The numbers
In a groundbreaking decision, the UK government has announced plans to ban retentions in the construction industry, a move expected to significantly improve cash flow for small firms and combat the alarming rates of insolvency. This initiative aims to address a staggering £11 billion lost annually to poor payment practices, a figure that underscores the urgent need for reform.
Currently, 38 businesses shut down every day in the UK due to late payments, a situation that has become increasingly untenable. The proposed ban on retentions is part of a broader strategy to protect small firms from losing critical funds to insolvency or non-payment, a reality that has plagued the construction sector for years.
The Small Business Commissioner will be empowered with new authority to investigate poor payment practices and adjudicate disputes, marking a significant shift in how payment issues are handled. Additionally, 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 for late payments.
Historically, the construction industry has faced one of the highest insolvency rates among all sectors, with 15.2% of all insolvencies in England and Wales in July 2025 attributed to construction companies. In the 12 months leading up to July 2025, a staggering 3,973 construction firms entered insolvency, highlighting the urgent need for reform. The insolvency rates in construction companies increased by 2.5% from June to July 2025, further emphasizing the precarious position many small businesses find themselves in.
David Frise, Chief Executive of the Building Engineering Services Association (BESA), hailed the ban as a “landmark moment for our industry” and a significant step forward for BESA members and the wider building services engineering sector. He expressed hope that these changes would transform cash flow and enhance business resilience for small firms.
Business Secretary Peter Kyle echoed these sentiments, stating, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.” The proposed changes are viewed as the most significant overhaul of the UK’s payment regime in over 25 years, reflecting a growing recognition of the challenges faced by small businesses in the construction sector.
James Talman, CEO of the National Federation of Roofing Contractors (NFRC), noted that this outcome is one that the industry has been campaigning for years to achieve. Debbie Petford, legal and commercial director at BESA, emphasized the importance of meaningful reform backed by legislation, calling the proposed ban on retentions a critical part of that effort.
As the government consults on the implementation of the ban, observers are hopeful that these measures will lead to a more equitable payment landscape in the construction industry. However, details remain unconfirmed, and the full impact of these changes will only become clear as they are enacted and assessed in the coming months.
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