Council leaders attack "unfair" EU late payment plan

The public sector could be hit by fines of up to £600m if proposed EU rules on payment of suppliers are introduced, the Local Government Association and the NHS Confederation have warned.

The proposals, contained in the draft EC late payments directive, could also increase the culture of lawsuits, add bureaucracy and jeopardise the relationship between public bodies and the private sector, they said.

Under the plans, local authorities and other public sector bodies would be subject to fines if they fail to pay private companies’ bills within 30 days. The LGA said this would be the case even if the supplier failed to address the invoice correctly, include order numbers or properly describe what had been provided.

In the event of delayed payment, suppliers could charge a combination of a flat-rate compensation of 5% of the invoice amount, plus interest and recovery costs. The UK already has legislation allowing the charging of interest on late payments but this 5% compensation would be a new weapon for suppliers.

The LGA and the NHS Confederation calculate that this would lead to a £623.88 fine on a £10,000 bill remaining unpaid for 31 days. They are also concerned that private firms which do not pay on time will not be subject to the same fines.

Criticising the proposals as “an unfair and grossly disproportionate system”, councillor David Parsons, chairman of the LGA’s Improvement Board, said: “When a company can fine a public sector organisation, even if they have their details wrong on the invoice, it gives them a licence to draw up badly written bills to get more money out of the taxpayer.”