As we previously set out in our October 2025 blog Explaining the UK Government’s late payment reforms, the UK Government sought views on how to make payment practices fairer and address the long-standing imbalance between large businesses and smaller suppliers. This process has now concluded, and the Government has published its full response, confirming that the measures set out in the consultation will be taken forward.

The response confirms a mix of primary and secondary legislation will be required to bring them into force. This distinction is important for understanding both the scope of the reforms and the likely timelines for implementation.

Measures that involve significant changes to existing legal frameworks, such as introducing a statutory cap on payment terms or strengthening the powers of the Small Business Commissioner, will require primary legislation. Given the constraints of the current parliamentary calendar, it is unlikely that such legislation will be introduced before the next parliamentary session. As a result, while the direction of travel is now clear, some of the most impactful reforms may take time to materialise.

By contrast, certain measures can be implemented through secondary legislation, which allows Government to amend or build on existing frameworks without the need for a full Act of Parliament. This includes changes to reporting requirements and potentially elements of enforcement. There may be limited scope for some of these measures to be introduced before the end of the current parliamentary year, although timelines will depend on legislative priorities in the months ahead.

What measures will be introduced?

The Government has now provided greater clarity on how it intends to strengthen the UK’s payment framework, with a clear focus on accountability, enforceability, and transparency.

One of the most notable changes is a new requirement for large businesses with persistent poor payment performance to publicly explain their behaviour. Where a company pays a significant proportion of invoices late, its board or audit committee will be required to publish a statement on GOV.UK outlining why its performance is poor, what steps it will take to improve, and which previously committed actions have not been delivered and why. 

This is intended to drive greater board-level accountability and ensure that payment practices are treated as a core governance issue, rather than an operational afterthought. In parallel, the Small Business Commissioner (SBC) will take a more active oversight role, writing directly to company boards and audit committees to seek assurance on their reporting and performance.

The Government will also move ahead with introducing a statutory maximum payment term of 60 days. This will remove the ability for most businesses to agree longer payment terms, addressing a key concern raised throughout the consultation about extended payment cycles being used to manage cash flow at the expense of suppliers. 

However, the Government has recognised that a one-size-fits-all approach may not be appropriate in all cases and will allow for limited exemptions. These include contracts between two large businesses, situations where the purchaser is the smaller party, and contracts involving imports or exports. While an eventual reduction to 45 days had been proposed, this will not be taken forward at this stage, although it may be revisited in the future subject to further consultation.

To tackle the practice of delaying payments through late disputes, a statutory deadline for disputing invoices will be introduced. Businesses that fail to raise a dispute within the specified timeframe will be required to pay compensation to the supplier. This measure is designed to bring greater certainty to the invoicing process and prevent disputes from being used as a tool to defer payment.

The framework for statutory interest will also be significantly strengthened. All commercial contracts will be required to include a right to interest on late payments at a rate of 8% above the Bank of England base rate, removing the current ability for businesses to contract out of this requirement. This is intended to act as a stronger financial disincentive against late payment and to rebalance negotiations between large and small firms. Where interest is not paid, small businesses will be able to escalate cases to the SBC, with disputes resolved through an adjudication process.

Alongside this, transparency requirements will be expanded. Large companies will be required to report both the amount of statutory interest they are liable to pay and the amount they have actually paid. This additional reporting is expected to play a key role in identifying persistent late payers and will provide the basis for further enforcement action. In cases of repeated poor performance, this could trigger SBC investigations and financial penalties linked to the scale of unpaid interest.

Retention payment changes 

One area where policy remains less settled is retention payments. The Government has indicated a clear preference for reform and is proposing to take forward a legislative measure to prohibit the deduction and withholding of retentions in construction contracts. However, it has also acknowledged the scale and complexity of such a change. Before making a final decision, the Government will undertake further consultation with industry to better understand the impacts and practical considerations.

Feedback to date suggests that, should a ban be introduced, industry would favour a transition period of between 12 and 24 months to allow businesses to adjust. Alongside this, the Government has committed to working with the Construction Leadership Council and construction clients to explore alternative approaches to quality assurance and defect management, as well as engaging with the financial services sector to consider how the surety market could support the transition away from retentions.

While this means that uncertainty remains in the short term, it is nevertheless significant that the Government is actively considering such a substantial shift in policy, on a topic that has been debated in the sector for decades.

Overall, the consultation outcome represents a positive and constructive step forward. It is particularly encouraging to see the Government has carefully weighed the evidence and concerns put forward by industry and is seeking to strike a balance between driving cultural change and ensuring that reforms are deliverable in practice.

As these measures move toward implementation, continued engagement with industry will be essential. CIOB will remain closely involved in this process, working with members, partners, and policymakers to help shape the detail of these reforms and ensure they deliver meaningful improvements for the construction sector.

We will continue to keep members updated as further developments emerge. Should you wish to see the full consultation outcome, please click here.