Government unveils ‘game-changing’ payment law reforms in bid to protect small businesses
The government has announced what it describes as the harshest crackdown on late payments to small businesses in more than 25 years; He promised to protect firms from practices that force more than 1,000 closures a month and cost the UK economy around £11bn each year.
The reforms will create the strongest laws on late payments among the G7 countries and ensure small businesses, including tradespeople, freelancers and the self-employed, are paid on time for their work.
Increasing the powers of the Small Business Commissioner is at the heart of the new measures outlined in a plan drawn up by Sir Keir Starmer last year.
This office will now be able to investigate bad payment practices, resolve disputes and impose fines on the worst offenders.
For companies that repeatedly delay payments or do not comply with new regulations, these penalties can reach tens of millions of lira.
The government has stated that these reforms will go further than previous administrations by strengthening legislation first established in the Late Payment of Commercial Debts Act 1998.
Business Secretary Peter Kyle emphasized the urgency of the situation, saying: “Too many businesses are being forced to close for non-payment – this is completely unacceptable.
“We are announcing the strongest, most robust changes to payments laws in more than a generation, laws that will change the fortunes of small businesses for years to come and make their daily lives much easier.”
Specific changes include a new 60-day cap on payment terms for all large firms when issuing invoices with smaller suppliers.
A mandatory interest rate on late payments will also be introduced and all commercial contracts will be required to include statutory interest set at 8 per cent above the Bank of England base rate.
This means that a small business that owes £10,000 and pays 60 days after the agreed date would have to pay £10,293.15, consisting of mandatory interest plus £100 compensation.
In addition, the government is proposing to ban the withholding of advance payments under construction contracts, a move aimed at preventing small firms from losing these funds through bankruptcy or non-payment.
Small Business Minister Blair McDougall hailed the new measures as a “true game changer”.
He added: “I know first-hand how difficult late payments can be, forcing you to decide whether you can afford to keep a business afloat, pay employees and even buy Christmas presents for your children, so I’m proud to be leading the solution to a problem that has been left untouched for too long.
“These are truly game-changing measures that will ensure that no business, no employer or family has to endure the enormous pressure of hanging on to the money they already earn.”
Small Business Commissioner Emma Jones welcomed the announcement and said: “We are on a mission to make life easier for small firms by tackling late payments and ensuring money moves faster through the economy.
“The measures announced by the Government today will strengthen my office’s role in tackling the worst payers, as well as giving small businesses a stronger say on payment terms and late payment interest.
“These reforms will reduce hours spent chasing debt and allow small businesses to focus on more productive and enjoyable growth.”
