The numbers
The UK government is planning to implement a ban on retentions in the construction industry, a move aimed at tackling the pervasive issue of late payments that costs the economy an estimated £11 billion annually. This significant reform is expected to prevent small firms from losing retentions due to insolvency or non-payment, a critical step in enhancing their financial stability.
The proposed legislation will empower the Small Business Commissioner with new authority to investigate poor payment practices and adjudicate payment disputes. Furthermore, a 60-day cap on payment terms for large firms paying small suppliers will be introduced, alongside a mandatory interest rate of 8% above the Bank of England base rate on late payments. These measures are designed to create a more equitable payment landscape for small businesses.
Currently, the construction sector faces one of the highest insolvency rates across industries, with 15.2% of all insolvencies in England and Wales in July 2025 attributed to construction companies. In the 12 months leading up to that date, 3,973 construction firms entered insolvency, reflecting a troubling trend exacerbated by late payment practices. Notably, insolvency rates in construction companies increased by 2.5% from June to July 2025, highlighting the urgency of reform.
David Frise, Chief Executive of the Building Engineering Services Association (BESA), remarked, “This is a landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector.” This sentiment is echoed by Peter Kyle, the Business Secretary, who stated, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.”
The proposed changes mark the most significant overhaul of the UK’s payment regime in over 25 years, aiming to transform cash flow and improve business resilience for small firms. Observers note that 38 businesses shut down every day in the UK due to late payments, underscoring the dire need for these reforms.
James Talman, CEO of the National Federation of Roofing Contractors (NFRC), expressed optimism, stating, “This outcome is one our industry has been campaigning for years to achieve.” Meanwhile, Debbie Petford, legal and commercial director at BESA, emphasized the importance of the proposed ban, saying, “We have been waiting a long time for meaningful reform backed by legislation, and the proposed ban on retentions is a critical part of that.”
The government is currently consulting on the implementation of the ban on retention payments, with details remaining unconfirmed. As the construction industry braces for these changes, the hope is that they will lead to a more stable and fairer environment for small businesses moving forward.