I wish to share my time with Deputy Hughes.
Private Members' Business. - Prompt Payments Bill, 1996: Second Stage.
Is that agreed? Agreed.
I move: "That the Bill be now read a Second Time".
This Bill arises from one of the many recommendations of the task force on small business which was chaired by Deputy Seamus Brennan as Minister of State at the Department of Enterprise and Employment with responsibility for commerce and technology. The Small Business Forum ascertained that if this issue could be rectified, it would result in a saving of at least £20 million to the small business community which would enable it to overcome, to a great extent, many of the trading difficulties encountered in regard to cash flow.
In its programme for Government the Government gave a commitment to introduce a prompt payments Bill. Last March the Minister of State at the Department of Enterprise and Employment, Deputy Rabbitte, indicated it would be introduced in early autumn. However, in response to a question from me, the Minister for Enterprise and Employment, Deputy Bruton, indicated firmly that small business formed part of his portfolio.
Deputy Ned O'Keeffe and I then set about drafting this Bill with the assistance of our advisers. As soon as it was printed and presented at a press conference, the Minister pulled a political stroke by announcing the details of his own Bill at a press conference. This could be described as one-upmanship.
Unusually, representatives of ISME and the SFA attended the launch of this Bill, the aims of which they support. In complete contrast to what happened earlier, it is not a cause of contention or conflict, rather it seeks in common cause to do what is best for the business community. If the Minister is of the view that it requires amendment, we would be glad to work with him to present unified legislation which would have the support of the business community. This would not be unusual. When in Government Fianna Fáil accepted Deputy Alan Shatter's Bill while in late summer the Minister for Justice, Deputy Nora Owen, admittedly at the point of crisis, accepted Deputy John O'Donoghue's Bill. In the Parliament across the water private Members' Bills are readily accepted if they serve a cause on which there is no disagreement.
I thank all those who made suggestions and submissions to us. The advice and assistance of the staff of the Bills Office, for which we were grateful, was also well received.
As Members are aware, late payment is a serious issue. It is a major headache and never ending problem for small business. It causes serious cash flow problems and requires small firms to extend overdraft facilities or engage in additional borrowing. It consumes vast amounts of scarce management time.
The findings of surveys carried out for the task force on small business showed that Irish payment periods are among the worst in Europe. State bodies are among the worst offenders. Government Departments, local authorities, vocational education committees and health sector bodies have poor payment records. Only 35 per cent of State bodies paid their bills within 40 days; 30 per cent took 90 days; 15 per cent took six months while 10 per cent took one year. The average payment period in the public sector was 154 days, an extraordinary and remarkable figure which has not been contradicted by anybody.
The public sector should have an exemplary record when it comes to paying accounts on time. State firms should lead by example. This would have a significant knock-on effect on all other firms and bodies.
The State intervenes in many ways to support enterprise. Forfas, IDA Ireland and Forbairt are committed to supporting indigenous industry. It is contradictory, however, for the State to assist small business through industrial policy interventions while the payment practices of State bodies smother its development. While State agencies have thought of ingenious and bright ideas, all of which are welcome, as to how small business can be helped — I hope further measures will be taken in the forthcoming budget in January — a simple measure which would be of enormous benefit to small business has been consistently overlooked.
Lest the Minister berates me, the task force on small business was established by Fianna Fáil under the chairmanship of Deputy Seamus Brennan. We are now seeking in Opposition to further the agenda we conceived with the help of small business.
This Bill follows on a number of initiatives taken by Fianna Fáil to assist small firms. The task force on small business made a significant number of recommendations, some of which have been implemented. Progress on the remainder has been slow. This is highlighted by the fact that the Minister, Deputy Bruton, is about four months away from presenting to the Dáil a Bill on prompt payments, despite repeated commitments over the last two years and in the programme. A Government of Renewal. The Minister recently took the rather unusual step of holding a press conference to announce that he would have proposals for a Bill at a later stage, although he did not have legislation yet. I suspect this was an effort to disguise the lack of progress, particularly in the knowledge that we had published our Bill with help from the Bills Office. I hope our legislation will be accepted by the Government.
This Bill is not our first initiative on prompt payments by State bodies. My party has a strong track record in highlighting and tackling the matter. For example, in 1994 the then Minister for Finance and current Fianna Fáil Leader, Deputy Bertie Ahern, allocated £100 million to restructure the finances of health bodies, who were some of the worst offenders in terms of withholding payments from suppliers and small businesses. Deputy Ahern allocated some of the proceeds from the tax amnesty to address this issue. Unfortunately, health bodies have slipped back into their old ways of paying suppliers.
Our Bill goes a step further. We seek to address the wider late payments crisis involving State bodies. The legislation takes up the recommendations and requires all State bodies to settle their bills within 45 days. No exceptions are made for any State body. The press release at the Minister's press conference stated that a number of bodies would be exempted from his prompt payment legislation, including Telecom, Aer Lingus and Aer Rianta. I do not understand why these bodies should be granted exemptions. I accept they face competition and that some of them have come through difficult industrial times. However, if the Bill is to mean anything it should be applicable across the board to all State agencies. Why should a small supplier of Telecom, Aer Lingus or Aer Rianta be affected? This announcement bears out reports that Government Departments and State agencies had difficulty with and animosity towards the progress of the prompt payments legislation. I believe this Bill should be accepted tonight. I also believe that, had we not moved as quickly as we did and the Minister had not accepted our Bill, his legislation would not have come forward.
No exceptions are made in our Bill. Our list includes every Government Department, health board, harbour authority, local authority and vocational education committee; we also include Aer Lingus, Aer Rianta, the ACC, Bord Iascaigh Mhara, Bord Gáis Éireann, Bord na Móna, CIE, the ESB, RTÉ and the VHI. These agencies are all brought under the terms of the Bill in section 2, where we define "business" as:
a Government Department or associated agency as set out in Part I of the First Schedule to the Ombudsman Act, 1980, as amended, a local authority as defined by the Local Government Act, a health board as established under the Health Act, a vocational educational committee as defined in the Vocational Education Committee Act, 1930, a State body as set out in the First, Second or Third Schedules to the Comptroller and Auditor General (Amendment) Act, 1993...
Section 2 also defines the credit terms as the period from the date of invoice to the last business day of the month following upon the date of invoice. This is the definition used by the task force on small business and gives average credit terms of 45 days. There is a big difference between that period and the average time in which State companies pay their bills, as shown in a survey. This was an extraordinary admission which the survey did well to highlight.
This section also provides for a penalty if State bodies make late payments, which is an interest payment at the rate of 1.25 per cent per month on the amount due. This penalty, which is the same as the Revenue Commissioners' sanction for late payment of corporation tax, will be paid on top of the bill and will be awarded to the small business. It is interesting to note that, if corporation tax is not paid in due time, a company rightly pays a hefty fine, yet for too long — and no matter who was in Government — the State, which sets the penalty for people not paying corporation or personal tax on time, blithely continued to allow many small businesses to be driven to the wall because of its tardy response in paying its bills and liabilities.
Our Bill offers a major discouragement to stop State companies introducing unreasonable credit terms in written contracts to avoid the terms of this legislation. This is an important provision. Many State bodies wield a heavy hand over small businesses by indicating that a business will not be kindly regarded for tendering unless it allows extensive time for payment of bills. If such terms are not forthcoming, the State body goes to another small company. Moral blackmail is exercised on small businesses — the big stick wielded by the master. They will not even be considered for a contract unless the credit terms are favourable. The longer the term is extended, the more chances the poor small business person or supplier has of getting the contract. Last Saturday a businessman came to see me on foot of material I had sent him about our Bill. He had calculated that he lost money on a particular contract by acceding to the undue long terms of credit demanded of him by a health board. In the end, he had to give up competing for that business.
If this provision is passed, small businesses will be able to notify such moves by State bodies to the Ombudsman. If he deems that unreasonable credit terms are being operated, further penalties can be introduced. Section 10 states:
a business not operating within the credit terms ... shall be liable to a penalty of the higher of £1,000 per day or one two-hundred and fiftieth of annual turnover in the State per day ... Monies arising from [this] penalty ... shall be payable to the Exchequer.
The Bill gives the Ombudsman the power to ensure prompt payments. The Ombudsman already has a developed role with the State sector and these new powers shall add to his office and further his role. Given the high esteem in which the previous and current holders of the office and the office itself are held, we hope this will pressurise State companies into complying willingly.
The Ombudsman will have the power to name offenders in his annual report. It will be delicious to read the State or the State agencies which have not fulfilled the terms of the Bill. On one hand I hope there will be no need to name anyone but on the other I look forward to the blushes which will be occasioned all over the land. The Bill also requires senior executives in all State companies to certify compliance or non-compliance with the Bill in their own annual reports.
