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Government should make 30-day payments compulsory – report

6 December 2018

The Business, Energy & Industrial Strategy Committee report calls for maximum 30-day payment terms to be made compulsory and charging to be paid on time outlawed.

There is a sense of déjà vu about it, but MPs of Parliament's Business, Energy & Industrial Strategy Committee are calling for maximum 30-day payment terms to be made law.

A report from the Committee published yesterday (5 December) also wants to put an end to charges being imposed on sub-contractors in order for them to be paid on time.

It calls for the Small Business Commissioner's powers to be extended to the construction industry and for the Commissioner to be able to fine companies that pay late.

An independent observer would think the way the construction industry works is insane, with large contractors under-quoting for work because they know they can steal a profit from sub-contractors by not paying them on time or charging them to be paid in perhaps 60 days instead of 120. Having to quote sensibly for projects would be the transparent way for main contractors to work.

The absurdity of the system as well as its inefficiency, which has become worse in recent years resulting in falling productivity, has not been lost in previous reports that have called for action to stop late and unfairly retained payments. But main contractors have become bureaucratic (witness the failed Carillion, cited in the report for its treatment of its suppliers of goods and services) and fight to maintain their right to exploit their stronger position. Up to now they have succeeded. Whether or not they will again remains to be seen.

The report states: “We recommend that the Government moves as soon as possible to require all medium and large companies to adopt a statutory limit of paying within 30 days."

It says small and medium-sized enterprises (SMEs) are crucial to the UK economy, both for wealth creation and for the people they employ. Productivity growth is essential for long-term economic prosperity, so it is vital SMEs are given the best chance of succeeding.

In a summary, the Committee says: "For an SME to succeed, being paid fairly and on time is key. Disappointingly, we found that bad payment practices have led to the failure of many SMEs and have prevented others from growing and improving their productivity. Efforts to address this, such as the Government’s Prompt Payment Code, have too often been ineffective."

The government itself is not exempt from the Committee's criticism. "We recommend that the Government should urgently set out how it will meet its target and ensure greater SME involvement in wider public procurement, and to protect SMEs from late payments we also recommend that companies and their supply chains that bid for public sector contracts should pay within 30 days or be prevented from bidding."

It says the government will miss its target of awarding 33% of central government contracts to SMEs by 2022.

The Committee says: "There are a myriad of policies and initiatives aimed at helping SMEs innovate, export and address productivity issues, some of which rely on EU funding. SMEs find this landscape difficult to navigate and they worry that funding will dry up when we are outside the EU. The Government should improve online support for SMEs and urgently explain how it will match EU funding. Local Enterprise Partnerships (LEPs) and Growth Hubs should play a crucial role in helping SMEs access national and local support. The Government should ensure that their support is consistent, accessible and adequately funded."

You can download the 69-page Small Businesses and Productivity report here. 




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