Arrangement of Business
The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Building Safety Levy (England) Regulations 2025
(1 day, 12 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Baroness Taylor of Stevenage
That the Grand Committee do consider the Building Safety Levy (England) Regulations 2025.
Relevant document: 33rd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, these regulations were laid before the House on 10 July 2025. The Government are committed to the remediation of residential buildings with unsafe cladding in England. Our remediation acceleration plan sets out how we will remove barriers so that buildings are fixed faster. Crucially, this will allow residents to be and feel safe in their homes.
The Government have already committed £5.1 billion of taxpayers’ money to the cost of remediation. We want to protect leaseholders and residents from further costs that are not of their making. The building safety levy is an essential step in achieving this. The purpose of the levy is to fund the Government’s building safety remediation programme. We estimate that we need to raise around £3.4 billion over 10 years. The draft regulations enable the levy to be imposed. The levy will be charged on certain building control applications for new residential floorspace in England. Subject to the approval of the Committee, it will start being charged from 1 October 2026.
Local authorities will collect the levy on behalf of central government. They are well placed to carry out this role as custodians of local building control, with tax collection expertise. I thank local authorities for the vital role they will play and for the steps they are already taking to prepare. My officials are supporting local authorities to ensure that they are ready for the levy launch. We will provide collecting authorities with grant funding for set-up costs. All ongoing costs will be recoverable from the levy revenue received.
The levy provides essential funding to deliver a safe built environment that meets residents’ needs. It complements our broader housing goals, including the delivery of 1.5 million high-quality homes over this Parliament. The levy is designed to minimise detrimental impact on housing supply while securing the required revenue. To achieve this, there are different levy rates for each local authority, which reflect local house prices. This protects viability in areas where house prices are lower. The differential rates are set out in the instrument. Development on previously developed land will benefit from a 50% discount rate. This discount compensates for the often higher cost of developing this type of land, ensuring that more sites remain viable.
The Government are committed to getting Britain building again. Small and medium-sized builders play a crucial role in driving up housebuilding rates but have faced significant challenges in recent years. In fact, just before I came here, I had a very interesting meeting with a round table of SME builders, so I know the immediate challenges they are facing. We are therefore helping SME developers by exempting developments of fewer than 10 dwellings from the levy charge.
Earlier this year, we announced the biggest boost to social and affordable housing investment in a generation. The building of more good-quality, affordable housing must be accelerated. With this in mind, all affordable housing is exempt from the levy charge. However, we have gone further, and any housing built by a non-profit registered provider of social housing is also exempt. Profits from sales of such homes are often reinvested into the provision of further much-needed affordable housing. Supported housing and other types of important community facilities, such as hospices and care homes, are also exempt from the charge. We will keep the rates and processes under review and will report at least every three years. With that, I beg to move.
Lord Young of Cookham (Con)
My Lords, I am grateful to the Minister for her explanation of this substantial SI. Although the formula on page 15 may have deterred the casual reader, I found the Explanatory Memorandum at the end a helpful summary of what is proposed.
I welcome the measure as it is a key part of the package proposed by the previous Government to fund remediation costs after the Grenfell tragedy. Although there is an element of rough justice here, in that developers which were not even around at the time of the Grenfell tragedy will have to pay, the alternative—the remediation costs in those cases where the developer was not remediating the building falling entirely on the taxpayer and/or the leaseholder—was even less palatable.
As the Minister said, this SI originates from the Building Safety Act 2022. At first sight, a delay of four years before it is introduced and a further delay before any money is paid are difficult to justify, given the urgent need to make progress with remediation. However, that does not matter; perhaps the Minister can confirm this. Although the taxpayer contribution is capped at £5.1 billion, the Treasury is, as I understand it, prepared to lend the department additional funds should that cap be reached; it will then recoup the money from future levies. As there is no sunset clause, the levy will remain in place until the Treasury is back in funds.
I have two main concerns about the building safety regime: the speed at which it is happening and the exemptions from the Building Safety Act. I made these criticisms of the previous Government, as noble Lords who were there may recall, and tabled amendments—unsuccessfully—to a variety of Bills. So there is nothing partisan about my remarks.