We propose that the Bill should come into force on 1 July 1997. This date is based on an assumption that the Bill will pass early in the new year. State bodies would then have a few months to get their house in order. That would be better than introducing major exemptions for companies. I do not know what pressure was exercised on Government to insert such a provision, but it is discordant with the thrust of the Small Business Forum. I hope the Minister will accept this Bill.
When the Minister for Finance, Deputy Quinn, delivers his bounty — we have been told there is great bounty available to the Government — an announcement to the effect that this Bill would be enacted and that the once off costs appertaining to each Government Department would be provided for would be a very useful carrot to extend to small businesses. The Bill could save small businesses up to £20 million per year in credit costs.
We will continue to review the position of the private sector — the task force on small businesses stated that the position of the private sector should be reviewed three years after the introduction of this legislation. We are currently considering the feasibility of a special court system that would allow for quick, inexpensive and effective legal remedies for non-payment of commercial debts. A prompt and simple system similar to the small claims court would serve a useful purpose in registering judgments for commercial debts up to £5,000. We are also studying the small claims procedure which operated before the establishment of the small claims court. Under that procedure if respondents did not dispute a claim of non-payment within 30 days on receipt of a notice from District Court clerks or Circuit Court registrars they would be held to have admitted to it. The claimant could then proceed to obtain a judgement.
All Government contracts should contain a clause requiring main contractors to pay their subcontractors in accordance with the payment terms of this legislation. Ireland's Presidency of the EU should be used to designate small businesses as consumers. That would bring them within the remit of ombudspeople and would give them new powers and avenues to overcome their difficulties.
We hope this Bill will be accepted. We have agreed to a very brisk reading, two hours. The practice is that Bills introduced in Private Members' time are debated over two weeks and I believe that to be an unnecessary, convoluted and prolonged mechanism, particularly with relatively straightforward, non-contentious Bills such as this and particularly when the Minister agrees, as he obviously does, to bring forward a Bill. We have gone through all the motions and met all the criteria laid down by this House for Private Members' Bills and I welcome very much the warm support given to this legislation.
If the Government accepted this Bill and brought forward the amendments required, the legislation could be passed early in the new year. It could go from here to the Select Committee on Enterprise and Economic Strategy where it could be dealt with quickly. The longer the delay, the greater the cost to small businesses. This is just one plank in a series of measures.
We are also planning radical reform of agencies that provide enterprise advice to small businesses. I welcome the Government proposal for a funding agency for small businesses. For some time we have highlighted the proliferation of agencies which give advice and assistance. When Fianna Fáil was in Government bodies such as county enterprise boards were established. At that time a bottom-up approach was adopted and finance was available from the EU to promote and establish such agencies. It is now accepted, however, that there is an overlap of agencies, with bureaucratic tangles obscuring and obstructing small businesses in seeking advice and money. Now is the time to rationalise the 200 bodies dealing with enterprise, including the IDA, Forbairt, county enterprise boards, area partnership boards and Leader groups.
The message I receive from around the country, particularly my constituency, is that people planning to set up businesses or expand have to go to several agencies to establish what assistance is available. That creates confusion and wastes valuable time. When the Minister was on this side of the House he raised this matter many times with the then Ministers, Deputies Quinn, Seamus Brennan and myself and we stoutly defended the proliferation of agencies. I would have no difficulty accepting measures to rationalise State agencies, as recommended by a committee of this House. We propose that there be one centre in every county for enterprise information and dissemination of finance. We also propose that there be only one body providing support to small business rather than the current panoply of agencies.
This Bill originated from the task force on small businesses set up by Deputy Seamus Brennan. Earlier I paid tribute to the work he did in that regard, which is testament to his diligence. Some of the recommendations of that task force, of which this Bill is one of the central planks, have been implemented. Circumstances two years ago put us out of office before we could come to grips with many of the proposals, but we succeeded in introducing this legislation reasonably quickly.
I thank Deputy Hughes who, with other Members of a committee of this House, visited New Zealand and gathered much valuable information. This Bill is modelled on legislation in that country but is much stricter in its ramifications. The worthwhile information gleaned by that committee proves that some such visits are entirely useful. The information also forms the basis for a second Bill on cutting red tape, the next Bill I hope to introduce in Private Members' time — as a result of recent events there may not be much time left in the life of this Government, but I hope we will have an opportunity to bring forward that Bill.
This non-contentious Bill would save the business community approximately £20 million which it could use to its benefit. We hear many harrowing tales of small businesses living on the edge, waiting for the cheque in the post which never arrives. When they ring the purchasing manager or marketing manager they are shunted from person to person and told that payment will issue the following week. Very often State agencies and Departments, cocooned in the knowledge that they are Government funded, tell small businesses that their money is guaranteed. Those people are aware of that, but if it takes up to six months or, in some instances, longer to get the money the value of the service or product provided is massively eroded. I commend the Bill to the House.
I congratulate my colleagues, Deputies O'Rourke and Ned O'Keeffe on introducing this Bill. While it has only 11 sections, a short Bill by any standards, its import will be significant for the many thousands of suppliers who engage in day to day business with Government Departments and State agencies, which number more than 200 in all. I hope the Bill will be accepted by the Minister. If the Government is committed to the principle of a level playing pitch for small manufacturing and service industries, the dominant and monopolistic position of State purchasing agencies, local authorities or health boards will become more equalised in the way they do business and conduct their affairs in their dealings with the private sector.
I know of at least two instances in my constituency alone in the past four years where over 100 jobs were lost — I can give the Minister the details if he is interested. People were made redundant as a result of the respective dealings between both manufacturing firms and the company they supplied. Because that company enjoyed a dominant position as regards its purchasing power it could dictate terms without anyone being in a position to say objectively that both parties came to the table with equal bargaining strength. Terms such as the necessity to keep minimum stock levels, terms of payment, discounts and the many other onerous conditions that can be imposed by a dominant player dealing with competing firms who wish to succeed in getting their orders placed were all unequally biased in favour of the dominant company.
As it is in the private sector the purchasing power of health boards, local authorities, Government Departments and State bodies can lead to situations whereby if good business practices are not adhered to and a mechanism is not in place allowing for the speedy adjudication of the debt or matter in dispute, serious difficulties can be encountered by manufacturing and service firms. Difficulties in the ability of the supplier to maintain cash flow may manifest themselves months down the line when the initial cause of the problem, such as increased bank interest, a penalty imposed by a lending institution or other suppliers to that manufacturer restricting credit terms for raw materials due to slowness of payment for good delivered previously, has been resolved.
This proposed legislation is long overdue. We are one of only two countries in the European Union, England being the other, that does not have such a code. As public spending increases each year over and above the real rate of inflation, Government expenditure directed to the private sector plays an increasingly larger role in the total make-up of turnover of many firms. This Bill can and will benefit thousands of firms, companies or individuals, who deal on a day to day, week in week out basis with the categories of State business as defined in the Bill.
Sophisticated computer companies, suppliers of more mundane products to the Government's central purchasing office, suppliers of the many hundreds of items required by Government, Army, Garda and the numerous other agencies and sub-agencies, the person who tenders to supply a digger to a local authority or a potato merchant supplying goods to a health board for its canteen, will support the underlying principle in the Bill introduced by Deputy O'Rourke.
As an active member of the Joint Committee on Small Business and Services we have received many presentations from representative groups. The excellent report published by the then Minister with responsibility for commerce and technology, Deputy Seamus Brennan, entitled the Task Force on Small Business, has become the benchmark from which to assess progress as its 140 recommendations come to be implemented; to date approximately 130 of the recommendations have been implemented. One of the recommendations called for legislation for the public sector as a result of its indifferent payment record. The task force made three recommendations in regard to late payments and this Bill follows closely those recommendations which have been accepted by Government.
The task force report referred also to the possibility of similar legislation to effect dealings between and in the private sector. However, the report did not recommend legislation in that instance but in the meantime IBEC has introduced a prompt payment code to which its membership of 4,500 companies have signed up since it was introduced some time ago.
In a submission by the Small Firms Association to the Joint Committee on Small Business and Services on 25 April 1995 its chairperson, Lorraine Sweeney, stated that small business people could not afford to tender for health board business because they could not give six months' credit. She stated:
It affects the ability of small business to tender for contracts and expand their business. We want the Government to change its attitude and pay its bills on time.
She further stated that if a Government agency takes six months to pay its bills, it should pay interest for four months and be penalised in the same way as an individual or company who fail to pay their bills on time.
