to-date accounting technology to manage payments effectively.
“Late payments still blight SMEs because the Conservatives refuse to address the imbalance between large companies and small businesses. Today’s astonishingly weak policy announcement won’t change that one bit.”
– Rebecca Long-Bailey, shadow business secretary
Fresh targets have also been set within the public sector, where previous research revealed that nine in ten government suppliers had been affected by late payments. The government has committed all departments to paying 90% of disputed invoices from SMEs within five days.
The policy proposals were announced by new small business minister Kelly Tolhurst, who replaced former minister Andrew Griffiths following a sexting scandal.
“Over the past 5 years the amount owed to businesses in late payments has halved, but we will go further to make sure all of our small businesses are treated fairly,” Tolhurst said.
“Today’s new call for evidence will help us identify the most effective way possible to tackle this issue once and for all and ensure small businesses are on a level playing field with their larger counterparts.”
The new proposals follow numerous efforts to tackle the late payment problem in recent years. The voluntary Prompt Payment Code was introduced in 2015 and asked businesses to publish payment records, before tougher measures efforts to increase supply chain transparency were introduced in January 2017. A formal complaints procedure also opened at the end of last year.
While the Federation of Small Businesses (FSB) welcomed renewed action by government, chairman Mike Cherry said attempts to far had failed small businesses.
“The voluntary Prompt Payment Code is not working when it allows signatories like Carillion to pay on terms of over 120 days, so we want to see a new tough and transparent compliance regime being proposed,” Cherry said.
“Involving the Small Business Commissioner Paul Uppal with the code is also right as it shows a more joined-up approach to this difficult issue.”
Speaking for the entrepreneurial community, Emma Jones, founder of Enterprise Nation, said the government was “setting the right example” with its targets for public sector suppliers.
“Tinkering around the edges”
The response from across the political spectrum was less positive. Responding to the Conservatives’ latest crackdown on late payments, Labour’s shadow business secretary, Rebecca Long-Bailey, said it represented yet another missed opportunity.
“Late payments still blight SMEs because the Conservatives refuse to address the imbalance between large companies and small businesses. Today’s astonishingly weak policy announcement won’t change that one bit. This is just tinkering around the edges,” Long-Bailey said.
“We know that the government doesn’t care enough to do anything about this enormous problem for SMEs. After Carillion’s collapse we saw just how reluctant they were to use the powers they already have to prevent late payments.”
Long-Bailey added that Labour would solve the late payment crisis in the private and public sectors with a two-pronged approach – requiring companies bidding for government contracts to pay suppliers within 30 days and introducing “a system of binding arbitration and fines for persistent late-payers.”
“Fine repeat offenders”
For freelancers and the self-employed, late payments are particularly damaging. According to IPSE research, freelancers spend an average of 20 days a year chasing invoices for late payment, with £5,400 lost every year to unpaid work for the average freelancer. The organisation welcomed Uppal’s move to the PPC’s Compliance Board, but wanted to see more teeth from government policy.
“We believe the only way to truly turn poor payment culture around is to fine persistent offenders,” said Andy Chamberlain, IPSE’s deputy director of policy.
“In our evidence, we will be arguing the Small Business Commissioner should be given this power, and we will be working more closely with the government to end the scourge of late payment once and for all.”
Is it time for small business owners to take late payments into their own hands? We recently named and shamed the 35 firms with the worst records on paying smaller suppliers.
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