Small businesses should have the biggest voice in government – and we can start by paying them promptly

We're pleased to feature this guest article from Michael Dugher, Shadow Minister for the Cabinet Office

In his recent speech to the Federation of Small Businesses, Ed Miliband rightly said that Labour's ambition at the next election is to be the party of small business.  The truth is the future of the British economy depends on small business. That is why Labour is determined to take action to support SMEs - SMEs account for almost half of private sector turnover.

Britain’s cost of living crisis is acute not just around the family kitchen table, but on every corner of the high street.  Costs such as rates and rents seem to grow and grow, while pledges of support from Ministers seem never to materialise.

Labour's Small Business Taskforce demonstrates our intent to take action. Chaired by Bill Thomas, who brings the insight of over 30 years of experience working in the private sector, the Taskforce has produced a range of recommendations. Now, Toby Perkins, Labour’s excellent Shadow Minister for Small Business, is taking this forward to prepare an agenda for government, led by Chuka Umunna, whose exciting and innovative initiative 'Small Business Saturday' on November 24th will encourage consumers to shop at small, local independent businesses.

At Labour’s recent Annual Conference, we pledged to use the resource the Government plans to use on cutting corporation tax for larger firms to cut business rates for SMEs after the next election and freeze them in 2016. This tax cut and freeze will mean an average saving of nearly £450 for 1.5 million business properties – shops, workshops, start-up businesses.  We know that annual energy bills for small businesses have gone up by an average of £10,000 since 2010. Along with reform of the broken energy market to keep princes as low as possible Labour would freeze prices until 2017 if we win the election.  Labour has also outlined plans for a British Investment Bank as well as how to use procurement to encourage and reward innovation.

Given the importance of this agenda, I was concerned to learn that four major government departments have reportedly incurred interest charges of hundreds of thousands of pounds resulting from late payments. This could potentially be wasteful of taxpayers’ money at a time when every penny matters more than ever, but could also harm SME suppliers. Francis Maude said in July 2011 that “prompt payment is crucial to smaller companies” and Ministers must now be transparent over why these payments were made.

This comes as the Prompt Payment Code has come under recent attack from senior figures in business, leading the Prime Minister to acknowledge last month that “more needs to be done”.  Labour agrees and are concerned that figures show 73% of small businesses have experienced late payment for their goods and services. According to BACS, Britain’s small businesses spend a total of 110m hours a year chasing late payments, at a cost of £683m. The average small firm is spending more than 13 working days a year chasing late payment.

A culture of rapid payment among large businesses and across government must move from being warm rhetoric to being a reality across the country.  Labour is calling for the Government to take action, and will ourselves now consult with business in three main areas.

First, enforcement of existing targets is essential and so options for tougher sanctions and transparency in reporting need to be looked at. Second, prompt payment should be incentivised and there is a potentially significant role for procurement policy, in particularly at local government level, which must be fully explored.  Finally, as a longer-term aim in both public and private sectors, late payment legislation can be amended to bring down the statutory timeframe for payment.  Labour would ensure that current targets become the norm for all levels of government and business and then build on them with more ambitious targets that will benefit business.

I have written to Francis Maude to request that we work together to make prompt payment a reality now. If bills continue to be paid late and policies remain only press releases, without impact on businesses’ bottom lines, then the next Labour Government will take action.

The Confederation of British Industry is a very important organisation, but too often people in the media, in politics or in the civil service think that the CBI are the most important voice of business in the UK. That's a nonsense. Although they speak for very large firms that are crucial to British jobs and prosperity, the CBI in reality represent just five per cent of all British businesses. The rest are SMEs who employ two-thirds of people in the UK. Small businesses should have the biggest voice.

Labour will now consult with small businesses on how to implement rule changes surrounding late payments because we’re determined that their voice is heard. What is required is a major culture change in Whitehall - and Ministers must lead the way.

Michael Dugher is the Shadow Minister for the Cabinet Office and Member of Parliament for Barnsley East

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