Little enthusiasm for green paper

The Government yesterday pledged to press ahead with plans to give small businesses a legal right to charge interest on bills paid late, despite scepticism from most organisations representing small firms.

Barbara Roche, the small firms minister, insisted she was not disappointed by the lukewarm response to the consultation green paper, which fulfilled Labour's principal manifesto commitment to small firms.

Ms Roche said that though other measures to improve late payment were being discussed with business groups, the statutory right to interest would be included in a parliamentary bill later this year, with legislation on the statue books by the summer. "This is not about whether we introduce a statutory right to late payment," she said. "It's about how we introduce it. Overwhelmingly small businesses want it."

Bowing to criticism from organisations such as the Federation of Small Businesses, the green paper proposed phasing the legislation over four years, starting with small businesses claiming interest from large firms and the public sector.

It would apply to companies meeting two out of three criteria, including having a turnover of no more than pounds 2.8m and no more than than 50 employees.

It also emerged that the definition of late payment would vary widely between different trades. Though the consultation paper suggested an appropriate payment period of 30 days for most businesses, Ms Roche said late payment would generally be judged in comparison with "custom and practice" in each industry. Decisions on what amounted to late payment would be left to the courts.

The Government said it would also respect the right of companies to agree different payment terms, though large firms would not be able to contract out of the new rules by pressuring small suppliers into agreeing to give up their right to claim interest.

The Federation of Small Businesses (FSB), the largest such organisation, said the legislation would be counter productive. The Institute of Directors warned the proposals could "merely legitimise" late payment.

Stephen Alambritis, the FSB's parliamentary spokesman, said: "These proposals rely on small businesses going to court when they are least able to fund that process. Big firms could be more adept at using the legislation to their advantage."

Even the Forum of Private Business, the pressure group which has strongly supported the idea of statutory interest, was lukewarm about the detailed proposals. The green paper rejected charging a penal rate of interest on overdue debts, instead suggesting a rate of about 4 per cent above the current bank rate, but the forum argued this was insufficient to defer most late payers.

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