A senior member of the House of Commons Communities and Local Government Select Committee has warned local authorities to prepare for changes to procurement legislation - or face millions of pounds in late payment penalties.
Mary Glindon, MP for North Tyneside, instigated a debate in parliament in July on the problem small and medium-sized enterprises face when councils delay settling their invoices. She has written to the new chair of the Local Government Association, councillor David Sparks OBE, alerting him to the likely effect.
In her letter, Mrs Glindon highlighted forthcoming changes to European and UK legislation that will compel councils to pay their suppliers within 30 days or face fines of between £40 and £100 for each invoice using research from the House of Commons library.
Under the proposals, all public authorities will be required to publish their payment performance in detail and calculate and apply the financial penalties inherent within the late payment of commercial debts act – regardless of whether they have paid these amounts or not.
Estimates from financial experts Oxygen Finance showed that a typical upper-tier authority could face a visible annual liability of between £300,000 and £750,000 unless they comply with the changes.
Most recently, Brighton and Hove Council was forced to admit it had waited five years to pay a local contractor, and that it paid 5,437 invoices late in 2013/14. Under the new rules, this could mean fines of up to £5.4m.
Ms 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 that were not ahead of the game faced serious financial costs.
“Councils need to prepare now for the forthcoming changes that, in any event, are vital for local businesses in their areas and will help boost economic growth by addressing the cash-flow crisis.”