In a further submission on 17 October 1995 by the Irish Small and Medium Enterprises Association, Brian Flanagan, in presenting a report entitled The Financing of SMEs, stated: "The implications from our study are that the objective of most companies is not growth but pure survival". In a survey of the accounts of 2,000 Irish companies ranging from fewer than ten up to 250 employees — the Minister will be aware that the definition of a small company has that range of employee numbers depending on who is giving the definition — the association found that 25 per cent of the companies surveyed were recording losses and 35 per cent to 40 per cent were achieving profit increases of 3 per cent to 4 per cent when inflation at the time of the study was the same. Mr. Flanagan described those companies as running to stand still; they were not accumulating any capital with which to finance their growth.
While I recognise the substantial improvements in the ongoing efforts of the Revenue Commissioners to reduce compliance costs, offer alternative payment methods, etc., the fact remains that "big brother", by the force of a huge corpus of legislation, can demand and receive on a specified date tax payments, back payments and employee contributions without legislation currently being on the Statute Book offering reciprocal recognition of the fact that goods supplied and services rendered must be paid for within a reasonable period. Why should "big brother" not adhere to the norms well established in the wider private sector, namely, payment 30 days after date of invoice?
If payments owed to the Revenue Commissioners are overdue by the due date, punitive interest rates, which have not been adjusted downwards despite inter bank rates having fallen to a near historical low, are automatically imposed. Is it moral, equitable, fair and just that a company can be obliged to pay its Revenue obligations on a certain date while on the other hand that company might seek prompt payment on its invoice lying on the desk of some faceless State or local authority employee whose priorities could be directed elsewhere?
The attention of many public representatives in this House has been brought to the issue being discussed tonight. I do not expect it to make headline news but like many items that become headline news, they are often forgotten when the next news story breaks. This Bill, if supported by the three coalition parties, will further copperfasten the supports which in the past five years have been directed at Irish firms. This measure will give further indirect protection to thousands of jobs and will introduce discipline and good business and management practices into an ethos where that is lacking.
The Minister has the opportunity to take on board the underlying principle of this measure. As Deputy O'Rourke stated earlier, if the Minister is not happy with certain sections of the Bill he can refer it to Committee where we will be co-operative in regard to getting the amendments right and achieving the purpose of the Bill which all sides of the House support. Can the Minister put his hand on his heart and say that Irish firms will not suffer as a result of the many hundreds of invoices or statements which have overrun the 60 or 90 days' deadline and where spurious complaints about quality, standards, etc. are being used to defer further payment? I ask the Minister to give a clear signal tonight that he will accept the Bill and let us get on with the work of Committee Stage.
There is a great deal of common ground between Deputies O'Rourke, Hughes, O'Keeffe, Séamus Brennan and me on the importance of introducing prompt payment legislation for the small business sector. It was included in the programme for Government because of its importance. It is not true that we held a press conference to upstage Deputy O'Rourke but because I had got approval from Government for the heads of the Bill to deal with the problem. Deputy O'Rourke likes to hop the ball, but I assure her I did not try to upstage her. It is not true either that this would not have come forward were it not for the Fianna Fáil Bill.
I congratulate the Deputies on their initiative in bringing forward proposals. They put much work into this Bill and were motivated by a desire to improve the environment for business. However, the proposals the Government will bring forward will result in a more effective Act which will better meet the needs of the business community and more fully assist and facilitate the development of business. For that reason I would ask Deputies O'Rourke and O'Keeffe to consider withdrawing their Bill. The Deputies will appreciate why when I explain more fully. No time will be lost in bringing the Bill to the House. I am sure I will have the support of the Deputies when it is introduced and I will, as always listen to reasonable points put forward by them with a view to amending it. However, if the Deputies press this to a vote on Second Stage, the Government will have no choice but to oppose it.
Before explaining why it would be better to await the Government Bill, I reiterate the Government's appreciation of the type of problems to which Deputies O'Keeffe and O'Rourke drew attention. The task force on small business, which reported in 1994, noted that getting paid on time was a never-ending problem for most small enterprises. That is well borne out by the existence of cash flow problems requiring firms to extend overdraft facilities or engage in additional borrowing which consumes a good deal of scarce management time which has to be devoted to chasing debts when it should be devoted to the long-term future and development of the business. There is undoubtedly a need for a much improved atmosphere with regard to paying bills on time.
There have been a number of surveys and estimates of the average time taken to pay accounts both in Ireland and in other European countries. The task force on small business estimated that payment periods in Ireland were 79 days on average, which was poorer than the European average. A European business survey published in May this year by Grant Thornton International Business Strategies Ltd, on the basis of a survey undertaken during 1995, showed the average payment period in Ireland to be 59 days which is two days less than the EU average of 61 days but nine days longer than the UK average of 50 days. A survey of Irish companies by Interface Business Information, published in February, 1996 showed the average payment period for Irish companies to be 56 days. None of the surveys distinguished between public sector and private sector purchasers.
Regarding the survey to which Deputy O'Rourke referred, showing a period of 154 days, there is some dispute about the scale of the sample — I understand only 11 firms were surveyed. I will not offer categorical evidence against the survey, but there may be grounds for believing that figure is an over estimation of the problem. There is, nonetheless, considerable anecdotal evidence to suggest that public sector payment practices are worse than private sector payment practices. That is the suggestion with which I concur, and it is important that, far from being a laggard in payment, the public sector should be exemplary and show a much better record than the private sector in this area.
The problem of late payment does not arise solely from the practices of public sector purchasers. It is evident from the surveys to which I have referred that some private sector purchasers are also at fault. It was clearly private sector purchasers who were at fault in the incidents described by Deputy Hughes. I would remind the House we now have legislation that allows the Competition Authority to investigate abuse of dominant position, to which the Deputy referred. It is an abuse of dominant position to apply discriminatory terms. Clearly, in the case of such abuses, the Deputy will in the future have the opportunity to refer them to the competition authority. However, it is right that different approaches should be adopted, initially at least, to the private and the public sectors. In the case of the public sector, I favour a legislative approach on the grounds that the public sector should have an exemplary record, since exemplary behaviour is expected of the private sector in tax payments. Also, the public sector devotes substantial resources to economic development of business. It would be ironic, therefore, if the public sector were the cause of difficulties in the development of small businesses through its payment practices. In the longer term, the benefit to the Exchequer of the improved survival, growth and employment prospects of small enterprises would outweigh any short-term cash flow losses.
In the case of the private sector, I consider that legislation would not be the best approach, at least initially. Taking into account that codes of practice on prompt payment have been adopted by employer organisations, it would be reasonable to allow some time to elapse to judge how effective these codes will prove to be. It would also be prudent to allow time to gain experience of the operation of the legislation in the public sector before making a decision on its extension to the private sector. As an exception to that general principle, I consider that subcontractors on public sector contracts should be included in the legislation. It seems only fair and reasonable that if the main contractor gets new statutory rights and protection in relation to public sector purchasers, the legislation should ensure that the cash flow benefit is passed on to small business suppliers.
Regarding the private sector, I am committed to a full review of the operation of both the forthcoming legislation and the operation of the private sector codes of practice three years after the implementation of the legislation to determine the merits of extending the legislation to the private sector. I see significant economic benefits for business and Ireland generally in the full and proper implementation of a system of prompt payments.
I will briefly outline the main provisions of my draft Bill which I have sent to the parliamentary draftsman for drafting.
The purpose of the legislation is to ensure the prompt payment of amounts due to suppliers of goods and services by public sector purchasers and by subcontractors on public sector contracts. It will apply to all public sector bodies. CIE, Aer Lingus and Telecom Éireann will be allowed a one year transition period. They are not being exempted, they are being given a one year transition period. This is because of the competitive markets in which they are engaged. That is not unreasonable in relation to those three bodies.
The Government's Bill will require public bodies to pay amounts due to their suppliers within 45 calendar days of receipt of an invoice or date of supply, whichever is the later or, where the contract is in writing, on or before the date due under the terms of the contract. These provisions go further than the credit terms provided for in the codes of practice which apply in the private sector. Those codes stipulate that companies should agree payment terms at the outset of a deal and stick to them and should not extend or alter payment terms without prior agreement. My proposed legislation will contain safeguards to deter public bodies from seeking unduly long credit periods in written contracts. In addition, public bodies will have to publish details of their payment practices in their annual reports or, where a public body is not required to publish such a report, to submit an annual review of their payment practices to me.
Another key aspect of my Bill is that it will provide for an automatic entitlement to interest in respect of late payments. Suppliers will be entitled to this interest without having to submit a claim for interest. My legislative proposals which have been approved by the Government and which underline the strong, ongoing commitment of the Government to continually improve the operating environment for business will be a major advance in overcoming late payment difficulties.
I appreciate the difficulties Deputies face in preparing Private Members' Bills. Legislation is always a complex matter and it is obviously more difficult to draft a Bill outside Government, without the administrative support available in the Department. I am fully aware that legislating for prompt payment is far from being a straightforward matter. Detailed and time-consuming examination of all the issues involved has been necessary in my Department to bring forward proposals for legislation which will be sufficiently effective to make a real impact in resolving the problem of late payment.
