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Government’s late payments to SMEs ‘beggar belief’

It “beggars belief” that a third of SMEs do not get paid within 30 days of invoicing public sector clients, according to Margaret Hodge MP.

The influential chair of the Commons Public Accounts Committee (PAC) points the finger at the Cabinet Office for failing to ensure departments pay businesses on time.

Her remarks follow a National Audit Office (NAO) report that found the government is unable to show that its policy to pay 80% of undisputed invoices within five working days is having the intended effect of helping SMEs.

The NAO examined four departments practice (the Ministry of Defence, Home Office, Department for Business, Innovation & Skills and Cabinet Office) and found that while they reported good performance against the five-day prompt payment commitment, this reported performance is skewed in their favour by a high volume of low-value electronic transactions with a few large suppliers.

These departments are also often failing to record the date on which paper invoices, commonly used by SMEs, are first received – something Hodge was shocked to discover.

She said: “It beggars belief that government departments do not record the date when paper invoices, commonly used by SMEs, are first received, and that around a third of SMEs don’t get paid within 30 days by their public sector clients. This is despite government’s claim that it is committed to increasing the role of SMEs in providing public services rather than allowing large companies like Serco and G4S to continue dominating the market, often at the expense of the taxpayers’ interest.”

The NAO found that the four departments take much longer than five days to pay most suppliers, including SMEs. When measured from the invoice date, these departments took between three and seven weeks to pay 80% of the value of paper invoices.

The NAO concludes that the Cabinet Office cannot demonstrate that the implementation of the prompt payment commitment is achieving its intended purpose and therefore providing value for money.

Amyas Morse, head of the NAO, said: “UK businesses told us they welcome the government’s commitment to pay invoices early. However, there has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs. We are also seriously concerned about the prompt payment performance figures publicly reported by departments. These were overstated by the four departments we looked at. It remains to be seen whether the changes proposed in the Small Business, Enterprise and Employment Bill and secondary legislation will be enough to bring about improvements, not just in public sector payment practices but the private sector as well.”

The report also found that the government has until recently shown little strategic leadership in relation to prompt payment in the public sector. Amongst the NAO’s recommendations is that the Cabinet Office should set out the principal objectives of the dive-day payment commitment and its benefits and costs.

Hodge added: “The Cabinet Office, representing the centre of government, should be doing much more to improve current poor practice in departments, which can put SMEs out of business and jeopardises government’s ability to deliver value for taxpayers’ money.”

Responding to the report, the Cabinet Office said that steps were being taken to ensure that businesses were paid promptly. 

A spokesperson added: “The report recognises that we are making progress, but there is more to do. That is why from this month we are insisting on prompt payment within 30 days all the way down the public sector supply chain.”

(Image souce: PA)

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