Government crackdown on late payments with reforms targeting construction

The UK Government has announced a wide-ranging package of reforms aimed at tackling late payments, with measures expected to have significant implications for the construction sector and its supply chains.

Described as the most substantial overhaul of payment legislation in more than 25 years, the proposals include new powers for the Small Business Commissioner to investigate payment practices, resolve disputes and impose fines on large companies that fail to pay suppliers on time.

Central to the reforms is the introduction of a mandatory 60-day cap on payment terms for large businesses when dealing with smaller suppliers. In addition, all commercial contracts will be required to include statutory interest on late payments, set at 8% above the Bank of England base rate.

The Government said the measures are designed to address a long-standing issue across multiple sectors, with late payments estimated to cost the UK economy £11 billion annually and contributing to business failures among small firms.

For the construction industry, the proposals include a potential ban on the withholding of retention payments; a practice widely used in the sector but often criticised for tying up cashflow and exposing smaller contractors to financial risk.

Retention payments, which are typically held back until project completion, have been a persistent source of tension across construction supply chains, particularly where funds are not released or are lost due to insolvency further up the contracting chain.

The Government said it will consult on the implementation of a ban, with the aim of preventing smaller firms from being left unpaid for completed work.

Further reforms will require large companies with poor payment performance to publicly report on their practices, with boards and audit committees expected to provide explanations and outline corrective actions.

The strengthened role of the Small Business Commissioner is intended to improve enforcement, with the ability to levy significant financial penalties on persistent late payers.

Ministers said the changes are designed to improve cashflow across supply chains, reduce the administrative burden on small businesses and create a more transparent and accountable payment culture.

The reforms build on existing legislation dating back to the Late Payment of Commercial Debts Act 1998 and are expected to be supported by further consultation before implementation.