Government opens door on end to retentions

The UK government has pledged to explore legislative options to reform - or potentially ban - the use of cash retentions in construction contracts, as part of its newly launched Plan for Small and Medium Sized Businesses.

The policy proposal is included within a broader package of measures aimed at tackling late payment practices that impact SMEs, set out in Chapter 2 of the official plan.

Cash retentions - where a portion of payment is withheld until the completion of construction work - have long been a source of concern in the industry, particularly among subcontractors and smaller firms. The government’s announcement signals a shift towards more stringent regulation of payment practices, including a commitment to “options to reform or ban cash retentions in construction contracts” (p. 18 of the government document).

The move has been welcomed by leading industry bodies.

BESA: A “once-in-a-generation opportunity”

The Building Engineering Services Association (BESA) has called the consultation: “a once-in-a-generation opportunity to fix a broken system that has undermined confidence and investment in construction for decades.”

The Association emphasised that cash retentions and late payments damage productivity and limit growth in the building engineering sector. It encouraged firms to actively contribute to the consultation, noting that reforms must be shaped by those who deal directly with payment issues.

In its statement, BESA urged its members to ensure their voices are heard: “We must seize this chance to move on from outdated payment practices and design a new system in which SMEs can thrive - not just survive” (BESA, July 2025).

ECA: crucial step toward industry reform

The Electrical Contractors’ Association (ECA) also welcomed the government’s proposals, describing them as a critical step toward addressing long-standing issues in the supply chain. In its response, the ECA stated: “Retentions and late payment have significantly undermined supply chain resilience for decades. Now we have a real opportunity for lasting reform.”

Rob Driscoll, ECA director of legal and business, noted that the engagement offers industry stakeholders a “once-in-a-generation opportunity” to help design reforms that are both practical and future-proof. The ECA stressed the importance of widespread participation in the consultation, which is open until 23 October 2025 (ECA, July 2025).

Broader context: late payment reform

The proposal on cash retentions is part of a suite of measures under the government’s “Fixing the Fundamentals” agenda. Alongside the retention review, the plan includes:

* Stricter maximum payment terms,

* Mandatory payment of interest on late invoices,

* Strengthened powers for the Small Business Commissioner,

* Fines for persistent late payers,

* Enhanced board-level scrutiny of payment practices.

These changes aim to address a payment culture that, according to the government, costs the UK economy £11 billion annually and leads to the closure of 38 businesses every day.

The government says these will be the most significant legislative changes on late payment in over 25 years and are intended to give the UK “the strongest legal framework on late payments in the G7” (Backing Your Business, p. 18).

Next steps

With the consultation period open until late October, construction industry stakeholders have a limited window to influence what could become landmark legislation. Both BESA and the ECA are urging members to participate actively in the consultation to ensure the resulting policy reflects the realities of day-to-day business in the sector.