To be effective legislation must be clearly designed to work. The business community would not thank us for producing legislation on a matter of such seriousness for many firms which was less than effective. With those points in mind I wish to discuss some of the provisions of the Bill.
Section 1 sets out the short title with which I could agree, as it concurs with the proposed title of my own Bill. In regard to the operative date of 1 July 1997 I expect to introduce my Bill to the House early in the new year and I hope it will be enacted before the Easter recess.
Section 2 is a definition section and gives rise to a number of problems. "Business" is defined by referring to definitions of public sector bodies in a number of other Acts and Schedules to Acts. This appears to be an opaque way of transposing the intentions set out in the explanatory memorandum which states that the purpose of section 2 is to define the bodies covered by the Bill as including all Government Departments, local authorities, health boards and all State companies, as well as all their subsidiaries.
I have taken a more straightforward approach in my proposed Bill by simply listing the bodies covered in the Schedule. Consequently, suppliers will be able to confirm by a glance at the Schedule that their public sector purchasers or prospective purchasers are included. This will ensure clarity and certainty which is often advocated by the business community. The scope of my Bill is wider in that it also includes subcontractors on public sector contracts.
The definition of "credit terms" in the Private Members' Bill also gives rise to concern. The credit term period is defined as starting from the date of invoice. This could give rise to difficulties, as the date of invoice can predate the date of issue of the invoice. More importantly, it can even predate the date of supply of goods or services. This could lead to a situation where penalty interest rates could apply in respect of goods which had been delivered late or had not yet been delivered. It also appears that, in practical terms, the credit terms as defined are significantly extended by section 5(6) which states that the penalty interest shall be calculated at 1 per cent per month. This could be interpreted as requiring a full month to elapse after the expiry of the credit terms before penalty interest could be paid, thereby allowing up to 90 days free credit rather than the 60 day maximum period mentioned in the explanatory memorandum.
In my proposed legislation, I have allowed a payment period of 45 days from date of receipt of invoice or supply of goods, whichever is the later. As an alternative, I have provided that in the case of written contracts payments shall be made on or before the date due under the contract. This will allow suppliers and purchasers the flexibility to negotiate mutually acceptable payment periods in situations, such as construction contracts, where the simple 45 day rule would not be feasible. This provision is far clearer and more decisive.
The definition of "financial and capital contracts" would require a further definition to define "capital equipment", as the difference between "equipment" and "capital equipment" is not immediately obvious. Clarity is essential in this definition, because "financial and capital contracts" are being excluded from the provisions of the Bill and it will be essential to know precisely what type of contracts are being excluded. The definition of "late payment" extends beyond definitional purposes by including a substantive provision as it provides that, in the event of disruption of postal services, other reasonable means of making payment should be used. I am advised that it is not legally permissible to include substantive provisions in a definition section. The word "should" is aspirational which may not have been intended.
Section 3 deals with the application and the non-application of the proposed legislation. I have some difficulty in understanding what is intended. I can understand the first line which specifies that the Act will apply to a business as defined in section 2. It is in relation to the extent of the exclusions that many difficulties of interpretation arise. For example, the explanatory memorandum states that large contracts such as building contracts would not be included in the Acts. The wording of section 3 of the Bill is somewhat different in that it states that financial and capital contracts, including construction contracts, shall not be subject to the credit terms. Consequently, it is not clear what provisions of the Act, if any, will apply to financial and capital contracts. However, as "late payment" is defined as payments made after the credit terms as defined in the Act and financial and capital contracts are not subject to the credit terms of the Bill, it would seem to follow that late payment of such contracts are not covered by the Bill.
The last sentence in section 3 states that "deviation from individually negotiated credit terms shall attract the penalties detailed under this Act". This is confusing. Credit terms are defined in the Bill as the period from date of invoice to the last business day of month following upon date of invoice and the Bill specifies that payments outside that period will be late payments. It is not clear how it is possible to have individually negotiated credit terms. The provision would appear to mean that credit terms which were different from or longer than those defined as credit terms in the Bill would be permitted. It would also appear to mean that penalties will apply to late payments which are not defined as late payments in the Bill. It may be intended that the provision on individually negotiated credit terms will apply only in the case of financial and capital contracts but I am guessing here.
There is a great lack of clarity in respect of the proposed exclusions from the Bill. I have difficulty also in interpreting the extent of the exclusion in relation to contracts which include arbitration provisions. The section states that the parties to such contracts shall not be subject to the provisions of the Act pertaining to the Ombudsman. On the face of it, this seems clear enough. When we examine what this would mean in practice, the waters get a little muddier. So far as I can ascertain, there appears to be no specific provision in the Bill which confers a right to interest on suppliers in respect of late payments. The construction used is that the Ombudsman may impose a penalty interest rate and the penalty shall then be paid by the State business to the applicant. This would seem to mean, whether intentional or not, that in the case of contracts which include arbitration provisions, the supplier will not have an entitlement to interest in respect of late payment.
It appears, from studying the provisions of the Bill, that there is no automatic right to interest in respect of late payments. In other words, a supplier will not be paid interest unless he or she takes a case to the Ombudsman, wins that case and is awarded penalty interest by the Ombudsman. It has often been argued to me that suppliers would be reluctant to pursue cases against purchasers in case this might have adverse consequences when bidding for future contracts. For this reason, my Bill will give suppliers an automatic right to interest which public bodies shall be obliged to pay whether or not the supplier submits a claim for such interest. The House will agree that such provision will be of major benefit to suppliers.
My proposed legislation will clearly set out to whom the Bill will apply. It will clearly stipulate that purchasers shall pay suppliers within the periods specified in the Bill, details of which I have already given the House. It will also clearly provide that the purchaser shall pay the supplier interest each month or part of a month on all amounts due but not paid within the periods specified in my Bill.
Section 5 of the Private Members' Bill states that the Ombudsman shall have the power to adjudicate in disputes relating to late payments. This is a matter to which I gave detailed consideration in my legislative proposals. However, I understand there are legal and technical difficulties to extending the powers of the Ombudsman to deal with these types of disputes on which I shall elaborate later.
In regard to the details of section 5, there is a lack of clarity as to what types of disputes are covered. Subsection (1) gives the Ombudsman power to adjudicate in disputes relating to late payment which are specifically defined as payments outside the credit terms specified in the Bill. The section does not specifically provide, however, that parties to a dispute relating to late payment may refer their case to the Ombudsman. In the absence of such provision they could be unable to do so. In contrast, subsection (2) allows parties to negotiated contracts to make application for redress to the Ombudsman. In any event, it is not clear in what circumstances negotiated contracts will be permitted. However, it seems unlikely that the powers conferred on the Ombudsman to adjudicate on late payment disputes would be sufficient to cover these types of disputes.
Another aspect of section 5 I find somewhat puzzling is that it introduces the term "State business". "Business" is defined in section 1 of the Act. It is not clear to me if the term "State business" is used to distinguish such business from the business of the bodies covered by the definition of "business" in section 1.
Section 6 provides that "business parties to this Act" may not waive their rights, as conferred on them by the Act, unless with the written permission of the Ombudsman. This brings us back to the question of what rights are being conferred by the Bill. There does not appear to be a specific right to be paid within the credit terms specified nor does there appear to be an automatic right to interest. In essence, it would appear that the rights conferred relate to the right to refer disputes to the Ombudsman.
The phrase "business parties to this Act" is rather confusing, particularly as business is specifically defined in section 1 in terms of public sector bodies.
Section 9 provides for certification by accounting officers of compliance with the provisions of the Bill. I have no difficulty with the principle of this provision and have included a similar one in my legislative proposals. However, in the context of the Bill before us, in the absence of clarity as to what rights and obligations are being conferred on suppliers and purchasers, I suggest the certification process will pose problems.
Section 10 deals with penalties for non-compliance. I have some difficulty interpreting the intention of the section and ascertaining how it will operate in practice. The section provides for substantial penalties in the case of businesses not operating within the credit terms of the Act. However, there is no corresponding provision to make non-compliance with credit terms an offence. In addition, the phrase "not operating within the credit terms of the Act" could cover a wide range of circumstances from being one day late on one account to being persistently late on every account. The level of the penalty is also rather complex — one two-hundred-and-fiftieth of annual turnover in the State per day or £1,000 per day, whichever is the higher. Many public bodies would not have an annual turnover as such but, in respect of those that have, the annual turnover would vary from year to year. In addition, I am not sure I understand the reason for imposing the penalty and paying it to the Exchequer, particularly in the case of public bodies funded solely from the Exchequer.
