Small businesses will be paid on time as construction retentions set to be banned

The government has announced that it will ban the use of retention payments in construction contracts.

Announced by the Department for Business and Trade, the move is intended to prevent SMEs from losing money held back against defects, late finishes or when other supply chain firms fail to release funds due to bankruptcy.

The measures will tackle a problem costing the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and are forced to chase endlessly to receive it.

The measures, which will be the toughest in the G7, will see the Small Business Commissioner given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders.

Business Secretary Peter Kyle said: “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.”

British Constructional Steelwork Association (BCSA) Legal Director and Company Secretary, Deborah Harrison, added: “Ending cash retentions has been a long-fought campaign, built on many years of work at BCSA.

“The announcement is a major step forward, alongside stronger powers for the Small Business Commissioner. There is still detail to resolve, but the direction of travel is very welcome.