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Consultation launched to introduce UK late payment penalties

Government is seeking feedback on proposals that would grant small business commissioner to penalise poor supply chain performance on pay in sectors such as building services

Amendments to the role of the UK small business commissioner to penalise late payments and improve transparency within supply chains will be the subject of an upcoming government consultation.

Small Business Minister Kelly Tolhurst told parliament earlier this month that views would be sought from the industry and wider public over strengthening the ability of the commissioner to compel publication of key information on payment performance in sectors such as construction.

This consultation process would also look at whether financial penalties or binding payment plans should be imposed on large businesses with poor or unfair payment practices.

Industry bodies within the building services sector have been campaigning for stronger regulatory action to tackle a range of concerns about late payment and lost retentions by larger companies. These calls have intensified since the collapse of Carillion in 2018 that was tied to significant loss of funds owed to sub-contractors and specialists in the construction sector.

Ms Tolhurst said that as part of planned amendments to the recently created role of the small business commissioner, she was assigning the position responsibility for the voluntary Prompt Payment Code to try and ensure best practice was upheld in industry supply chains.

She said the switch in responsibility was intended to address weaknesses in the code on the back of a stricter approach to compliance with the scheme.

Ms Tolhurst added, “Earlier in the year, we saw the removal from the code of five businesses and the suspension of 12 others. The next compliance round is currently under way.”

“I will take a tough compliance approach to large companies that do not comply with the payment practices reporting duty. The legislation allows for the prosecution of those who do not comply.”

Labour urges funding increase

Labour MP Bill Esterson said he welcomed the measures announced by the government to strengthen scrutiny of payment practice, but called for increased financial support for the small business commissioner to undertake their work.

Mr Esterson also cited the government’s admission that some existing members of the prompt payment code were found to not comply with its requirements.

He said, “The scandal of Carillion is an example of abuse of that code; we saw payment times of 120 to 180 days becoming the norm. Giving the policing of that code to the small business commissioner is a sensible idea.”

Mr Esterson also pointed to the government’s commitment from later this year to require bidders on Whitehall contracts of over £5m in value to pay 95 per cent of invoices in a 60-day period.

He asked, “That is in line with the prompt payment code, but only with the lower end of its requirements. Why not make it a 30-day requirement?”

Industry response

The Specialist Engineering Contractors’ (SEC) Group said it welcomed government efforts to look at strengthening the small business commissioner’s role and powers. However, the organisation said it had hoped to see a reduction in the maximum payment term under the Prompt Payment code to 30-days as opposed to 60.

SEC Group added that it hoped to see further government commitments to introduce legislation that would make it mandatory that project bank accounts (PBAs) and accredited third party deposit schemes for retentions were introduced.

SEC Group chief executive Rudi Klein added that he was confident that the small business minister was sincere in her efforts to introduce a new payment culture in the building services sector.

He added, “We are pleased that the minister intends to act on the issue of cash retentions in absence of industry agreement on a solution. We also know that she is very sympathetic to the notion of PBAs.”

”Statutory protection of retentions monies and mandating PBAs will transform the lives of the overwhelming majority of small firms in the industry.”

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