This Bill would give rise to widespread confusion on the part of both suppliers and purchasers as to their respective rights and obligations. In so far as I can interpret the provisions of the Bill, some of them would give rise to legal and technical difficulties, while others would fall short of meeting the reasonable and legitimate aspirations of small business suppliers. Apart from the matters of detail to which I have referred at some length, the Bill hangs on the pivotal role accorded to the Ombudsman.
My Department gave detailed consideration to the question of providing access to the Ombudsman when proposals for legislation were being formulated. However, having explored the merits of this approach in consultation with the office of the Ombudsman, it became clear that the Ombudsman had strong reservations on the proposal. It may be useful to mention his views.
The Ombudsman is a central component, as an instrument of control, in the field of administrative law. Administrative law has as its focus, relations between the individual and the State in contrast with private law such as contract, tort, which regulates relations between individuals, including corporate personae. The function of the Office of the Ombudsman is to examine complaints about maladministration in actions of public servants taken in the performance of administrative functions. In this context it would be possible for the Ombudsman to examine a complaint about the failure of a body within his remit to honour uncontroverted obligations, that is where a sum of money was due. However, disputes in relation to the completion, frustration, breach or interpretation of the terms of a contract are issues of private law and a matter for the courts, or for special arbitration procedures where applicable.
The whole tenor of the concept of an Ombudsman is that an inquisitorial, as compared with an adversarial, approach is adopted in the examination of complaints. Of its very nature, the work of his office seeks to arrive at a consensual resolution in the first instance, before embarking on a more formal investigative process. This is a time-consuming process and the Ombudsman considers it would be unlikely to meet the requirements of legislation which seek to provide for the immediate resolution of a dispute. Indeed the Ombudsman Act provides that an examination or investigation by the Ombudsman shall not affect the validity of the action investigated, or any power or duty of the person who took the action to take further action, with respect to any matters the subject of the examination.
The Ombudsman does not administer justice — which, under Article 34 of the Constitution, is reserved to the courts — or make determinations on legal rights. Neither does the Ombudsman make declarations or impose penalties. The net result of a finding by the Ombudsman that maladministration has occurred, coupled with adverse effect for the complaint, is a recommendation to a body, first, to further consider the matter in relation to which the action was taken; second, to take specified steps to remedy, mitigate or alter the adverse effect of the action or, third, to furnish reasons for taking the action.
The generally accepted principle that an Ombudsman should make recommendations, rather than determinations, is extremely important. It enables him to act informally and pragmatically, thus avoiding the legalistic approach which legal determination requires. As the Ombudsman makes recommendations only, we avoid conflict with the courts, which could arise if he had legally binding powers of determination. At the same time the Ombudsman has a powerful sanction by means of a special report to both Houses of the Oireachtas if his recommendations are not accepted.
At present, in effect, the Ombudsman is the last avenue of appeal open to a citizen in relation to valid complaints. The Ombudsman Act does not provide any mechanism of appeal to the courts. Of course, the Ombudsman is subject to judicial review by the courts and a complainant is also free to pursue his complaint through the courts if he is dissatisfied with the outcome of the Ombudsman's examination. However, any provision which sought to provide that decisions of the Ombudsman be directly appealable to the courts would undermine the independence of the Ombudsman, the very foundation stone upon which his office operates.
Giving the Ombudsman a determining role in relation to legal obligations would have very significant implications which would need to be carefully considered — first, engagement by the Ombudsman in what are essentially matters of private law; second, interpretation by the Ombudsman of a complex and specialised area of private law; third, possible conflict with the courts in relation to the administration of justice; fourth, adoption of an adversarial approach in the adjudication of disputes; fifth, diminution of the Ombudsman's role as the avenue of last resort and, sixth, diminution of the independent status of the Ombudsman. In addition, the Ombudsman's wide-ranging powers to obtain documents under the Ombudsman Act, 1980 apply only when he is dealing with complaints against bodies within his remit and would not be available to him in other cases. Commercial State-sponsored bodies do not fall within his remit.
Having considered all of these factors it is clear it would not be appropriate to give the Ombudsman an enforcement role in relation to prompt payment. Therefore, the Private Members' Bill would not prove an adequate or effective mechanism for ensuring prompt payment to suppliers of business accounts by public sector bodies. I am also satisfied that attempts to amend this Bill would prove too difficult to achieve my objective of a clear and effective Bill. I am satisfied the legislative proposals recently approved by Government, at present being drafted by the parliamentary draftsman, will result in a superior more effective measure to ensure prompt payment of business debt.
For the reasons I have outlined the Government is not in a position to accept this Bill. Therefore, I cannot commend it to the House.
With your permission I should like to share my time with Deputies Mary O'Rourke and Ned O'Keeffe.
I am extremely disappointed with the Minister's attitude to this Bill. Deputies O'Rourke and Ned O'Keeffe put a great deal of work into its drafting and nothing the Minister said here this evening gives me any reason to believe he has any fundamental problem with the Bill. Throughout his speech he made it clear that he supported the objectives of Deputies O'Rourke, Ned O'Keeffe and their party in introducing this Bill. His only complaint appeared to be that we had inserted the Ombudsman as a type of arbitrator. I want to make it clear that there will be recourse to the Ombudsman only in cases which are contested.
The Minister referred to some of the words, clauses and phrases in the Bill. This is the normal reaction of Governments to Opposition Bills, but we put much work into the legislation and if the Minister wishes to put forward amendments, including ones relating to the Ombudsman, we will consider them. If the amendments are accepted the Minister will then be in a position to accept our Bill.
It is clear that the Government has no political will to accept the legislation. The legislation, which is not contentious, is required for small businesses and the Minister should accept it. I am disappointed he has not seen fit to accept the Bill which offers this beleaguered Government an opportunity to show small businesses that it is prepared to accept sensible legislation prepared by the Opposition. The Minister outlined in detail the reasons he could not accept the Bill, but it is his job to lead small businesses and he should refer to what can be done rather than what cannot be done.
Ninety eight per cent of the 160,000 small firms employ fewer than 50 people and they have a turnover of less than £3 million. By any stretch of the imagination, this is a country of micro businesses. Ninety per cent of firms employ fewer than ten people. Given that small businesses occupy the high ground in industry, the Minister's reaction to the Bill is extremely disappointing. Small businesses account for more than half of all employment in the private sector. This dominant position requires more urgent action than the Minister has taken this evening. The much boasted about increase in employment has mainly been in the small firms sector. Large businesses tend to be net shedders of jobs and employment growth is not created by large multinationals but by small industries.
The Task Force on Small Business, which I had the honour to chair, pointed out that the level of enterprise creation is not nearly as bad as it is made out to be. A myth put about regularly is that there are not enough start-ups. The task force report indicates that as many companies start up in Ireland as in any other country in Europe or the rest of the world but the difference is they do not survive here. It is worth again putting on the record the staggering statistic that 56 per cent of the companies which started up in 1983 had gone out of business by 1993. We are not bad at starting up companies but we are not great at keeping them in operation.
The legislation is designed to keep small companies going; they cannot afford to wait for their money. I am aghast at the proposal in the Minister's legislation that CIE, Aer Lingus and Telecom Éireann will be allowed a one year transition period. Why should Telecom Éireann not have to pay its bills for a year? This makes no sense. The Minister for Transport, Energy and Communications, Deputy Lowry, has repeatedly told the House that Telecom Éireann is very successful — it has a strategic alliance, makes enormous profits and is worth a fortune to outsiders. Yet the Minister is telling the House it cannot pay small industries. This does not make any sense and I ask the Minister to remove the provision relating to Telecom Éireann from his legislation. It is silly to suggest that Telecom should be subsidised by not requiring it to pay its bills to small companies on time. The Minister's proposal to give this company a one year transition period undermines the credibility of his legislation and I ask him to rethink his position. If he believes that Telecom Éireann should be exempted because of its competitive position then it is difficult to have confidence in the rest of his analysis about the position of small businesses. His analysis is wrong, and he should have a chat with the Minister, Deputy Lowry, who will tell him it is wrong.
The Task Force on Small Business made 150 recommendations which will help small businesses. About 30 of these recommendations have been implemented and I compliment everybody involved in making these changes, some of which are very important, for example, new divisions have been set up in the Department, access to finance funds of approximately £200 million has been provided and there have been reductions in corporation profit tax. The chairman of the Joint Committee on Small Business and Services, Deputy Creed, has been doing excellent work in this area. However, much more needs to be done and the remaining recommendations must be implemented. I would like to hear when the Minister proposes to implement the remaining recommendations. Small businesses have been demanding for some time that section 115, which provides for a charge on the book debts of companies, should be amended. If this section were amended it would free up much money for companies. There have been no changes in regard to the family allowance. Members of a family who work in a family owned company do not get a PAYE allowance. This provision discriminates against these people and it should be changed. The task force recommended a tax relief on dividends, but there is no proposal to provide for this. It is unreasonable that a family member who takes a dividend out of a family owned company does not get any tax relief on it.
