The numbers
The UK government is taking a bold step to ban retentions in the construction sector, a move aimed at addressing the pressing issue of late payments that costs the economy an astounding £11 billion each year. This significant change is expected to prevent small firms from losing retentions due to insolvency or non-payment, a challenge that has plagued the industry for years.
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, alongside mandatory interest on late payments set at 8% above the Bank of England base rate. These measures are designed to create a more equitable payment landscape for small businesses.
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 being construction companies. Alarmingly, 38 businesses shut down every day in the UK due to late payments, highlighting the urgent need for reform. 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 of that year.
David Frise, Chief Executive of 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 ban on retentions is seen as a critical part of a broader effort to ensure that small firms can thrive without the constant threat of financial instability.
James Talman, NFRC group CEO, expressed optimism, saying, “This outcome is one our industry has been campaigning for years to achieve.” The government is currently consulting on the implementation of the ban, which is anticipated to transform cash flow and enhance business resilience for small firms in the construction sector.
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.” The construction industry has historically faced high insolvency rates, exacerbated by late payment practices, making this legislative change a beacon of hope for many.
As the government moves forward with these plans, observers are hopeful that the ban on retentions will lead to a more stable and fair environment for small construction firms. While the details of the implementation remain to be confirmed, the anticipation surrounding this reform is palpable, with many looking forward to a future where timely payments are the norm rather than the exception.
