Here’s the problem with Labour’s big business charm offensive

By Fred Hicks Senior Policy and Communications Adviser IPSE - The Self-Employment Association

At last week’s Times CEO Summit, Labour’s Shadow Chancellor Rachel Reeves once again declared that Labour is “the party of business.” Reeves’ mission has been to make the prospect of a Labour government something that the business world won’t fear. In the process, the Party has very openly cosied up with larger businesses. But will this make it difficult for them to follow through on their pledge to clamp down on late payments by the same bunch?

Who is ‘business’ anyway?

Being “the party of business” is a seemingly straightforward concept, but think about it long enough and it starts to lose all meaning. It lumps oil giants and tech startups in with coffee vans and freelancers – groups who have little in common beyond being classified as ‘businesses’. Moreover, they are often at opposing ends of the kind of power imbalances that make overdue invoices something that freelancers have reluctantly accepted as being ‘the way things are’.

None of this makes big businesses and freelancers natural enemies – if anything, the opposite is true. One of the big draws of freelancing is the freedom to move from company to company, project to project, having a vastly more varied career than the average employee.

Hirers see the benefit too. Responding to a survey commissioned by IPSE in 2021, three quarters (76%) of hirers said they believed freelancers were a “valuable resource for their business” and almost half (49%) said they couldn’t achieve the same result without them.

Nonetheless, the unfortunate reality is that freelancers are being let down by the glacial response of government and industry to tighten up commercial payment practices, leaving them a staggering ￡5,000 out of pocket on average.

Are Labour up to the challenge?

The Labour Party has a golden opportunity to seize upon the frustration felt by freelancers across the UK and set out a bold vision to make meaningful progress on tackling poor payment practices.

The party has very clearly committed itself to “unlock ￡20bn in unpaid invoices” through tackling late payment. A bold ambition, but their key manifesto proposal to achieve this feels like it doesn’t live up to the enormity of the challenge.

The proposal – to force the audit committees of big businesses to report on payment practices in their annual reports – would add an extra layer of scrutiny over how quickly the corporate giants settle their invoices. It would also force executive and non-executive leaders to engage with how their company fares when it comes to paying on time. It’s an idea IPSE has backed in the past.

But without a competitive benchmark to aim for, it could end up becoming just another compliance exercise for big firms. It also only tells us about payments made by what is often the top layer of a payment chain, and little about what happens as that money passes between various suppliers and sub-contractors.

We should also be wary of a singular focus on ‘lateness’. Overdue invoices are a pain, but so are 90, 120 and 364 day payment schedules (these really do exist).

The Labour Party needs to back its manifesto proposal up with a clear mission for UK plc – it’s time to start playing fair when paying your freelancers.

Putting an end to obscene payment terms

Manifestos aren’t just for political parties these days. As part of IPSE’s own election manifesto, we made two clear calls for action on payments:

• Put an end to obscenely long payment terms by updating legislation to deem terms longer than 60 days to be null and void, defaulting to a statutory schedule of 30 days – an approach already adopted in Belgium.
• Tighten government guidelines to clarify that an invoice becomes ‘active’ once a company receives it through a reasonable channel, removing the wiggle room for firms to delay the payment countdown clock.

The Liberal Democrats have made their own calls for a form of statutory payment deadline. In their manifesto, they suggest that all businesses with more than 250 employees, as well as government agencies and contractors, should be required to sign up to the Prompt Payment Code.

The code, which is currently voluntary, has two key requirements:

• Pay 95% of all invoices within 60 days
• Pay 95% of invoices from small businesses (less than 50 employees) within 30 days

As encouraging as it is to see a major political party match IPSE’s ambition for a fair standard for payments, we’re yet to see this from the party that’s expected to enter Downing Street on 5th July.

The catch-22 for the party of business

There’s nothing to suggest Labour won’t go further on this issue once in government. But having staked their reputation on being publicly seen shoulder to shoulder with the bosses of Britain’s biggest businesses, they may find it difficult to turn the tables on them in government.

The Conservatives have been caught in a similar bind. It was a Conservative government that established the post of the Small Business Commissioner and pledged to give the office new powers to investigate late payers if it wins the election. But as IPSE’s policy director Andy Chamberlain pointed out in this newsletter earlier this year, Rishi Sunak’s consultative ‘Business Council’ featured firms that had previously been booted off the Prompt Payment Code, withdrew voluntarily or never joined it to begin with.

It raises the question of just how important this mission really is to the parties. Ultimately, improving commercial payment practices will be a headache for the big payers – but for millions of freelancers, the issue is much more than a headache – it’s existential.