UK ministers to review late payments to small businesses

UK ministers have launched a review of the longstanding problem of small businesses struggling with late payments from big companies, as the government seeks to help UK businesses through the economic downturn.

Kevin Hollinrake, the new minister for small businesses, told the Financial Times that it was essential to help small businesses get prompt payments after supplying goods or services to larger companies.

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

hollinrake acknowledged there were concerns about the growing number of business bankruptcies as the UK slips into recession, “particularly businesses that have taken on a lot of debt, and particularly in the hospitality sector “.

He said that part of the government’s support for small enterprises would be to look again at the issue of late payment.

The government has announced a ‘payments and cash flow review’ which will look at existing measures to force large companies to pay small suppliers quickly.

More than £23.4billion is owed in unpaid invoices to small businesses, government data shows. The review will include the Prompt Payment Code, which encourages most bills to be paid within 30 days on a voluntary basis, and the role of the Small Business Commissioner, who is supposed to tackle late payments.

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

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

Hollinrake, who was chair of the all-party parliamentary group on fair banking, said there was “a market failure in some areas” for small businesses.

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

Hollinrake said ministers were trying to address those issues, including through the government’s start-up loan scheme and the business investment scheme, which provides tax relief to investors who finance qualifying businesses.

He pointed to other government assistance for small businesses such as the Energy Bill Relief Program, which gives businesses a six-month discount on gas and electricity bills.

He will push for some small businesses to receive continued help under an upcoming review of the program.

The government has said state support on business energy bills will be targeted to a limited number of ‘vulnerable’ businesses from next spring, raising fears that other businesses will face steep increases gas and electricity costs.

“Some companies can’t pass price increases on to their customers, who can’t reduce their energy consumption,” Hollinrake said. “There will be continued support for the most vulnerable sectors.”

Hollinrake wants to help grow small businesses, pointing to data showing the UK tops the OECD rankings for start-ups, but was 13th when it comes to slightly larger companies called scale -ups. “We have to close this gap,” he said.

Meanwhile, after an outcry from small businesses, the Treasury is meeting with business representatives next week to discuss the decision to cut R&D tax credits, according to a person briefed on the planned talks.

Hollinrake said the decision to restrict tax relief reflected concerns about fraud, but added: ‘The Treasury is looking into it. . . I think it’s important that we always listen to people at the forefront.

A government official said that “like all tax policy, R&D is under constant scrutiny. . . it is standard with the political commitment that officials meet and consult with a variety of stakeholders from across the industry”.

Hollinrake, the founder of a chain of real estate agents, described his own career in business as “as Churchill described Americans: always do the right thing, but only after trying all the alternatives.”

He said, “I know what it’s like to run a business. It’s fantastic, but I also know what it’s like to lie awake at night wondering when we’re going to pay the bills. It is not easy. And I want to make it easier.

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