The task force also recommended a special rate of tax for small firms. It made the sensible suggestion that there should be a 25 per cent tax rate on profits up to £80,000. However, the Government rejected this proposal and instead sought to reduce the level of corporation tax overall. By reducing the rate of corporation tax from 40 to 38 per cent the Government gave a £25 million gift to banks, insurance companies and large companies. I am sure they were happy to get this gift, but it would have been much better to give the 160,000 small firms a real tax reduction rather than a nominal 1 per cent reduction.
The owner of a small firm who makes a capital gain on a sale pays 40 per cent tax. We previously asked the Minister to introduce a sliding scale so that a person who has owned an asset for five years pays 15 per cent tax while a person who owns an asset for one year pays the higher rate. The Government has not put forward any changes in this area and I again ask the Minister to accept Deputy O'Rourke's legislation, to omit Telecom Éireann from his proposals, to stop nitpicking about our proposals and to introduce amendments which we will support. Most importantly, I ask him to look again at the remaining recommendations of the task force and introduce real changes which will help small industries to create badly needed jobs. That would show real political will on the part of the Minister, rather than informing us about what is not possible. He should show leadership by making changes and not inform the House that he cannot make those changes, which are urgently required.
I congratulate my party's deputy leader, Deputy O'Rourke, for her work in introducing this important legislation. The Bill is narrowly focused, which is correct, because it seeks to tackle a single issue of importance to many thousands of small businesses throughout Ireland. Members are aware it is extremely difficult for small businesses to survive without a reasonable cashflow. The State sector has a tremendous contribution to make in this area and for this reason the Bill is important.
We recognise that small businesses encounter difficulties in trying to collect outstanding amounts from the various sectors of the economy with which they deal. It is particularly difficult for the owners of such businesses to understand why, in their transactions with the State sector, it can take a long time to obtain payment. It is understood that the State sector cannot spend money unless it has access to it and cannot take on contracts unless it is in a position to discharge any debt associated with such contracts. Consequently, it is difficult for the owners of small businesses to understand why it takes such a long time for some operators in the State sector to pay their accounts. This causes terrific problems for the small industries sector which is extremely important to the economy and is a tremendous supplier of jobs.
Maintaining cashflow is the crucial issue for small businesses. It is on that issue, and on those raised by the need for this legislation, that a new industry has developed in recent years, arising from the slow payment of accounts. I refer to invoice factoring and invoice discounting whereby businesses are compelled to submit their invoices to financial institutions, banks, etc., to raise money on invoices on which payment remains outstanding. This involves additional costs for the businesses concerned. There are costs relating to administration and interest, which are charged by the financial institutions, and there are also signing on fees. An entire range of costs is tapped into small businesses because they cannot obtain payment in time to enable them to survive and flourish.
These costs are ultimately passed on to the consumer which has the effect of making the businesses less competitive and this is an important issue relative to their survival. With up to 200 Departments and State agencies involved in the area confronted by this legislation, it can be seen that the State sector has an opportunity to make a major commitment to the development of the small industries sector. If they were in a position to pay their accounts on time to businesses in the small industries sector, it would make a terrific contribution to enabling future growth in that sector.
There are severe administration costs on small businesses in trying to manage their cashflow. It is estimated that it costs between £4 to £6 to send out an invoice. In addition, there are collection costs, these do not take account of personnel costs, involved in sending out monthly statements, which cover post and stationery. There are also costs relating to making sometimes endless telephone calls while attempting to obtain payment and other costs, to which I referred earlier, where invoice discounting and factoring are involved. Costs multiply because businesses cannot obtain payment on time.
The target set in the legislation for an average of 45 days has a great deal of merit. While I understand the Minister's points about a number of aspects of the Bill with which he is unhappy or that require change, the kernel of the issue could be tackled if there was a meeting of minds on this Bill and if it were passed as quickly as possible to make the impact on small businesses which I suggest it can achieve.
Section 6 is very important and seeks to ensure that purchasers cannot exempt themselves from the prompt payment objective of the Bill. That is extremely important because there are those who state that one can enter into court proceedings if there is a difficulty with regard to late payment. That is the worst possible scenario for anyone involved in the private sector. When one enters into court proceedings to obtain payment, one immediately sours relations with one's client. Consequently, one does not expect to attract repeat business from that source. Going to court is no answer because it has the possible effect of closing off an option for future business, and business is the lifeblood of any operation. Therefore, the involvement of the Ombudsman as an arbitrator and decision-maker has great merit because it seeks to leave the courts aside, if possible, and reach agreement before legal proceedings become necessary. The Ombudsman is seen as fair and impartial and would probably be more acceptable to both sides than the route through the courts, which tends to sour relations and ensures that no one wins.
This country has a very poor reputation in comparison with its partners in the EU. In contacts with business people throughout Europe, I discovered they are continuously surprised at the length of time it takes to obtain payment in Ireland. They bluntly informed me that, if similar payment terms were demanded in their countries, many of their businesses would not be in a position to survive. Consequently, the attempts in this legislation to address this issue for the first time on a statutory basis is to be welcomed and we should support the main thrust of the Bill.
There is an uneven playing pitch in this area which must be tackled. The larger the business concern or supplier and the larger the purchaser, the more muscle they have with regard to the terms and conditions they can impose on supplying companies and small industries. This particularly relates to in-built conditions, which are not necessarily written down but which are expected, involving payment terms, etc. There have been cases in the private, public and State sectors where advantage was taken on this issue and outstanding payment terms were demanded and expected. If these terms are not offered or guaranteed by the supplier, the business is not placed with that particular source. No small industry can survive if its opportunity for business is removed.
It is time this urgent issue was tackled. With all the competition from outside — and inside — the country for our small industries, I do not believe they can survive if their costs continue to increase. They need to maintain an adequate cashflow to provide lifeblood for their operations, which may involve supplies of goods, services, etc. What we are seeking to achieve in the context of the Bill is good. I do not believe the Bill is contentious and I thought it might have been possible to reach agreement for it to go forward to Committee Stage where whatever changes or improvements suggested during this debate, and as agreed to by the proposer, Deputy O'Rourke, might be discussed. The House would then have produced legislation with the capacity to make a considerable impact on the development and protection of our small industries, which create much employment and which, against the tides of economic difficulty, tend to survive better than large industries which are sometimes subject to winds of change from outside the country. Small and medium sized enterprises, because their owners and employees work together as a team, can withstand the difficulties thrown up by a troubled economy at home or abroad. I commend our deputy leader on introducing this legislation and hope it might still be possible for the Minister to agree to send the Bill to committee.
Ba mhaith liom i dtosach báire moladh mór a thabhairt don Teachta O'Rourke agus don Teachta O'Keeffe as ucht an Bille seo a chur os ar gcomhair. Creidim go bhfuil sé fíor a rá murach an obair a rinne siad nach bhfeicfimis Bille geallta ag an Rialtas go ceann i bhfad. Is fadhb an-mhór do lucht gnó nach mbíonn a gcuid billí á n-íoc ag na heagrais stáit ar fad go luath. Tá sé thar am againn gníomhú le cinntiú go n-íocfar billí in am. I ngnó ar bith anois bíonn duine fostaithe go lán-aimseartha beagnach ag iarraidh íocaíochtaí ar bhillí agus níl sé pioc níos éasca airgead a fháil ón Stáit ná mar atá sé airgead a fháil ón earnáil phríobháideach. Mar sin ba chéim an-mhór chun tosaigh é da mbeadh an Bille seo achtaithe ina dhlí go luath.
The Minister supports the Bill, but stated he will vote against it on Second Stage. I understand that when we vote on the Second Stage of a Bill, we vote on its principle. The Government appears to be reluctant about the principle of prompt payments. Any faults in the Bill could be dealt with on Committee Stage. Some of the difficulties the Minister pointed out might not be as complex as he believes.
It is well known that many State agencies delay the payment of bills and if there is query on an invoice nothing is done until payment is sought. The person concerned is then told the next cheque run will not take place for two or three weeks. This can often result in considerable cashflow difficulties for small companies.
I compliment Galway County Council who has recently placed regular creditors on an electronic system of direct transfer payments. Government agencies and Departments should place regular suppliers on an electronic transfer system and inform them of the date on which they can expect payment each month. They should also ensure that queries about deliveries and so on are notified to the supplier in sufficient time to resolve them before payment is due. Payment should be made on time all the time. Consequently, as well as people getting paid on time, the human resources tied up in trying to get payments would be released to do more productive work. It is ridiculous that people should have to make three or four telephone calls to get a cheque from a Government agency.
