An evil still lurks at the heart of the British economy: lateness

Cash flow problems account for a huge percentage of corporate bankruptcies. A change in the law, and our culture, might just give the economy a much-needed boost.

Sometimes parliamentary inquiries can be drab, dull affairs - events that feel compelled to occur for form's sake rather than for any great purpose. A recent special parliamentary inquiry however shone a light onto a dark and shameful corner of business culture in the UK, a culture that is undermining our economic recovery. The enquiry was looking into the UK's systemic late payment system and in particular the escalating impact overdue invoices are having on SMEs and their ability to stay afloat. As of the end of last year, outstanding debts to small and medium-sized business stood at a record £35.3bn in late payments - and large companies have been identified as the main culprits.

That the government is aware of this issue is of course to be applauded. A couple of months ago the Late Payments of Commercial Debts Regulations 2013 came into force, designed to protect small businesses struggling with cash flow due to late payment of invoices. However, this legislation only goes halfway to addressing the problem because it does not stipulate the length of time that an invoice must legally be paid by. The government should strongly consider imposing fines on serial late payers. Protecting SMEs with a mandatory payment time limit is a no-brainer and will surely be coming down the track at some stage.

This will take some time though. Therefore until the law is amended we need to start changing the culture in which large businesses sit on sizable cash reserves and hold SMEs hostage to their reluctance to pay in a timely fashion. My question to large businesses with ample liquidity is: what is there to gain in taking an age to pay a supplier? It engenders bad relationships, a negative perception of your brand and, worst of all; it slows economic growth – growth that you, the reluctant-to-pay business, could take advantage of. The great unintended consequence of this late payment culture is that the SME or start up – a growth engine for economic acceleration and source of so-called 'green shoots' - is being strangled at birth by its neglectful elders.

Cash flow problems account for a huge percentage of corporate bankruptcies: in 2008, for example, 4,000 UK businesses failed as a direct consequence of late payment. As of the end of 2011 the average small firm had approximately £45,000 of unpaid invoice debt sitting on its books, up from £39,000 from the previous half year. Furthermore, given that SMEs account for about 60 per cent of private sector employment, if their cash flow was more stable they might employ just one more person, which would make a huge difference to the overall level of unemployment. With lending shrinking at 2.5 per cent a year, despite the Government’s Funding for Lending Scheme, this is an escalating problem that, like a pestilent, is killing green shoots just as they begin to grow.

If large corporations start to pay their suppliers on time, i.e. within 30 to 60 days, we would see a sea change in business activity and, consequently, SME growth. As the saying has it, it's not rocket science, and is perhaps one of the simplest and most practical way of stimulating economic growth in our current flat lining economy.

Stop all the clocks - Overdue invoices are having a damaging effect on SMEs. Photograph: Getty Images.

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Donald Trump ushers in a new era of kakistocracy: government by the worst people

Trump will lead the whitest, most male cabinet in memory – a bizarre melange of the unqualified and the unhinged.

“What fills me with doubt and dismay is the degradation of the moral tone,” wrote the American poet James Russell Lowell in 1876, in a letter to his fellow poet Joel Benton. “Is it or is it not a result of democracy? Is ours a ‘government of the people by the people for the people’, or a kakistocracy rather, for the benefit of knaves at the cost of fools?”

Is there a better, more apt description of the incoming Trump administration than “kakistocracy”, which translates from the Greek literally as government by the worst people? The new US president, as Barack Obama remarked on the campaign trail, is “uniquely unqualified” to be commander-in-chief. There is no historical analogy for a President Trump. He combines in a single person some of the worst qualities of some of the worst US presidents: the Donald makes Nixon look honest, Clinton look chaste, Bush look smart.

Trump began his tenure as president-elect in November by agreeing to pay out $25m to settle fraud claims brought against the now defunct Trump University by dozens of former students; he began the new year being deposed as part of his lawsuit against a celebrity chef. On 10 January, the Federal Election Commission sent the Trump campaign a 250-page letter outlining a series of potentially illegal campaign contributions. A day later, the head of the non-partisan US Office of Government Ethics slammed Trump’s plan to step back from running his businesses as “meaningless from a conflict-of-interest perspective”.

It cannot be repeated often enough: none of this is normal. There is no precedent for such behaviour, and while kakistocracy may be a term unfamiliar to most of us, this is what it looks like. Forget 1876: be prepared for four years of epic misgovernance and brazen corruption. Despite claiming in his convention speech, “I alone can fix it,” the former reality TV star won’t be governing on his own. He will be in charge of the richest, whitest, most male cabinet in living memory; a bizarre melange of the unqualified and the unhinged.

There has been much discussion about the lack of experience of many of Trump’s appointees (think of the incoming secretary of state, Rex Tillerson, who has no background in diplomacy or foreign affairs) and their alleged bigotry (the Alabama senator Jeff Sessions, denied a role as a federal judge in the 1980s following claims of racial discrimination, is on course to be confirmed as attorney general). Yet what should equally worry the average American is that Trump has picked people who, in the words of the historian Meg Jacobs, “are downright hostile to the mission of the agency they are appointed to run”. With their new Republican president’s blessing, they want to roll back support for the poorest, most vulnerable members of society and don’t give a damn how much damage they do in the process.

Take Scott Pruitt, the Oklahoma attorney general selected to head the Environmental Protection Agency (EPA). Pruitt describes himself on his LinkedIn page as “a leading advocate against the EPA’s activist agenda” and has claimed that the debate over climate change is “far from settled”.

The former neurosurgeon Ben Carson is Trump’s pick for housing and urban development, a department with a $49bn budget that helps low-income families own homes and pay the rent. Carson has no background in housing policy, is an anti-welfare ideologue and ruled himself out of a cabinet job shortly after the election. “Dr Carson feels he has no government experience,” his spokesman said at the time. “He’s never run a federal agency. The last thing he would want to do was take a position that could cripple the presidency.”

The fast-food mogul Andrew Puzder, who was tapped to run the department of labour, doesn’t like . . . well . . . labour. He prefers robots, telling Business Insider in March 2016: “They’re always polite . . . They never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case.”

The billionaire Republican donor Betsy DeVos, nominated to run the department of education, did not attend state school and neither did any of her four children. She has never been a teacher, has no background in education and is a champion of school vouchers and privatisation. To quote the education historian Diane Ravitch: “If confirmed, DeVos will be the first education secretary who is actively hostile to public education.”

The former Texas governor Rick Perry, nominated for the role of energy secretary by Trump, promised to abolish the department that he has been asked to run while trying to secure his party’s presidential nomination in 2011. Compare and contrast Perry, who has an undergraduate degree in animal science but failed a chemistry course in college, with his two predecessors under President Obama: Dr Ernest Moniz, the former head of MIT’s physics department, and Dr Steven Chu, a Nobel Prize-winning physicist from Berkeley. In many ways, Perry, who spent the latter half of 2016 as a contestant on Dancing with the Stars, is the ultimate kakistocratic appointment.

“Do Trump’s cabinet picks want to run the government – or dismantle it?” asked a headline in the Chicago Tribune in December. That’s one rather polite way of putting it. Another would be to note, as the Online Etymology Dictionary does, that kakistocracy comes from kakistos, the Greek word for “worst”, which is a superlative of kakos, or “bad”, which “is related to the general Indo-European word for ‘defecate’”.

Mehdi Hasan has rejoined the New Statesman as a contributing editor and will write a fortnightly column on US politics

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era