A Tyneside MP has warned councils that late payments to businesses will soon begin to hurt them financially.
Mary Glindon, who represents North Tyneside, has written to the Local Government Association - the umbrella organisation for councils in England - pointing out that forthcoming UK and European legislation will force authorities to pay within 30 days or face financial penalties.
Mrs Glindon, a member of the House of Commons Communities and Local Government Select Committee, said all public authorities will be required to publish their payment performance in detail and also calculate the financial penalties inherent within the late payment of commercial debts regardless of whether they have paid these amounts or not.
Estimates by experts Oxygen Finance show that a typical council will be fined between £300,000 and £750,000 unless they can comply with the changes.
The MP’s intervention comes as The Journal has launched the Pay Fair campaign, calling on businesses to pay their suppliers more promptly.
Mrs Glindon said: “There is a ticking time bomb facing our councils. The situation is similar to that of ‘equal pay for equal value’ legislation whereby those councils who were not ahead of the game faced serious financial costs.
“Councils need to prepare now for the forthcoming changes which, in any event, are vital for local businesses in their areas and will help boost economic growth by addressing the cash-flow crisis.”
In her letter to the LGA, Mrs Glindon said that if councils act to ensure prompt payment, it will provide the leadership to encourage private firms who delay payment to suppliers to act more ethically.
She cited Government research which estimates that £46bn of contracts are considered overdue, £40bn of it due to small and medium sized companies. Late payment, she said, frequently causes a ripple effect down the supply chain and is one of the leading causes of bankruptcy among SMEs.
Through our Pay Fair campaign, The Journal is encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.
It is asking firms to sign the Business Ethics Pledge created by the North East Institute of Business Ethics, thereby agreeing to join with others to discuss the value of business ethics and to work with each other to transform their working environments for the better.
For more information, see http://www.nibe.org.uk/ .