In allowing for the introduction of a Bill some time in the spring and its enactment by Easter, the Government has sought a free loan from the private sector for CIÉ, Aer Lingus and Telecom Éireann until the spring of 1998. I am sure the private sector will be delighted to know it has been asked to come to the rescue of the Government in funding those major companies. The Minister stated, in effect, that those three major companies, who between them purchase vast quantities of goods from big and small suppliers, will not have to pay their bills for a full 12 months after the enactment of the Bill. That extraordinary announcement gives an indication of how bad the finances will be next year. It is a dishonest way to fund the Government. It is borrowing by stealth and without interest. The Minister of State, Deputy Rabbitte, quite rightly stated the private sector should pay its PAYE, PRSI and VAT on time, irrespective of conditions. That should also apply to the Government paying the private sector. If a 45 day limit applies, it should apply to everyone. The private sector should not be left to the discretion of companies who obviously — otherwise they would not be given this exemption — must not intend to pay on time during the next year and a half.
I am some what surprised the Minister ruled out a role for the Ombudsman in this procedure. I accept he would not have a role in major disputes regarding supply or quality of goods, but I do not understand why he could not have a role to play when problems arise relating to a properly invoiced supply of goods, for which payment was not made on time. As one who had to contact the Ombudsman in the past month on behalf of constituents who did not get Government grants owing to them, I believe he has a valid role to play in this matter. If invoices are not paid on time and there is not a dispute he could approach the company and resolve the matter by acting as an intermediary rather than ruling on the matter. As the Ombudsman's primary role is to resolve delays in administration, it is only proper that he should have a role to play in this matter. Dealings with the Ombudsman are not taken into account if a person wishes to take a matter to court. If the Minister is not happy with the role outlined for him in the Bill, it would make more sense to amend the proposal rather than throw out the baby with the bath water because of technical difficulties about legally complex issues. Mar a dúirt mé ag an tús ba mhaith liom an-mholadh a thabhairt don bheirt Teachta. Is tábhachtaí an Bille seo do lucht gnó na tíre seo, go mór mhór do ghnótha beaga, ná go leor de na deontais atá á dtabhairt amach faoi láthair. Bheadh sé scioptha agus bheadh sé éifeachtach. Mar a dúirt mé go minic, an t-airgead atá i do lámha is fiú deich n-oiread é agus an t-airgead atá geallta duit mar ní féidir geallúint a chur i mbanc ar bith. Ní féidir ach an t-airgead a fhaigheann tú a chur sa bhanc.
Aontaím leis an bhfurmhór atá ráite ag an Teachta Ó Cuív agus ag na Teachtaí eile.
It would be starting from the wrong point to allow hang in the air an assertion that, as Deputy O Cuív stated, the Minister has some difference of opinion on the principle of the Bill. There are no differences in terms of the objectives and goals in this regard. I share in the commendations of Deputies. O'Rourke and Ned O'Keeffe for introducing this Bill in Private Members' time. It is a productive use of Private Members' time and the Minister for Enterprise and Employment, Deputy Bruton, went into considerable detail to show the common ground that exists between the Government and the Opposition in respect of the fundamental principles involved. Both sides are conscious of the difficulties and problems caused by late payment practices in the public sector for small business. Not only do they arise in revenue or cash flow terms but they create particular difficulties for the owner-manager of a small business who simply cannot afford the diversion of time involved in having to go after tardy debtors. This is time the owner-manager could spend more productively on other issues crucial to the survival of the company such as marketing or innovation in products or processes but if he has to spend time needlessly pursuing cash flow his company will surely fail. These other areas inevitably cause detrimental consequences for the long-term health of the company.
Deputies Brennan, O'Keeffe and Flood referred to the provision relating to the Ombudsman. Deputy Brennan, in particular, seemed to draw the conclusion that the only reason for the Minister's stance related to the provisions regarding the Ombudsman. However, the Minister painstakingly went through a series of problems with the Bill. I do not expect the Opposition, who do not have the resource of draftspersons available to it, to come up with a perfect Bill but it is not just the provision relating to the Ombudsman that is unworkable. The Minister dealt with a number of points in his address but fundamentally he demonstrated convincingly that the Ombudsman could not be used for the purpose intended. He investigated this possibility carefully and found conclusively that it cannot work. Since the Private Members' Bill so fundamentally hangs on the Ombudsman provision he has no choice but to proceed with the Bill to which the Government is committed. A date early in the new year has been given to the House with the objective of it being enacted by Easter.
The issue is clear. All sides are agreed on the broad principles for resolving the problem. Legislation is necessary to ensure that small business, in particular, can expect to receive payments from public sector bodies for services rendered within a forecastable and certain timeframe. I repeat the appreciation expressed by the Minister for the Bill brought forward by Deputies O'Rourke and O'Keeffe. It is incumbent on all of us to ensure that whatever legislation is put through the Oireachtas will be sufficiently comprehensive and clear to ensure it results in a real improvement for the people we are trying to help. The Minister raised the difficulties and questions that arise in regard to draft legislation.
Deputy Ó Cuív fundamentally misunderstands the reason for the transition year in the case of Telecom Éireann, Aer Lingus and CIÉ. It is not because of any projected public finance difficulties that the transition year is proposed. I suggest that he has a word with his party leader who might explain to him why it would be practicable to allow a brief transition period.
It is disappointing that we differ so much on the small print of the Bill because Minister accepts it in principle and admires the initiative of those who drafted it. I was impressed at the Fianna Fáil press conference led by Deputy Leader, Deputy O'Rourke, by the number of people who turned out and complimented her on the Bill and its necessity. The Minister must be aware of the demand for the immediate drafting and implementation of a Bill. I was disappointed with the way he went through it section by section. He was probably seeking information on the terms of reference for the Government Bill. For that reason he should be magnanimous and accept this Bill. This legislation deals with business matters and as his colleague, Deputy Rabbitte, said is important and necessary. The options are limited and I urge him at this late hour to concede and put this Bill in place by having it discussed at the Select Committee on Enterprise and Economic Strategy. That would be worthwhile as we would be seen to defend small business.
Fianna Fáil has a justly proud history of holding office in the Departments of this state. A major consequence is that each Department has pushed out its parameters, has implemented innovative policies, and has become more user friendly to the citizen. I confidently assert that every party in this House would acknowledge that the Fianna Fáil Party, because of its sense of duty, has balanced such responsibility with upholding the rights and livelihoods of those in small businesses and on small farms. It has always appreciated that such enterpreneurs are the backbone of our economy. The deputy leader of the party, Deputy O'Rourke and myself, initiated the Prompt Payments Bill, 1996, in the hope that the rainbow Government will follow this example and approach the financial relationships between the private and the public sector in a balanced way.
This Bill will assist and develop business by restricting unreasonable credit terms, and it will also further assist and develop business by providing in law for penalties on excessively late payments by State organisations. It will facilitate, harmonise and put on a statutory basis, the payment procedures of a State business on foot of a contract to another party. A "business" means a Government Department or associated agency and refers to the health boards, the vocational education committees, the commercial or non commercial State-sponsored bodies, and all associated and subsidiary companies. The final figure comes to over 200.
It is of paramount importance that the financial dealings between the public and private sector should be kept on an efficient and co-operative level. We are all aware of how successfully the economy operates on a macro level while guided by the income policies initiated by the social partners. This partnership, consisting of the Government, farmers, trade unions and employer groups, has developed from the ad hoc collective bargaining of the 1970s, through to the national wage agreements and national understandings which culminates today in the formalised and effective system, the Programme for Competitiveness and Work.
Fianna Fáil is aware that such success is only possible if the micro-economic details, such as prompt payments are in proper functioning order. As the rainbow Government is at present negotiating the next national programme, it has an opportunity to act in the national interest by accepting this Bill. It is acknowledged that our party Leader, Deputy Bertie Ahern, as a former Minister for Labour and Minister for Finance, helped to establish the success of this exemplary system of negotiation. I cannot over-emphasise that such partnership at a national level can continue into the 21st century only by catering for this co-operation in a responsible manner. Fianna Fáil believes that the Prompt Payments Bill, 1996, will serve in such co-operation. This Bill takes up the recommendations of the Task Force on Small Business which requires all public sector bodies to settle their bills by the last business day of the month following the date of invoice. This gives an average credit period of 45 days to public sector bodies, although some bodies could get up to 60 days credit. Amazingly, some public sector bodies can take up to 154 days to settle their accounts.