First, on speed, the department published its remediation portfolio dashboard showing the position as at the end of August this year. Of the 5,554 buildings covered by the Act—buildings are still being uncovered—35% had had their work completed and 14% had work under way. This means that, more than eight years after Grenfell, work has not actually started on over half of the buildings at risk.
The dashboard does not label this as “work not started”. Instead, there is a Whitehall euphemism describing it as “in the programme”. The next time my wife asks me why I have not unloaded the dishwasher, I will say that it is in the programme. Seriously, though, this means that thousands of people are still trapped in unsellable homes with unsafe cladding and fire safety defects, often with high service charges and high insurance—
The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)
My Lords, I apologise for interrupting the noble Lord but the House is about to divide; the Bells will ring in a moment so this would be an appropriate time to adjourn the Committee for 10 minutes.
Lord Young of Cookham (Con)
My Lords, I was explaining that the publication of the remediation portfolio dashboard showed that thousands of people are still trapped in unsellable homes with unsafe cladding, fire safety defects and, often, high service charges and insurance. That is why, writing in the British Safety Council magazine in July, the organisation End Our Cladding Scandal said:
“But on the ground—in the eyes of residents and leaseholders who remain trapped—nothing has changed”.
It went on to say:
“Labour … is failing to deliver on its manifesto commitments on building safety”.
Those are its words, not mine. The Government have a target to complete remediation by 2029 for high-rise buildings and by 2031 for 11-metre to 18-metre buildings. Some 14 years after the tragedy, surely we can do better than that. The Government’s initiative is called the remediation acceleration plan, so might we have some acceleration?
My second point concerns exemptions. The original proposition was that leaseholders, who bear no responsibility at all for what has gone wrong, should not have to bear the costs of putting things right, but that principle has been eroded: some buildings, leaseholders and defects do not qualify. For example, buildings under 11 metres do not qualify even if they have the same cladding as the Grenfell Tower.
The previous Government argued that, in those cases, there was no threat to life as people could escape. But that left the leaseholders in difficulty. In one case, Aviva insisted on cladding removal within 4 months as a condition of insurance cover, with no one else prepared to quote. Leaseholders had to pay £45,000 each. There are many other examples, such as insurers wanting combustible balconies replaced or people being unable to sell because their lender insisted on an EWS certificate, which could not be provided. Those leaseholders have no protection.
The latest RAP—remediation acceleration plan—announces the Government’s intention to
“provide funding in those exceptional cases where multi-occupied residential buildings under 11 metres have life-critical fire safety risks from cladding and do not have an alternative route to funding”.
However, what the insurers and lenders insist on is often not “life-critical”, but the property is unsellable or uninsurable without the work, so the leaseholders have to pay to put the defects right.
There is a separate category of non-qualifying leaseholders—people who invested their life savings in a small number of buy to lets. Where the block is being remediated not by the developer but by the building safety fund, they are exposed to the full costs of non-cladding remedial work—often a high five-figure sum. As this work is carried out at the same time as the cladding, this can hold up remediation for everyone, as the freeholder will not have the cash to pay if a non-qualifying leaseholder cannot pay or sell. In Wales, there are no non-qualifying leaseholders. Those leaseholders are no more responsible for the defects than any other leaseholder. It is a distinction that should be removed, not least to accelerate the progress of remediation.
Some defects are not covered. The 2025 update to the remediation acceleration plan refers only to “unsafe cladding”, often leaving leaseholders exposed to other costs. Again, that is a distinction that should not be there. The leaseholders have no more responsibility for the non-cladding defects than the cladding defects. Those leaseholders who enfranchised, encouraged by successive Governments, are now in a worse position than those leaseholders who did not enfranchise—another inequity.
I make two final points. The Government said in their manifesto:
“We will put a renewed focus on ensuring those responsible for the building safety crisis pay to put it right”.
