Heseltine in debt blunder

Bosses of small firms condemn advice to delay paying creditors

MICHAEL HESELTINE, the Deputy Prime Minister, yesterday faced a mounting barrage of criticism over private comments he made last week which endorsed the late payment of bills by businessmen.

Leaders of small businesses roundly denounced Mr Heseltine's remarks, while John Prescott, his Labour opposite number, accused him of backing behaviour that "wrecks people's lives". But Mr Heseltine, far from retracting, elaborated his comments and seemed to put himself at odds with a Government Bill, introduced only last Friday, to discourage late payment in the building industry.

Mr Heseltine made his comments in a speech responding to questions at a dinner at the St Stephens Club in Westminster on Monday night. As a small businessman himself, he said, he had been "quite skilful at stringing along the creditors". Late payment, he said, was part of the culture of British business. Mr Heseltine was standing in for John Major, who had 'flu.

Up to pounds 20bn is owed to UK companies, many of which suffer cash-flow crises, planning difficulties and, in extreme cases, financial ruin. The Government is consulting on whether companies should be entitled to interest on unpaid invoices, and on Friday John Gummer, Secretary of State for the Environment, spoke out against late payment.

Mr Prescott, Labour's deputy leader, who will raise the issue in the Commons, demanded an apology from Mr Heseltine whose comment was a "shocking state of affairs": "This may be good business practice for some but it is at the expense of bankruptcies. There are many examples of thousands of people being put out of work because of a cynical decision by a bigger company which has said 'We will wait on this debt until the creditor has gone out of business'."

Stephen Alambritis, of the Federation of Small Businesses, representing 85,000 firms, said: "We're aghast and surprised by these remarks. It's a business tip that is immoral basically. It's bad commercial practice."

Ian Peters, head of the small and medium enterprises unit of the Confederation of British Industry, would not comment on Mr Heseltine, but said: "Unfortunately, the British business culture is one of stringing along creditors till the last possible moment. The CBI view is that there is no excuse for that sort of behaviour." A CBI survey found that one in five small firms said that late payment was a threat to their survival.

Stan Mendham, chief executive of the Forum of Private Businesses, said: "Most business owners, and especially those whose firms have failed owing to late payment, will find it obscene to hear Mr Heseltine making light of this pounds 20bn scandal."

And Sir Michael Latham, the former Conservative MP, and author of a Government- commissioned report into late payment in the construction industry, joined the critics. "I like and admire Mr Heseltine and I voted for him in the leadership contest, but I certainly can't agree with him over this."

Mr Gummer's Housing Contracts, Construction and Development Bill, designed to speed up the resolution of contract disputes and encourage prompt payment of bills, was published last Friday. It was intended, he said, "to outlaw the notorious practice of 'pay when paid'."

Mr Heseltine yesterday refused to retract his comments and, in a statement, opposed legislation to ensure prompt payment. He said: "Anyone who has started a small business knows they are likely to need tolerance. Small business people know it, creditors know it, bankers know it, and delivering that tolerance in a way which could lead small businesses to bankruptcy by making them pay when they cannot afford to pay is a solution of very limited attraction.

"It is precisely because I started a small business from scratch, lived with the problems of it, accepted the discipline of it and survived the competitive race, that I am not disposed to listen to a lecture, particularly from Labour MPs, which could be as damaging to some small businesses as helpful."