Why new powers for the Small Business Commissioner won’t end late payment

On 1 October 2020, the Government published its consultation on increasing the scope and powers of the Small Business Commissioner (SBC). Here Phil Hall examines what lies beneath the headlines and what more could be done to address the long-standing problem of late payments.

The latest in a long line of Government consultations relating to late payment was published earlier this month. Once again, many in the media have hailed the limited proposals for reform as much more than they are.

Headlines on the proposals ranged from “Government crackdown” to “lifeline for small businesses” and “tough action” – all of which create the false impression that we are on the brink of solving the late payments issue once and for all.

A more accurate, but admittedly less attractive, summary of the underwhelming measures would be “steps in the right direction.”

The main proposals are that;

  • the Commissioner’s complaints handling function should be extended to allow for small business to small business disputes
  • a new “review and report” function should be introduced, unrelated to payment problems but instead focusing on other small business issues
  • that the Commissioner should have the power to impose a financial penalty when a business does not comply with a monetary award and/or payment plan

There are one or two other more limited proposals relating to powers that should have been given to the SBC at the outset, such as the power to compel respondents to provide information and making investigation costs recoverable.

Small business complaints

AAT is broadly supportive of the proposal to widen the scope of the SBC to include small business to small business complaints but cautions that this should only occur if the SBC’s office is given significantly increased resources to enable it to undertake such work.

According to its latest Annual Report, the office of the SBC currently has only eight staff, excluding the SBC, which is unlikely to be sufficient to cope with potentially hundreds, if not thousands of additional claims from the small business community.

Furthermore, all eight staff members are recruited as secondees from other Government departments in the public sector. This doesn’t provide the certainty necessary for complainant confidence or for long-term planning and needs addressing if the SBC is to open itself up to dealing with many more complaints.

“Review and report”

Conducting regular reviews of wider business practices, unrelated to payment matters, that are specifically impacting small businesses, would be most welcome. This is because there are many issues affecting small businesses that require action. In its consultation, the Government gives the example of the effect of relevant legislation, policies and practices in creating barriers to the adoption of payment technology, but there is obviously much more, including tax and training issues specific to the SME sector.

The proposal that the Commissioner would provide a report with recommendations to the Secretary of State is also a positive development, but its importance should not be overstated. Such reports will not be binding and so the Government will remain free to reject any proposals it deems too politically difficult or sensitive.

There is a clear precedent here in the form of the Office for Tax Simplification (OTS), tasked with reviewing various areas of tax by Government, reporting on those areas with a list of recommendations to the Chancellor and often seeing many of its recommendations ignored or rejected.

Financial penalties

Perhaps the most misreported section of the consultation, the application of financial penalties, will still not apply to companies who fail to pay their suppliers on time. Instead, the proposal is that fines may be levied where the organisation has failed to pay on time, failed to pay when asked to make payment by the SBC and then failed again when a binding monetary award or payment plan is not paid to the complainant within a specified timeframe.

AAT has been calling for the SBC to have the powers to impose financial penalties since 2016 so naturally supports the proposals contained to do so, even though they apply only in limited circumstances. However, we continue to believe Government should go further and grant the SBC the power to penalise any firm that consistently fails to pay 95% of invoices within 30 days.

Next steps

AAT has long campaigned for three simple changes to the payment regime in the UK;

  1. For the Prompt Payment Code to be compulsory for large organisations (those employing more than 250 staff)
  2. For the maximum payment terms under the Code to be halved from 60 to 30 days
  3. For the SBC to have the power to impose financial penalties on those who persistently pay more than 95% of their invoices in more than 30 days

The Government has previously rejected all three out of hand, despite YouGov polling showing 73% of MPs support AAT’s recommendations and having received widespread backing from the construction, accountancy, fashion and finance sectors, not to mention from many SMEs.

Despite the apparent setback, AAT continues to campaign for these changes because of the strength of support, the belief that it’s the right thing to do, the huge problems late payments continue to create and the inadequacies of Government action to date.

This appears to have had some effect.

Postivie signs

Last month, for the first time, the Government proposed halving the maximum payment terms under the code from 60 to 30 days as AAT has campaigned for over the past four years. Unfortunately it will only apply to small companies rather than all companies. Still, this will be a big help for many.

Secondly, this month’s consultation sets out some powers to impose fines on late payers, albeit in limited circumstances and not going as far as we would like.

So, given the direction of travel, we remain hopeful that Government will continue to make reforms and improvements that will ultimately result in significantly less late payments. It’s just frustrating that the pace of that change is not as quick as AAT, or any of those waiting for payment, would like.

Phil Hall is AAT's Head of Public Affairs and Public Policy.

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