This SI is about the developers, but what about the construction materials industry, found by the Grenfell inquiry to have been guilty of “systematic dishonesty” and “making false claims” and by which not a penny has been paid? Eight years after Grenfell, the latest update tells us that the Government are consulting on
“robust sanctions, penalties and liabilities for manufacturers”.
Again, progress has been far too slow.
Finally, we know that the Government plan to legislate to address some of the problems I have been outlining. On 6 October, the Secretary of State wrote to End Our Cladding Scandal, saying:
“This will include a new Bill in Parliament to ensure that delinquent buildings get fixed”.
I understand that the Bill will have a hard end date for remediation, with criminal prosecution if it is not done. But this suggests that delinquent buildings will not get fixed until we have the Bill, implying yet further delay. We are told it will be introduced when parliamentary time allows, but that sits uneasily with the Government’s commitment to move things at a faster pace.
Does the Minister understand the frustration of those who, through no fault of their own, face hardship and risks? What can she do to reassure them that the Government will address with renewed urgency the problems that confront them?
Lord Fuller (Con)
My Lords, I declare my interest as a freeholder of a mixed-use building, 15 metres tall, constructed in 2018—post Grenfell—in Norwich. Addressing the consequences of the use of aluminium composite materials in pre-Grenfell tall buildings is the priority that the Building Safety Act is meant to resolve and a commitment that should remain undimmed. Unlike my noble friend Lord Young, I will constrain my comments to the effect of the proposed regulations, which are contemplated to be introduced on 1 October, on the construction of new homes, not existing homes. That does not mean I do not care about the existing homes, but I think we need to view part of these regulations through the lens of the construction industry.
It is common ground that we need more homes, driven not only by the UK population, which the ONS tells us is now just shy of 70 million, but because you cannot sell capitalism to people who cannot accumulate capital—and the best way of doing that, for most families, is by building a stake in their own home. Nothing we do should discourage or disincentivise the need to build the homes our nation needs.
There are enough headwinds in construction already and the Minister probably has some of those ringing in her ears from her lunchtime meeting with SME builders. There are more headwinds to come. The BSA levy is potentially one of those headwinds and could chill construction still further at a very delicate fiscal moment. That is important because if there is no building, there is no levy and there is no money to fix the cladding.
We know that there is a crisis of confidence in London’s building industry. I will focus on London for the moment because a lack of housing starts in London is going to imperil the Government’s nationwide housebuilding ambitions. All historic sources on housing starts point to London being in crisis. The Molior data shows that just 2,000 private homes were started in the first half of the year—a record low. MHCLG data shows that the total number of homes started in the entirety of the 12 months to quarter 1 2025 is 60% lower than the previous record low, set in 1990. The GLA’s affordable data shows that only 347 homes were started in Q1—a record low, following lows in 2024-25. Right up to date, the interim statistics show that in the last quarter for London new starts were 40% lower than the previous low point, with nothing over 18 metres started anywhere.
Developers in London are on strike, and if we cannot sort out building in London, we will never get roofs over people’s heads nationally. This is not just about the levy holding things back; house prices have risen in the capital by 1% since 2015, a previous high point. Berkeley Homes tells me that the bill costs have risen by over 40% in the same period—directionally, half on materials and half on regulatory burdens. So we know that viability is under threat. Planning has previously been fingered as the hold-up for development, but now if you get your planning consent, you need to get building safety regulator approval before you start digging foundations for all the dwelling homes that are excluded from the levy. It is therefore the building safety regulator that is putting speed bumps in the way.
These regulations provide for applications to be made to the regulator before 1 October next year or the levy will apply. That sounds like a long way away, but I am told it is currently taking 44 weeks, at best, for the regulator to reply to an application. More often than not, that reply is in the negative. I have heard of a refusal from the regulator that was evidenced by a single word: “Roof”. That is just not good enough. It is already too late to apply and hope for an approval, with just 50 weeks to go until 1 October 2026. That is also not helping many of the thousands of already completed homes in London that are doing nothing but eating their heads off in interest for want of a final approval.
