The numbers
The UK government is set to implement a ban on retentions in the construction industry, a move aimed at addressing the chronic issue of late payments that costs the economy an estimated £11 billion annually. This significant reform is expected to prevent small firms from losing vital retention payments due to insolvency or non-payment, a common plight in the sector.
As part of this initiative, the Small Business Commissioner will be granted enhanced powers to investigate poor payment practices and adjudicate disputes. Additionally, a 60-day cap on payment terms for large firms dealing with small suppliers will be introduced, alongside a mandatory interest rate of 8% above the Bank of England base rate for late payments. These measures are designed to create a more equitable financial environment for smaller construction firms.
The construction industry has historically struggled with high insolvency rates, with 15.2% of all insolvencies in England and Wales in July 2025 attributed to construction companies. In fact, 3,973 construction firms entered insolvency in the 12 months leading up to that date, reflecting a 2.5% increase from June to July 2025. This troubling trend highlights the urgent need for reform in payment practices within the industry.
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.” His statement underscores the long-awaited nature of these changes, which many in the industry have been advocating for.
Business Secretary Peter Kyle emphasized the severity 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 the alarming statistic that 38 businesses close their doors every day in the UK due to late payments, a reality that the new measures aim to combat.
The proposed ban on retentions is viewed as a critical component of a broader reform effort, with industry leaders like James Talman, CEO of the National Federation of Roofing Contractors (NFRC), expressing optimism. He noted, “This outcome is one our industry has been campaigning for years to achieve,” reflecting a collective desire for meaningful change.
Debbie Petford, legal and commercial director at BESA, added, “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.” This sentiment highlights the anticipation surrounding the government’s consultation on the implementation of the ban, which is expected to transform cash flow and enhance business resilience for small firms.
As the government moves forward with these changes, observers are keenly watching to see how they will impact the construction landscape. While the proposed measures are promising, details remain unconfirmed regarding the timeline and specific implementation strategies. The construction industry, with its high insolvency rates and significant reliance on timely payments, stands at a pivotal moment in its history, with the potential for transformative change on the horizon.