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UK ministers have launched a review of the long-running problem of small businesses struggling with late payments by big companies, as the government looks to help corporate Britain through the economic downturn.
Kevin Hollinerack, the new small business minister, told the Financial Times that small companies needed help securing prompt payment after providing goods or services to larger businesses.
He also said the government would look into ministers’ controversial decision to cut research and development tax credits available to small businesses. Tax breaks are widely used by start-ups and small and medium-sized enterprises.
Hollinerack admitted there were concerns about the rising number of company failures as the UK entered recession, “especially companies that have carried a lot of debt, and particularly in the hospitality sector”.
He said part of the government’s support for small firms would be to revisit the issue of late payments.
The government has announced a “payment and cash flow review” which will examine existing measures to force large companies to pay smaller suppliers promptly.
According to government data, small firms owe more than £23.4bn in outstanding invoices. The review will include the Prompt Payment Code, which encourages the settlement of most invoices within 30 days on a voluntary basis, and the role of the Small Business Commissioner, which is meant 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 stalled for years”.
“If the new ministers can breathe new life into this, and not just kick the election road under the cover of more consultations, then there is some reason for hope.”
Hollinerack, who chairs the all-party parliamentary group on fair business banking, said there was a “market failure in certain areas” for small businesses.
The Government’s review into late payments will also look at how lenders can help small businesses manage their cash flow and identify barriers to accessing finance.
Hollinreck said ministers are trying to address these issues through the government’s start-up loan program and the Enterprise Investment Scheme, which offers tax breaks to investors who fund qualifying companies.
He highlighted other government help for small businesses such as the Energy Bill Relief Scheme, which provides companies with a six-month discount on gas and electricity bills.
It will lobby for continued support for some small businesses under the next review of the scheme.
The government has said that state support on companies’ energy bills will be targeted at a limited number of “sensitive” businesses from next spring, raising concerns that other companies will face big increases in gas and electricity costs.
“There are some businesses that can’t pass on the price to their customers, that can’t reduce energy consumption,” Hollinerack said. “It will continue to support the most vulnerable sectors.”
Hollinrack wants to help small businesses grow, with data showing the UK tops the OECD for start-ups but ranks 13th when it comes to the few big companies dubbed scale-ups. “We need to address that gap,” he said.
Meanwhile, after an outcry from small firms, the Treasury is meeting business representatives next week to discuss a move to curb the R&D tax credit, a person briefed on the planned talks said.
Hollinerack said the move to restrict tax breaks reflected concerns about fraud, but added: “Treasury is looking at it . . . I think it’s important that we always listen to people at the sharp end.”
A government official said “Like all tax policies, R&D is kept under constant review . . . it is standard with policy engagement for officials to meet and consult various stakeholders from across the industry.”
Hollinerack, the founder of a chain of estate agents, described his own business career as “like Churchill described the Americans: always do the right thing, but only after you’ve tried all the options”.
He said: “I know what it’s like to run a business. That’s wonderful, but I also know what it’s like to lie awake at night worrying about when you’re going to pay the bills. It’s not easy. And I want to make it easy.
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