If the Minister accepts the Bill, it will be operable by summer 1997. We envisage that certain State organisation may be affected by cashflow problems as a consequence of it. In 1991 when Deputy Bertie Ahern was Minister for Finance, he allocated £100 million to alleviate the cash flow problems facing health boards, larnrod Éireann and other semi-State organisations to clear existing debts for consumer goods and essential services. We recommend that the Minister should prepare similar such contingency plans in the form of available funds to certain semi-State organisations, where appropriate, to exploit the application of this legislation. We have heard a good deal about the funds that will be available for distribution in 1997. I appeal to the Minister for Finance, Deputy Quinn, to make some of that money available. That would accord with good business practice. Such moneys would help bodies, such as CIE, Aer Lingus and Telecom Éireann, to which he wants a transition period to apply. I wonder why those three were selected given that, say, health boards face more serious problems because of their bad financial management.
A major consequence of the enactment of this Bill will be the greater financial management of the semi-State sector. It will be necessary now and in the future for proper accounting procedures and figure displays to be adhered to, akin to the format and style of any modern private business. That will complement section 3 of the Comptroller and Auditor General (Amendment) Act, 1993, which provides for the legislative base of Article 33 of the Constitution. That article provides for the Comptroller and Auditor General to control on behalf of the State all disbursements and to audit all accounts of moneys administered by or under the authority of the Oireachtas.
We should reflect and consider the cost of credit for small and medium-sized enterprises. For many firms, waiting for payment can account for a significant proportion of their profits. According to the enterprise association, ISME, the annual cost to Irish owned manufacturers of financing their overdue credit payments is estimated at about £79 million. Further, improved payment rates within the public sector could improve the cash flow of businesses by more than £160 million and reduce their financial costs by about £16 million per annum. The unfortunate reality is that local authorities, commercial semi-State companies and health boards are almost invariably cited as the slowest payers. I refer Members to the Small Business Task Force Report, 1994 and the ISME survey, September 1995.
Section 5(5), (6), (7) and (8) attempt to address the problems of late payments by public sector organisations to suppliers by imposing an extra 1 per cent per month, or the rate of interest being charged by the Revenue Commissioners, whichever is the higher. Section 5 gives the Ombudsman all the necessary powers to adjudicate in disputes arising from late payments. While the Minister has surprisingly made a big issue of the Ombudsman, the Ombudsman Act, 1980 can be changed by order or by an amendment. Part I of the First Schedule of the Act outlines the Departments and the Second Schedule outlines the various State agencies, including the semi-State sector. I fail to understand why the Minister does not agree that the office of the Ombudsman is the ideal vehicle for the lodgement of complaints and the Ombudsman should adjudicate on late payments.
A role for the Ombudsman would ensure that a settlement process would be equitable and impartial and thus bring about a speedy and cost effective solution to a complaint. If a business makes late payments, it should be liable to penalties as specified in the Bill and listed by the Ombudsman in his annual report. Notwithstanding that, it is necessary to provide additional resources for his office.
I am aware and fully endorse the Forum on Public Procurement in Ireland established in August of this year. That forum will deal with the demands from players on both sides of the public procurement market for the establishment of a common forum to tackle issues of mutual concern and agree a consensus approach.
We must recognise that the cost of credit today is substantial in any business and small business people have difficulties in regard to bank borrowing and trying to secure extended credit to finance late payments. We must also recognise that the volume of trade in the semi-State, other State and public sectors is enormous compared to the levels in other countries. We are very dependent on the public sector. We must consider the cost of administration including the cost of postage and telephone calls which leads to inefficiency, particularly in small businesses. It also leads to stress and strain on management. While small businesses are the way forward in terms of job creation, it is important that the Government gives a lead in that regard. The Opposition has been to the forefront on this issue.
I was surprised that on 6 November the Minister issued a rushed press announcement claiming a major advance for business, especially small business. It states "Mr. Richard Bruton, T.D., Minister for Enterprise and Employment, announced today (Wednesday 6th November 1996) that the Government has given formal approval to his proposals for the drafting of a Prompt Payment Bill". The Minister issued that on the eve of the day the deputy leader of the Fianna Fáil Party put forward her Bill, details of which were known at that stage.
We have a unit in the Department that tracks her.
I am glad there is good tracking in that Department.
Touché.
Deputy Rabbitte has been well trained. I am surprised the Minister of State spoke about the crisis in Government and not on the small business sector on "Morning Ireland" this morning. Mr. Hanley had him across a barrel.
There is no crisis.
The crisis of mismanagement. People should be honourable.
I noted the Deputy was running out of notes that is why I intervened.
I am not running out of notes. I have plenty of information for the Minister of State.
There was reference to the number of State agencies. The 40 county enterprise boards have a role to play in the development of small businesses. They do not appear to be compatible in their decisions. Some are more strict in their funding and assistance to small businesses. A co-ordinated approach should be adopted in that area. The main problem concerns the management of the representatives of the boards, but there is also a lack of uniformity among the boards. That is regrettable because those boards are a good vehicle for the development of business and for providing assistance to small businesses. They should be fine combed and their areas of weakness teased out. The conglomeration of State agencies inhibits rather than assists development. We should examine agencies in the financial and other areas. I compliment my Deputy Leader for being to the forefront in admitting we have too many agencies, that they inhibit development and they should operate as a type of one stop shop.
Regarding the State sector, the related but different issue of public procurement procedures should not suffer from staff shortages to aid the implementation of this Bill. Staff in the public sector may require adequate support to properly execute the application of this legislation.
The enactment of the Bill will greatly improve credit management in the State sector. The immediate benefits to be gained by all players concerned will be an improved cash flow, increased certainty, lower costs, greater capacity to finance growth and lower exposure to possible bad debts.
Question put.
The Dáil divided: Tá, 60; Níl, 73.
Tá
- Ahern, Dermot.
- Ahern, Michael.
- Ahern, Noel.
- Andrews, David.
- Aylward, Liam.
- Brennan, Matt.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John (Wexford).
- Byrne, Hugh.
- Callely, Ivor.
- Coughian, Mary.
- Dempsey, Noel.
- de Valera, Síle.
- Doherty, Seán.
- Ellis, John.
- Fitzgerald, Liam.
- Flood, Chris.
- Foley, Denis.
- Morley, P. J.
- Moynihan, Donal.
- Nolan, M. J.
- Noonan, Michael (Limerick West).
- Ó Cuív,Éamon.
- O'Donnell, Liz.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Batt.
- O'Keeffe, Ned.
- O'Leary, John.
- Foxe, Tom.
- Geoghegan-Quinn, Máire.
- Haughey, Seán.
- Hilliard, Colm M.
- Hughes, Séamus.
- Jacob, Joe.
- Keaveney, Cecilia.
- Kenneally, Brendan.
- Killeen, Tony.
- Kirk, Séamus.
- Kitt, Michael P.
- Lawlor, Liam.
- Lenihan, Brian.
- Leonard, Jimmy.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, James.
- Moffatt, Tom.
- Molloy, Robert.
- O'Malley, Desmond J.
- O'Rourke, Mary.
- Power, Seán.
- Ryan, Eoin.
- Smith, Brendan.
- Smith, Michael.
- Treacy, Noel.
- Wallace, Dan.
- Wallace, Mary.
- Walsh, Joe.
- Woods, Michael.
Níl
- Ahearn, Theresa.
- Barrett, Seán.
- Barry, Peter.
- Bell, Michael.
- Bhamjee, Moosajee.
- Boylan, Andrew.
- Bradford, Paul.
- Bree, Declan.
- Broughan, Tommy.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Burke, Liam.
- Byrne, Eric.
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Costello, Joe.
- Crawford, Seymour.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- Deenihan, Jimmy.
- De Rossa, Proinsias.
- Doyle, Avril.
- Durkan, Bernard J.
- Ferris, Michael.
- Finucane, Michael.
- Fitzgerald, Brian.
- Fitzgerald, Eithne.
- Fitzgerald, Frances.
- Flaherty, Mary.
- Flanagan, Charles.
- Gallagher, Pat (Laoighis-Offaly).
- Gilmore, Eamon.
- Harte, Paddy.
- Higgins, Michael D.
- Hogan, Philip.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Seán.
- Lowry, Michael.
- Lynch, Kathleen.
- McCormack, Pádraic.
- McDowell, Derek.
- McGahon, Brendan.
- McGinley, Dinny.
- McGrath, Paul.
- McManus, Liz.
- Mitchell, Gay.
- Moynihan-Cronin, Breeda.
- Mulvihill, John.
- Nealon, Ted.
- Noonan, Michael (Limerick East).
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Toddy.
- Pattison, Séamus.
- Penrose, William.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Ring, Michael.
- Ryan, John.
- Ryan, Seán.
- Sheehan, P.J.
- Shortall, Róisín.
- Stagg, Emmet.
- Taylor, Mervyn.
- Timmins, Godfrey.
- Upton, Pat.
- Walsh, Eamon.
- Yates, Ivan.
Tellers: Tá, Deputies D. Ahern and Callely; Níl, Deputies Durkan and B. Fitzgerald.
Question declared lost.