Keir Starmer has warned businesses who persistently delay payments to their suppliers that it is “time to pay up” as the government prepares to impose fines and penalties on repeat offenders.
In what Labour has billed as the toughest crackdown on late payments in a generation, the business secretary, Jonathan Reynolds, will say on Thursday that the changes will slash a cost to the economy that has escalated to £11bn a year.
As many as 38 businesses shut down each day partly owing to late payments, the government said, hurting tradespeople, shopkeepers, startup founders and family-run firms.
The planned changes will include handing the small business commissioner powers to impose fines, potentially worth millions of pounds. Established in 2016 to tackle late payments, the watchdog will also be able to carry out spot checks, verify claims and impose deadlines to clear a backlog of disputes.
As part of a wider Labour drive to provide more support for small businesses, Reynolds will also announce startup loans for 69,000 companies worth £4bn “to inspire the next generation of entrepreneurs and small business owners”.
The move is backed by the prime minister and the chancellor, Rachel Reeves, who is keen to focus on rebooting the economy after two consecutive months of negative growth and mounting speculation about tax rises.
According to the Office for National Statistics, the economy contracted by 0.1% in May after a 0.3% monthly fall in April.
Sir Keir said it was important for the government to support small- and medium-sized firms, which employ 60% of the workforce and generate £2.8tn in turnover.
“From builders and electricians to freelance designers and manufacturers, too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best, growing their businesses.
“It’s unfair, it’s exhausting and it’s holding Britain back. So, our message is clear: it’s time to pay up.”
Reynolds is expected to say legislation will include maximum payment terms of 60 days before a reduction after an introductory period to 45 days, “giving firms certainty they’ll be paid on time”.
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Ministers said last September that they would consult businesses about the most effective way to tackle a “culture of late payment” after several attempts by previous Tory administrations to toughen existing codes of conduct.
Reynolds will say new laws were needed to give the commissioner extra powers and force large companies to be more transparent about how they pay subcontractors and suppliers.
As part of the plan, audit committees will be required to scrutinise payment practices at board level, “placing greater pressure on large firms to show they’re treating small suppliers fairly backed by mandatory interest charges for those who pay late”.
The small business minister, Gareth Thomas, said: “I hear all too often about businesses who just don’t have the cash needed to start up or grow. Today, we’ve announced measures as part of our plan for change to tackle all of those issues and beyond.”