The numbers
The UK government is poised to implement a ban on retentions in the construction sector, a move that could significantly alter the landscape for small businesses. This initiative is part of a broader effort to combat late payment issues that are costing the UK economy a staggering £11 billion each year.
Currently, 38 businesses shut down every day in the UK due to late payments, a situation that has prompted urgent calls for reform. The proposed ban on retentions is expected to prevent small firms from losing vital payments to insolvency or non-payment, thereby enhancing their financial stability and resilience.
As part of this reform, 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, alongside mandatory interest on late payments set at 8% above the Bank of England base rate. These measures aim to create a fairer payment environment for small businesses.
The construction industry has historically faced one of the highest insolvency rates of any sector, 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, 3,973 construction companies entered insolvency, reflecting a 2.5% increase in insolvency rates from June to July of that year. This troubling trend underscores the urgent need for reform.
David Frise, Chief Executive of the Building Engineering Services Association (BESA), hailed the proposed ban as a “landmark moment for our industry”. He emphasized that this change represents a significant step forward for BESA members and the wider building services engineering sector. Meanwhile, Business Secretary Peter Kyle stated, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.”
James Talman, CEO of the National Federation of Roofing Contractors (NFRC), expressed optimism about the proposed changes, noting, “This outcome is one our industry has been campaigning for years to achieve.” 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.”
As the government consults on the implementation of this ban, observers remain hopeful that these measures will transform cash flow dynamics and improve business resilience for small firms in the construction sector. However, details remain unconfirmed regarding the timeline and specific mechanisms for enforcing these new regulations.