Retentions Banned: A Major Shift in Construction Payment Practices
The numbers
The UK government is planning to implement a ban on retentions in the construction industry, a move aimed at addressing the chronic issue of late payments that costs the economy an estimated £11 billion annually. This significant reform is expected to safeguard small firms from losing retentions due to insolvency or non-payment, a common plight in the sector.
As part of this initiative, the Small Business Commissioner will gain enhanced powers to investigate poor payment practices and adjudicate disputes. 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. These measures are designed to create a more equitable payment landscape for small businesses.
The construction industry has historically faced high insolvency rates, exacerbated by late payment practices. Recent statistics indicate that 15.2% of all insolvencies in England and Wales in July 2025 were construction companies, with 3,973 construction firms entering insolvency in the 12 months leading up to that date. Furthermore, insolvency rates in construction companies saw a 2.5% increase from June to July 2025, highlighting the urgent need for reform.
Peter Kyle, the Business Secretary, emphasized the severity of the situation, stating, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.” This sentiment resonates with many in the industry, including David Frise, Chief Executive of BESA, who called the ban a “landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector.”
The proposed ban on retentions is seen as the most significant overhaul of the UK’s payment regime in over 25 years. Observers anticipate that these changes will transform cash flow and enhance business resilience for small firms, which have been disproportionately affected by the current payment practices.
James Talman, CEO of the National Federation of Roofing Contractors (NFRC), remarked, “This outcome is one our industry has been campaigning for years to achieve.” Meanwhile, Debbie Petford, legal and commercial director at BESA, noted, “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 moves forward with consultations on the implementation of the ban, the construction industry is poised for a transformation that could alleviate some of the financial pressures faced by small businesses. However, details remain unconfirmed regarding the timeline and specific mechanisms of the ban, leaving many stakeholders eager for clarity on the forthcoming changes.