The numbers
The UK government is planning to ban retentions in the construction industry as part of a broader initiative to tackle late payment issues that cost the economy an estimated £11 billion annually. This significant reform aims to prevent small firms from losing retentions due to insolvency or non-payment.
The proposed ban is expected to transform cash flow and enhance business resilience for small firms, which have historically faced high insolvency rates exacerbated by poor payment practices. Currently, the construction sector accounts for 15.2 percent of all insolvencies in England and Wales, with 3,973 construction companies entering insolvency in the 12 months leading up to July 2025.
As part of this initiative, the Small Business Commissioner will be granted 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 percent above the Bank of England base rate.
Peter Kyle, the Business Secretary, emphasized the urgency of this reform, stating, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.” This sentiment reflects a growing concern within the industry, as 38 businesses shut down every day in the UK due to late payments.
The measures represent the most significant overhaul of the UK’s payment regime in over 25 years. 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.”
James Talman, CEO of the National Federation of Roofing Contractors (NFRC), noted, “This outcome is one our industry has been campaigning for years to achieve.” The government is currently consulting on the implementation of the ban on retention payments, indicating a commitment to reforming the payment landscape in construction.
Details remain unconfirmed on the timeline for the implementation of these changes, but the proposed ban on retentions is anticipated to provide much-needed relief to small businesses struggling with cash flow issues. The construction industry has one of the highest insolvency rates of any sector, with insolvency rates in construction companies increasing by 2.5 percent from June to July 2025.
