Labour pledge to unlock investment by tackling the £20bn late payments crisis affecting small businesses

Labour has called for legislation to support small businesses to receive the cash they are owed on time, which they can invest in skills and new technology to raise productivity. Currently, 3 in 5 SMEs are waiting on money which is tied up in unpaid invoices, costing small business owners an estimated £684 million a year.

Research shows that at any one time, businesses are waiting for over £20 billion of late payments. This is a drag on productivity and growth, because businesses are waiting for cash that could be invested in skills and new technology.

Last Tuesday, Labour Leader Keir Starmer set out his plan to build a “fairer, greener, more dynamic Britain”, one where “aspiration is rewarded”, of a Britain that has its “hope and its future back”. Legislation to tackle the late payments crisis for SMEs will support small businesses and help drive growth.

Labour would introduce legislation to require big businesses to report on their company’s payment practices in their annual reports. This measure will require audit committees to report on late payments, making boards more accountable and providing further clarity for smaller businesses. 

In response, the Federation of Small Businesses has said: "This legislation is exactly what the UK's 5.5million SMEs need to navigate the stifling issue of late payments". Labour will seek to amend the Audit Reform Bill to put this requirement in legislation. 

Under the Conservatives, companies have been allowed to get away with not following the existing rules. Labour has called for the government to crack down on non-compliance with legislation and acting on accountability measures.

All large UK companies have a duty to report publicly on their payment policies, practices and performance. However, this reporting process is not integrated into the financial reporting process of these companies, and many companies continue to pay their suppliers late at the expense of smaller businesses.

Findings show that UK businesses are more concerned about the impact of late payments on their business’s growth than businesses in any other economy in Europe, with 2 out of 5 SME owners saying their mental wellbeing has suffered as a result of late payments, and over a third having had sleepless nights.

All large UK companies have a duty to report publicly on their payment policies, practices and performance. However, this reporting process is not integrated into the financial reporting process of these companies, and many companies continue to pay their suppliers late at the expense of smaller businesses. Furthermore, while several companies have failed to comply with the regulation, not a single one has been fined for non-compliance.

Despite acknowledging the problem of late payments for several years, the Tory government has failed to legislate to make boards more accountable.

The plans to tackle late payments follow a series of announcements from Labour setting out their partnership with business to grow the UK’s economy, including replacing business rates with a fairer system, a long-term industrial strategy to drive up business investment and the Green Prosperity Plan’s aspiration to make the UK a clean energy superpower.

Jonathan Reynolds MP, Labour’s Shadow Business Secretary, said:

“A Labour government will play its part by ensuring economic stability, higher skills, and green growth. However, we also expect businesses to play their part in a responsible business environment – this means improving the culture of late payments.

“We have seen no clear action from Rishi Sunak’s government to support SMEs, but this goes back much further – the endless revolving door of Tory Prime Ministers have offered nothing to fix this issue, or provide clear support for the businesses struggling.

“Labour will ensure businesses receive the money they are owed on time to invest and grow, as opposed to the current Tory-fuelled constant situation of struggle.

“A Labour government will create a new partnership with business to tackle the key challenges of the future.”

Tina McKenzie, Policy and Advocacy Chair, Federation of Small Businesses (FSB), said:

"With this commitment, Labour is showing they 'get it' when it comes to what small businesses need from the government. This Legislation is exactly what the UK's 5.5million SMEs need to navigate the stifling issue of late payments, so it's reassuring to see them take the bull by the horns. 

“FSB has led the campaign for the government to give audit committees of large companies responsibility to report on payment practices, so the proposals for the Audit Reform Bill today are so important.

"Late payment means 50,000 fewer small firms each year across the UK - it is a touchstone issue for everyone working for themselves. As with the proposals to increase the small business rates relief threshold to £25,000 - the Opposition is showing it is being serious in developing policy that works for small businesses across the UK.

"Many small businesses are being held back by a culture that says it's acceptable to pay them late. The laws are currently slack and supplier interest must be represented at the top of the chain, or this could have a chilling impact on the economy."

Ends

Notes

• Late payments cost small businesses an estimated £684m each year (Xero Small Business Insights)
• According to a government statistic, £23bn of late invoices were owed to firms across Britain (Government press release)
• Findings show that UK businesses are more concerned about the impact of late payments on their business’s growth than any other economy in Europe (European Payment Report 2020)
• 3 in 5 UK businesses are owed money from late payments. 2 out of 5 SME owners saying their mental wellbeing has suffered as a result of late payments, and over a third having had sleepless nights (Barclays)

Of the companies that haven’t complied with the reporting requirements, not a single one has been fined. (BEIS correspondence.)