My Lords, we have had a very interesting debate on these amendments. I like the positivity of the noble Lord, Lord Mendelsohn, and will look carefully at his examples before we speak again. However, we believe it is vital to exclude certain matters from the scope of the complaints scheme in order to ensure, as I have said many times, that the commissioner’s work is targeted, does not duplicate and makes the best use of resources.
For example, a complaint will be excluded if it relates to the appropriateness of the price or proposed price for goods and services. The commissioner’s function is not to consider whether either party is getting a good deal financially but whether the approach to payment matters is fair and reasonable. I also agree very strongly with what the noble Lord said about the importance of what I would call working capital. By reducing late payments, you increase working capital. The noble Lord, Lord O’Neill, made essentially the same point. That is the background to this, where I think we have a lot of common ground. We think it is good practice for such a scheme to set out certain parameters, as we are doing here.
Amendment 45 is about imposing a maximum payment term. Obviously, I understand the intention behind this amendment. It seeks to address, as we are trying to do, the misuse of payment terms by larger companies when contracting with smaller firms. It seems quite
wrong for larger companies to use unduly long payment terms when dealing with smaller suppliers. Indeed, frankly, you would expect them to do the opposite, because small suppliers have less capital behind them and are forces for innovation.
In the UK, legislation mandates a 60-day payment term for private sector bodies, unless companies expressly agree to a longer payment term that is not grossly unfair. It is true that some EU member states have gone beyond this to impose a maximum payment length. However, at the end of 2013, when we consulted on whether to introduce a maximum payment term, responses showed very little support for this. The most common argument was that companies value freedom of contract, and they need the flexibility to allow for different circumstances, notably the different practices of different sectors. Instead of more draconian measures, our stakeholders wanted to see increased transparency on payment terms and practices.
The Small Business, Enterprise and Employment Act does just that: it enables us to introduce a new reporting requirement for the UK’s largest companies. When implemented, this reporting requirement will see the UK’s largest companies reporting six-monthly against a comprehensive set of metrics, including the proportion of invoices paid beyond agreed terms, and the proportion of invoices paid within 30 days, between 31 and 60 days and beyond 60 days. We can legislate so that the Small Business Commissioner, once the office exists, will monitor and enforce this requirement—I think somebody asked about that. The commissioner will also make inquiries about payment terms, where a small business makes a complaint.
Amendments 42 and 43 concern the duty to pay. I have outlined our powers to implement a new reporting requirement for the private sector. The Act sets out how we can use the reporting power in relation to payment performance and interest owed and paid in respect of late payment. As we discussed earlier, the Public Contracts Regulations 2015 have recently introduced a requirement for all public sector buyers to have 30-day payment terms in their contracts and through their supply chains. They must publish annually on their payment performance, including interest paid to suppliers due to late payments and, from 2017, debt interest payments.
None of this is easy but we are striking a balance between ensuring transparency in this area and placing burdensome requirements on private sector companies and public sector buyers that we fear could have perverse effects on the UK’s largest companies and their supply chains.
The noble Baroness, Lady Byford, asked about the Groceries Code Adjudicator, who of course administers the Groceries Code, which was a remedy for a competition problem. The Groceries Code Adjudicator has adopted a similar approach to that which we intend for the commissioner. She has used informal approaches as a means of influencing behaviour and has had some success; for example, in retrospective forensic accounting.
The GCA, the pubs adjudicator and the new commissioner are each addressing particular issues identified after evidence-based research and full consultation. The Government have taken a proportionate
response to these problems in each case. The first review of the GCA will take place in March—unfortunately, a little late for the Bill but in good time for the emerging work of the commissioner—and will give us the opportunity to consider the lessons further. I am sure that there is some other learning, but those were some first thoughts.
In Amendment 41, there is an important issue about further payment legislation; I am grateful to the noble Lord, Lord Stoneham, for his explanation of the way he sees this working. It permits the introduction of further legislation to tackle payment practice, so it would allow for a maximum term to quibble an invoice, for example. It would prohibit unilateral changes to payment terms and payment to join supplier lists.
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The Government are wholeheartedly committed to tackling poor practice. However, we remain unconvinced that additional detailed legislation of this kind—detail rather than goal-based, as it were—is right. Let the commissioner get to work and make some well-judged decisions on payment issues, and that will quickly change the ground rules. In addition, bans on certain practices could be sidestepped and substituted with others, so you would get a whack-a-mole situation. They would apply economy-wide and could inadvertently prohibit mutually beneficial arrangements. Having said that, I should address the issue of retrospective changes to payment terms.
As a matter of law, it is not possible unilaterally to change contract terms; changes can be made, as I think we all know, only by mutual agreement. In practice, when companies complain of unilateral changes to contract terms they mean that they were put in a position by other businesses where they felt that they had no option but to agree to a change in contract terms. This means that prohibiting unilateral changes to contract terms will in practice not catch the very practices it might seek to prevent. However, that practice will be in the purview of the Small Business Commissioner if it is about payment and terms in the contract. That is an important area.
This is an important set of amendments. We are driving forward a suite of measures to tackle the payment issues. We are committed to achieving real change and to make it unacceptable for large companies to exploit their small suppliers. There will be a reporting power. I am not sure that I have made clear that a specific reporting power will allow the commissioner to report on an individual case—totemic decisions, for
example. Then, under the annual reporting power he will draw his lessons together and improve the system and the culture. The change has to be wide reaching and long lasting. On that basis, I hope that the noble Lord will withdraw his amendment.