Over the last few years, and particularly recently, the Government has certainly given the impression that it recognises the damage late payments can cause small businesses and is committed to taking steps to reduce it.
The Prompt Payment Code (PPC) and the appointing of a Small Business Commissioner in charge of tackling the problem seemed to be moves in the right direction, and were welcomed by organisations representing smaller businesses. But the collapse of construction giant Carillion showed that these measures were not enough.
Carillion had been a signatory of the PPC since 2013, yet had remained notorious for being late payers. In July 2017, the Federation of Small Businesses (FSB) exposed the company’s poor payment practices, revealing that some of its members had waited 120 days for payment from the company. When Carillion folded, it owed around £2bn to 30,000 suppliers, subcontractors and other short-term creditors.
The Government has admitted more needs to be done and has said that serial late payers may not be granted access to Government contracts in future. But is its own payment record squeaky clean?
The Government’s payment promise
Government departments are required to adhere to a payment policy that sees 80% of undisputed invoices paid in 5 days and all invoices paid within 30 days. Interest is liable on invoices that remain unpaid after the 30 day limit and payment data, including the amount of interest their unpaid invoices have accrued, and since 1 April 2015, all central Government departments, including their executive agencies and non-departmental public bodies, have been required to report on their payment performance and publish the percentage of their invoices paid within 5 days and within 30 days.
However, that published data shows that many departments aren’t hitting that 30 day target, accruing thousands of pounds of interest—which must be paid by the taxpayer. And some aren’t hitting the 5 day target, either.
The public purse: paying for the Government’s failure to pay promptly
The Foreign and Commonwealth Office (FCO) fare well on percentages, hitting the 5 day payment target in Q1 and Q2 2018-19 with ease, and in both quarters, they managed to pay 99.62% of their invoices within 30 days. But that tiny proportion of invoices that remained unpaid accrued a whopping £65,806 of interest in Q1 and an even heftier £99,604 in Q2.
HMRC are quick to fine those late paying their tax bill, but they too failed to pay all their invoices within 30 days in the first half of this tax year, although the interest their unpaid invoices accrued–£6,716.81 in Q1 and £9,590.26 in Q2—was much more modest than the FCO’s bill.
However, recently a worse offender has come to light: the Cabinet Office. It’s newly published data reveals that it’s missed the payment targets for over a year. The percentage of its invoices paid with 5 days has hovered between 72.59% and 75.44%, well below the 80% threshold, while its 30 day figures are between 88.80% and 90.87%. In the last year, interest on these unpaid loans has cost the public a total of £286,903.
Yet in was Cabinet Office minister Oliver Dowden who stressed the importance of paying small companies promptly last year—and who stated: “From next year, if government contractors are late with supplier payments, they could stop winning public contracts altogether – until they clean up their act,” he said.
So what does the Cabinet Office have to say about their shameful payment record?
“We experienced technical issues when moving to a new finance system, but have resolved the situation and are confident about meeting future targets,” explained a Cabinet Office spokesperson.
Technical issues that affect the ability of a Government department to pay invoices within its own specified terms for such a long period of time must be serious indeed, and to leave them unresolved for over a year smacks of incompetence.
Speaking about the new data, Jon Trickett, Labour’s shadow minister for the Cabinet Office, said it sent a “worrying signal to businesses” and pointed out that businesses “are looking to the Cabinet Office to provide leadership in addressing the problem of late payment.”
“The Conservative government has failed to do this, and they must provide an explanation as to why the situation has deteriorated in this key strategic department,” he said.