The government has launched what it describes as the most stringent crackdown on late payments to small businesses in more than a quarter of a century. This initiative aims to shield firms from practices that reportedly force over 1,000 closures each month and drain an estimated £11 billion from the UK economy annually.
Strongest Laws Among G7 Nations
These reforms are poised to establish the most robust late payment legislation within the G7, ensuring timely remuneration for small businesses, including tradespeople, freelancers, and the self-employed. The measures build upon a plan initially outlined by Sir Keir Starmer last year, marking a significant step forward in financial protection for smaller enterprises.
Enhanced Powers for the Small Business Commissioner
Central to the new framework are expanded authorities granted to the Small Business Commissioner. This office will now possess the capability to investigate poor payment practices, adjudicate disputes, and impose substantial fines on persistent offenders. Penalties could reach tens of millions of pounds for companies that consistently delay payments or fail to adhere to the updated regulations.
The government asserts that these reforms surpass efforts by previous administrations by strengthening legislation first introduced in the 1998 Late Payment of Commercial Debt Act.
Key Changes and Financial Implications
Specific alterations include a new 60-day cap on payment terms for all large firms when settling invoices with smaller suppliers. Additionally, a mandatory interest rate on late payments will be implemented, requiring all commercial contracts to incorporate statutory interest set at 8 per cent above the Bank of England base rate.
For instance, a small business owed £10,000 and paid 60 days beyond the agreed date would be due £10,293.15, comprising the mandatory interest plus £100 in compensation. This measure is designed to incentivise prompt payments and provide financial relief to affected businesses.
Ban on Retention Payments
Furthermore, the government proposes to prohibit the withholding of retention payments under construction contracts. This move aims to prevent small firms from losing these funds due to insolvency or non-payment, addressing a longstanding issue in the industry.
Official Reactions and Support
Business Secretary Peter Kyle emphasised the urgency of the situation, stating: "Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable. We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day-to-day lives much easier."
Small Business Minister Blair McDougall hailed the new measures as "genuinely game-changing". He added: "I know first-hand how difficult late payments can be, forcing you to decide if you can afford to keep a business running, pay employees or even buy Christmas presents for your children. That is why I’m proud to be leading the charge on tackling a problem that has been left untouched for far too long. These are genuinely game-changing measures that will ensure no business, no employer, no family has to endure the immense strain of being left strapped for cash they have already earned."
Emma Jones, the Small Business Commissioner, welcomed the announcement, stating: "We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest. These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth."
The comprehensive package of reforms is expected to significantly alleviate the financial pressures faced by small businesses, fostering a more supportive economic environment and promoting sustainable growth across the UK.