I have done some research and learned that the reasons for all this relate to the fact that staffing and the transition have not been sorted out between the HSE and the building safety regulator. There is far too much subjective interpretation between professionals, each of whom may be correct in their difference of preference, but either option could be safely implemented. The regulator’s IT system is incompatible with the software that all developers use, particularly because it does not use the indexes. That is important because rather than someone going online, clicking on the screen and being transported instantly to one of the thousands of A0 plans through the index, the regulator’s IT system—I am told—means that you have to search manually through all 1,000 sheets. It is hardly surprising that it is taking so long. We then have the numbers: an additional £60 to £70 per square metre in London—and up to £90 in Fulham—and directionally £25 to £35 elsewhere.
I have consulted developers. More than ever, time is money. Reluctantly, they are prepared to accept the levy—that is good news; there is an alignment on the need and the willingness to pay. But their view— I agree with this, and I ask the Minister whether she does too—is that, before the levy comes into play, the building safety regulator needs to sort out its relationship with the HSE. The software needs to be made compatible with BIM, so that we actually get some productivity. We have to agree to objective, accepted standards for what is an acceptable way of building new homes, rather than be subject to arbitrary preference. There needs to be a response within four weeks and not 44 weeks.
If the builders are making that proposal, I think that it is a fair bargain and that the Government should accept it. Unless they do, the developers’ strike will continue and then no levy will be created at all. That does not help anybody, still less the people for whom my noble friend Lord Young is most concerned.
It is important that we think also about the cash flow. I have looked carefully at the regulations and the implementation. I am concerned that, particularly for a large-scale flatted development, should one go ahead, the entirety of the levy—remember, that it is £90 per square metre in Fulham—would be paid on the entire development at the point at which the very first part of that development had a completion certificate. Just at the point at which the developer is suffering greatest cash stress, the entire bill would be due. I am concerned for the cash-flow viability of these organisations, noting that the Financial Times has reported that, in the entirety of London—a city of 10 million people—in the last quarter, fewer than two dozen new flats have been sold. That is a real crisis point.
Will the Minister recognise that until the system is working smoothly, nobody will start anything over 18 metres and that unless we can get the workability, timescales and IT right, the strike will continue? Will she give a commitment that, at the point at which the levy is introduced, approval times will be down to, say, a reasonable four weeks, because time is money and money is risk? On that basis, there will be a grudging acceptance—but an acceptance none the less—by the industry that we can move forward, and then the people for whom my noble friend Lord Young is most concerned can be remediated more quickly. Unless we get an accommodation between the Government and the development industry on going forward positively, this will not be sorted out and the Government will stand zero chance of meeting their ambitious housing targets, which we should all endorse.
Lord Shipley (LD)
My Lords, I was interested to listen to the noble Lord, Lord Fuller. I note his concerns and hope the Minister will respond to them, but this is such a fundamental issue that it is important that I state that we support the substance of the levy as set out. Indeed, I noticed that the noble Lord, Lord Fuller, said that there is a general acceptance by the industry, despite some of the problems that the Minister will need to address.
I support entirely every point made by the noble Lord, Lord Young of Cookham, and the conclusions that he has reached. I share his concerns about the speed of action—it has been too slow—and the fact that for many leaseholders, nothing in practice has changed. As we have heard, there are deadlines, of 2029 and 2031, which are not far off. However, I hope the Minister will be able to confirm the statement made by the noble Lord, Lord Young of Cookham, that the Treasury might be willing to increase the level of loans to the department. I very much hope that that will prove to be the case.
I have two specific questions for the Minister before I say a few further words. First, I have not understood from the Explanatory Memorandum why there is a three-year review period, as opposed to a shorter one. In the context of what the noble Lords, Lord Young of Cookham and Lord Fuller, said about speed, reviewing after three years seems to be too long a period. Secondly, why does the purpose-built student accommodation have a threshold of 30 bed spaces for exemptions, as opposed to some other number? Why was the figure of 30 decided on?
These are vital regulations, as they implement one of the cornerstones of the Building Safety Act that was the response to the Grenfell Tower tragedy. As we know, the purpose of the levy is to provide funding for remediation that is essential in many residential properties in order to assure the safety of residents. This statutory instrument provides the considerable detail needed, including, for example, exemptions for small developments and social housing, which seem to us to be reasonable.
