The Small Business, Enterprise and Employment Bill has been widely welcomed and has provided a defining moment where Government has acknowledged the true value and contribution of SMEs to the economy. In 2013 there were 4.9 million SMEs in the UK, accounting for 99% of all businesses. (HMT). With so many accountants working in the SME and SMP sector, this Bill will enact crucial changes on key issues including access to finance, regulatory reform, insolvency, changes to childcare provision and changes to company filing and company ownership.
In supporting good employment practices, the Bill also adopts tougher measures on ‘zero hours contracts’ by removing clauses that stipulate employees cannot seek work elsewhere alongside introducing new fines for employers that do not pay the Minimum Wage. In response to reports that little action is taken where wrongdoing is reported, there are also measures to be introduced which ensure whistleblowing policies are more effective, with a requirement to report annually on whistleblowing disclosures received.
For some time we have heard that bank lending to SMEs has been inadequate and the Bill will introduce measures that require banks to share customer data with alternative lenders, whilst pointing businesses towards alternative suppliers. This has been seen as a positive step forward to removing barriers to small business and enabling them to gain access to credit.
The Bill also aims to increase transparency around the control of UK companies and is a good example of better regulation in a time when overall restrictive regulation has stifled the SME market. There will be a prohibition on the appointment of corporate directors and companies will also be obliged to keep a public register of people with “significant control” over the company. General directors’ duties will also be widened, where possible, to apply to shadow directors.
It could be argued that some measures add to the regulatory framework and it is therefore reassuring to see that the Bill includes a Deregulation Target, building on the current ‘One-in, Two-out’ rule,ensuring that future Governments publish a target for cutting regulatory burdens in each parliamentary term.
Despite these positive steps towards decreasing the regulatory burden on the SME and SMP sector, it could also be argued that some aspects of the Bill could have gone further in addressing key issues facing the industry.
One of the biggest issues SMEs routinely face is that of late payments, specifically larger companies delaying payment to smaller companies. SMEs across the UK currently face up to £40bn in unpaid invoices, a recent study by Bacs Payment Schemes revealed.
Although the Bill stopped well short of legislating against late payments, which many small business groups have campaigned for, it acknowledged this problem and states that large companies will have to declare in their annual report how long they take to pay suppliers. Whilst not an unreasonable step we are unlikely to see its impact for some time and we also need to consider that payment terms vary because of the realities of doing business and offering flexibility is also a crucial factor.
Where late payment is a real issue because large businesses feel that they can broker or impose longer terms on small companies in exchange for contracts, or where a late payment culture is ingrained, the Bill will do very little and includes no financial penalty for late payment, although businesses may still be able to seek compensation under the Late Payment of Commercial Debts Act.
What is required is a positive change in culture whereby businesses take their responsibilities to the wider business community seriously – no business should use another as a banking function and a greater emphasis should be placed on the government’s Prompt Payment Code to change the late payment culture that cripples many SMEs, without the added burden of further red tape.
Overall the Small Business, Enterprise and Employment Bill is long overdue and I applaud it for recognising the needs of the SME market by introducing measures that support growth and productivity. AIA is a champion of SMEs and their crucial role in strengthening economic robustness. We are working with a number of key partners to look at how the growth and development of SMEs can be supported through consultation, support and projects such as the Government’s Growth Voucher programme and through other projects such as the SME Snapshot. Small businesses play a crucial role in the economy and whilst not perfect the Bill sets the agenda for a future where small business and enterprise are valued, supported and respected in the UK.