Getting tough on late payment to SMEs

There was an interesting article in last week’s Economist about a speech made by Chuka Umunna to the Federation of Small Businesses, which began with the sleepy audience unengaged, but went on to inspire them to shout, “Hear hear!” I suspect this was following the announcement that Labour would crack down on big companies that deliberately hold out payments to small companies for months on end.

The article compared Labour’s wooing of small business with the “Prawn Cocktail offensive” of the early Blair years, when Labour wooed the bankers. However, the crucial difference is that we no longer need to persuade the markets of our commitment to capitalism. This speech was about something altogether different.

Sole traders and small businesses don’t see themselves as in need of the state. Nor has the state previously had much of a role to support them. The Tories believe that the best policy is to actively get out of the way, and they often make passionate speeches boasting of their intention to do absolutely nothing. Myself and Chuka disagree. We see small business as absolutely in need of the state, but they mostly don’t realise it, because they don’t know what we’re capable of.

The Injustice here is about enterprising people who work hard to build their business, but find themselves continually the victim of the unscrupulous and unchecked greed of powerful companies and individuals. They endure a continual battle to get paid, not because there is no law to protect them, there is plenty of law, but there is inconsistency in the application of the law.

If a man walks into Sainsbury’s and steals a chicken he will be prosecuted. However, if that same man hires a printer to provide a box of leaflets, and doesn’t pay, the police would refuse to prosecute, arguing that it is a civil matter. This is true even if the purchaser dishonestly intended to avoid payment before placing the order. The printer would have to file a small claim at the county court. There would be no punishment and no mark of bad character against the cheating customer.

The theft of the chicken and the theft of the printing services are equal crimes in the eye of the law, but public policy dictates that consumers should get the protection of the state, while people in business should fight their own battles. The inconsistency lies in the fact that Sainsbury’s are also in business, so why isn’t the stolen chicken a “civil matter” as well?

When Chuka refers to big companies deliberately holding out payments to small companies, he is referring to the attempt by the powerful, to cheat and defraud the weak. If the printer goes out of business, the big company doesn’t have to pay. If the printer stays in business, then the big company gets to keep the interest on the money in the bank, and pays what is owed at the last minute to avoid a county court judgement.

The sheer persistence of this free-for-all must be very damaging to our overall economy. I probably spend about 10-20% of my time chasing late payments, or suing people, when I should be looking for new clients or doing something productive.

As a party, Labour can be inconsistent in values. We say that we want to fight injustice, but then we ring-fence the right to the state’s protection to a few small groups, as if injustice is based on the colour of someone’s skin, or the level of their poverty. This is plainly wrong. A One Nation political movement should defend whoever is being bullied or downtrodden, especially if the bullying is due to the system being stacked against them, or the law being persistently unenforced.

These people aren’t the wealthy. They are the electricians, shopkeepers, and maintenance engineers. They are the people who drive white vans and live in Stevenage, Harlow and Thurrock. These are the people who should be voting Labour, but feel let down by a party that believes that you have to be on welfare to be the underdog.

A solicitor from Thompsons gave me a good insight when he suggested that the pendulum swung too far when they got rid of the debtor’s jail. Taking this point further, the law of Limited Liability transformed enterprise by allowing the people to take risks without fear of ruin. The liability that was limited was money rather than culpability in crime, but the success of this law was so great that everything got swept along with it.

This is the reason why the inconsistency exists between the attempted theft of the chicken from the supermarket, and the attempted theft of the leaflets from the printing company. Limited Liability has confused the right of a company to struggle through a cash-flow crises, with a company in a good financial position but which finds it profitable to bully and defraud, since there is no consequence.

It’s important to recognise that it’s not just the poor who need us. There is a whole country out there that wants us to do well, and wants us to be on their side. If we recognise their existence, and their needs, and reach out to them, they will support us. They will vote Labour in 2015.

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