It also seems right that the levy is based on square metres of floor space, that brownfield sites will have a levy at a lower rate, and that the levy varies according to general property values in a local authority area. The Government broadly have the approach right. However, as the noble Lord, Lord Young of Cookham, so rightly identified, the problem is that many leaseholders are still being penalised by freeholders and managing agents where properties have not yet been remediated. The penalties imposed are via the substantial increases in service charges and, on top of this, innocent leaseholders are paying huge household insurance costs. Will the Government review their approach to defining those buildings at risk? These are not the same as the assessment made by the insurance market, and it is leaseholders who then pay the price, as well as finding that the value of their property has plummeted.
In conclusion, will the Government commit to a review of at-risk properties and the external wall system assessment to provide some hope for leaseholders caught up in a nightmare that is not of their making?
Lord Jamieson (Con)
I declare my interest as a councillor in central Bedfordshire. Fortunately, we do not have many high-rise buildings in rural areas.
In response to the Building Safety Levy (England) Regulations 2025, the principle is absolutely right that those who have profited from residential development should contribute to the cost of making homes safe. It is both fair and necessary. This levy was set up by the Building Safety Act 2022 under the previous Conservative Administration, and it is an important part of wider efforts. I make very clear that we support this, but some issues need addressing.
The Government anticipate that the levy will raise approximately £3.4 billion over the next decade to help fund remediation of historic safety defects, including dangerous cladding. For too long, thousands of residents have lived in buildings that they know are unsafe. They suffer the stress and emotional toil of being in an unsafe building and, as my noble friend Lord Young of Cookham pointed out, they are unable to sell and to move on with their lives. The situation is not of their making. My noble friend made a number of points, and it is crucial that this is done faster and better. I would very much like to know whether the Minister believes that the two deadlines of 2029 and 2031 will be achieved given that, as my noble friend pointed out, around half have not even started. I cannot remember the exact phrase—
Lord Jamieson (Con)
In programme was the phrase; well, we need “in action” rather than “in programme”. We welcome the levy. It has been designed with care and certain exemptions are in place, particularly for smaller developers, social housing providers and community- focused schemes. Those exemptions are vital and they ensure that the supply of affordable and socially beneficial housing is not inadvertently undermined.
The Secondary Legislation Scrutiny Committee’s findings are that the overall impact on house prices and supply is expected to be modest and that the administrative costs are proportionate to the revenues raised, but I want to come on to some of the issues that were raised by my noble friend Lord Fuller. There are two aspects to this: the first is the safety of the people who are in unsafe buildings, which is crucial; the second is that we need to ensure that we are still building buildings for people who do not have a place to live.
Concerns raised by the National Federation of Builders and others about the cumulative impact of regulatory pressure on housebuilding should not be dismissed out of hand. This has its greatest impact on London. My noble friend gave a number of statistics, but Molior’s current analysis suggests that only 15,000 to 20,000 homes will be under construction in London in January 2027. That compares to a target of 82,000 and that was a reduced target. There are 185,000 people living in temporary accommodation in London and over 350,000 in the UK. We need homes, and we need to ensure that whatever we do helps to deliver new homes in a safe and meaningful way, and that there is no cumulative impact from this.
The second part of this—the resourcing and performance of the building safety regulator—is really important. Since July 2024, over 2,000 applications have been submitted for building control at gateways 2 and 3. Of these, 283 have been approved, 670 have been either declared invalid or rejected and 997 are still awaiting approval. Those are delays to buildings. In fact, Building Magazine estimated that one in four that hit stage 4, which is the final approval, are not yet approved: that is hundreds of empty apartments that could be occupied. Therefore, I am again seeking assurance from the Minister on what will be done to speed up the building safety regulator. As my noble friend Lord Fuller also said, the process is somewhat complex; how can we make it more transparent and accessible, so that we can get stuff done more quickly?
