UK ministers to review late payments to small businesses

UK ministers have launched a review into the long-running problem of small businesses struggling with late payments from big companies, as the government tries to help UK businesses through the economic downturn.

Kevin Hollinrake, the new small business minister, told the Financial Times that it was important to help small companies secure quick payments after supplying goods or services to large businesses.

He also said the government would look at a controversial recent decision by ministers to cut research and development tax credits available to small businesses. The tax breaks are widely used by start-ups and small and medium-sized enterprises.

Hollinrake acknowledged there were concerns about rising business failures as the UK enters recession, “particularly firms that have been heavily indebted, and particularly in the hospitality sector”.

He said part of the government’s support for small companies would be to revisit the issue of late payment.

The government has announced a “payment and cash flow review” which will scrutinize existing measures to force large companies to pay small suppliers quickly.

More than £23.4 billion is owed in outstanding invoices to small companies, according to government data. The review will include the Fast Payments Code, which encourages settlement of most invoices within 30 days on a voluntary basis, and the role of the Small Business Commissioner, which is meant to deal with late payments.

Craig Beaumont, head of external affairs at the Federation of Small Businesses, said “changing public policy to tackle late payments has been stuck for many years now”.

“If new ministers can breathe new life into this, and not just kick the can down the road to the election under the guise of more consultations, then there is reason for hope.”

Hollinrake, who chaired the all-party parliamentary group on fair business banking, said there was “market failure in certain areas” for small businesses.

The Government’s review into late payments will also look at how lenders can help small businesses manage cash flow and identify barriers to accessing finance.

Hollinrake said ministers were trying to address these issues, including through the government’s start-up loan program and the business investment scheme, which gives tax breaks to investors who provide funding to eligible companies.

He highlighted other government help for small businesses, such as the Energy Bill Relief scheme, which gives companies a six-month discount on gas and electricity bills.

He will lobby for certain small businesses to be given continued help during an upcoming review of the scheme.

The government has said government support for companies’ energy bills will target a limited number of “vulnerable” businesses from next spring, raising concerns that other companies will be faced with big increases in gas and electricity costs.

“There are some businesses that can’t pass price increases on to their customers, that can’t reduce their energy use,” Hollinrake said. “There will be continued support for the most vulnerable sectors.”

Hollinrake wants to help grow small businesses, and points to data showing that the UK topped the table in the OECD for start-ups, but was 13th when it came to slightly larger companies called scale-ups. “We need to address this gap,” he said.

Meanwhile, after an outcry from small companies, the Finance Ministry is meeting business representatives next week to discuss the move to limit R&D tax credits, according to a person briefed on the planned talks.

Hollinrake said the move to limit the tax breaks reflected concerns about fraud, but added: “The Treasury is looking at it . . . I think it’s important that we always listen to the people at the sharp end.”

A government official said that “like all tax policies, R&D is kept under constant review . . . it is standard policy engagement for officials to meet and consult with a range of stakeholders from across the industry.”

Hollinrake, the founder of a chain of estate agents, described his own business career as “like how Churchill described the Americans: always do the right thing, but only after you’ve tried all the options”.

He said: “I know what it’s like to run a business. That’s amazing, but I also know what it’s like to lie awake at night worrying about when you’re going to pay the bills. It is not easy. And I want to make it easier.”

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