The UK government is planning to ban retentions in construction as part of a significant crackdown on late payments, a move that could reshape the financial landscape for small firms. This ban is expected to prevent small businesses from losing retentions due to insolvency or non-payment, a critical issue that has plagued the industry for years.
As part of these reforms, the Small Business Commissioner will gain new powers to investigate poor payment practices and adjudicate payment disputes. Additionally, a 60-day cap on payment terms for large firms paying small suppliers will be introduced, along with mandatory interest on late payments set at 8% above the Bank of England base rate. These measures aim to tackle a problem costing the UK economy an estimated £11 billion every year due to poor payment practices.
Statistics reveal the dire consequences of late payments, with 38 businesses shutting down every day in the UK because they are not paid on time. The construction industry, in particular, has one of the highest insolvency rates of any sector, with 15.2% of all insolvencies in England and Wales in July attributed to construction companies. In the 12 months leading up to July 2025, 3,973 construction companies entered insolvency, reflecting a 2.5% increase in insolvency rates from June to July 2025.
The numbers
The proposed changes represent the most significant overhaul of the UK’s payment regime in over 25 years. Observers note that the ban on retentions is expected to transform cash flow and improve business resilience for small firms, which have been disproportionately affected by late payments and insolvency. David Frise, Chief Executive of BESA, described the ban as “a landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector.”
Business Secretary Peter Kyle emphasized the urgency of the situation, stating, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.” This sentiment resonates with many in the industry who have long campaigned for reform. James Talman, CEO of the National Federation of Roofing Contractors (NFRC), remarked, “This outcome is one our industry has been campaigning for years to achieve.”
Debbie Petford, legal and commercial director at BESA, echoed these sentiments, stating, “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.” Such reforms are seen as essential to fostering a healthier business environment in construction, where cash flow issues have historically led to high insolvency rates.
Details remain unconfirmed regarding the timeline for implementing these changes, but the government is currently consulting on the specifics of the ban on retention payments. As discussions progress, the construction industry and small businesses alike are hopeful that these measures will bring about the necessary changes to ensure timely payments and financial stability.