Starmer’s late payment crackdown is pointless

They face higher National Insurance charges, increased business rates, crippling energy costs, and if they hire anyone: crushing employment rights. Still, never mind about any of that. The Prime Minister has today come up with a plan to finally show that he is on the side of small businesses and entrepreneurs. He will crack down on late payments. There is just one catch. This policy is completely pointless – and won’t do anything to undo all the damage his government has already done.

The accounts departments of major companies will have to get their act together. Under the planned legislation, firms will have to pay suppliers within 30 days of getting an invoice, and there will be spot checks and fines to ensure compliance. ‘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,’ according to Sir Keir.

In fairness, it is a worthy enough idea in itself. Big companies often try to improve their cashflow by delaying payment to smaller suppliers for as long as possible, and that can make it hard for them to stay afloat. It would be helpful for everyone if bills were paid promptly. Even better, it won’t cost the government any money. Instead, all the extra costs will be shouldered by the giants of the FTSE-100. But there are two big flaws in the plan.

First, it won’t undo all the damage done elsewhere. Since taking office, the government has launched a whole series of measures that could have been specifically designed to make life harder for small businesses. The increase in NI, and especially lowering the threshold at which it has to be paid, may raise revenue, but it hits micro-companies very hard. Business rates reliefs have been phased out, pushing up tax bills for pubs, restaurants and shops. And of course extra employment rights are especially daunting for small entrepreneurs who can’t afford HR departments and lawyers to navigate them. It is hardly surprising that more than 200,000 businesses have closed since Labour took office.

Next, it creates yet another layer of bureaucracy. Spot checks, enforcement and fines may sound tough in principle. But presumably the government will have to hire lots of inspectors, most of whom will be working from home, and all of whom will need pension rights, diversity managers and perhaps four-day weeks as well. It is hard to believe that anyone could look at the state of the British economy right now and decide what it really needs is another group of compliance officials issuing fines. But that seems to be Sir Keir’s only answer. In reality, clamping down on late payments is completely pointless – and won’t do anything to help the economy.