Delays or bottlenecks at this stage are slowing down vital safety work and much- needed development alike. As my noble friend Lord Fuller raised, the cash flow impact means that schemes become increasingly unviable, and I have heard a developer say, “We are not starting with this”; not because they are not willing to build safe buildings, but because of the financial risks of unforeseen and unnecessary delays in trying to get through the building safety regulation scheme, and because banks are charging increased interest rates because of that risk to developers. Getting this right is a win-win: we will have more safe buildings and more homes for people. We need to take that into account.
I would like to take a moment to reflect on the wider context. The Grenfell Tower fire was more than eight years ago, and it continues to cast a long shadow in the profound systemic failings in regulation, in oversight and in the way residents’ voices were ignored. Progress has been made since that tragedy, but we must continue to push forward with urgency and determination. The promises made to affected communities must be honoured in full, and the culture that allowed such failures to occur must be permanently changed. In that spirit, we support the introduction of this levy. We believe it is a proportionate and necessary measure, and we will continue to hold the Government to account for how it is implemented. I thank the Minister for bringing forward these regulations and commend the work of all those across both Houses and across all parties who have contributed to this important legislation.
Baroness Taylor of Stevenage (Lab)
My Lords, I am grateful for those very helpful contributions to this debate and for the broad support that these regulations have received from all noble Lords who have spoken. I completely understand the stress and emotional upset that these issues have caused to all those affected by them, not least because I have a building in Stevenage called Vista Tower, which was profoundly affected by the issues. It was not a cladding issue, it was a different issue, but I have dealt with that over the years since those issues were discovered.
I agree with the noble Lord, Lord Jamieson, that for those affected by the Grenfell Tower disaster it has been a very long time indeed. We need to move things on as quickly as we can, not just for all those who are still suffering from the impact of the building safety issues, but for those people at Grenfell who have very bravely and courageously, in my view, used the awful experience that they went through to champion the cause of others who have been affected. I hope we can accelerate this plan so that we can get through these issues as quickly as possible. Indeed, as all noble Lords have recognised, this building safety levy is part of the mechanism to help us do that.
I will pick up some of the individual points that noble Peers have made. If I miss any, I am sure they will stand up and ask me again or I will reply in writing.
The noble Lord, Lord Young, referred to Treasury support and the ongoing funding for this. Remediation funding is already being provided, and the levy launch date does not affect the pace of remediation, so we are not going to slow it down and wait for the levy to kick in. The Government are committed to remediating buildings as quickly as possible, so levy receipts will cover the remaining remediation costs once taxpayer contributions, industry pledges and contractual obligations have been taken into account. It is our intention to keep going within an accelerating plan, not wait until the levy comes in to carry on with this work.
The noble Lord, Lord Young, referred to the scope of the levy. The scope of the levy does not imply responsibility on behalf of levy payers for historic building safety defects. I think the noble Lord was broadly supportive of putting this levy across the board. Developers have to make a full contribution to the overall cost of making buildings safe, reflecting the wider benefit that they derive from a well-functioning market and the substantial funding support the Government continue to provide to the housing market. So, it is being applied across the board.
The noble Lord, Lord Young, and other Peers mentioned the remediation acceleration plan. Clearly, eight years on from Grenfell there is no justification for any building to remain unsafe. Our goal is clear: to remove the barriers to remediation, to get buildings fixed faster and to allow residents to, at last, feel safe in their own homes.
An update on the remediation acceleration plan was published in July and outlined our plan to bring forward a remediation Bill in order to create a hard endpoint for remediation. A proposed legal duty to remediate will compel landlords to remediate buildings within fixed timescales or face criminal prosecution.
The RAP set timescales to provide greater clarity to residents on when they might expect their buildings to be remediated. As noble Lords have recognised, we expect that, by the end of 2029, every building over 18 metres in a government funding scheme will be remediated and every building over 11 metres with unsafe cladding will either have been remediated or have a date for completion, or else its landlords will be liable for penalties.
Lord Jamieson (Con)
In the comment she just made, the Minister said that all buildings over 18 metres will be done by 2029 and that all buildings in the second category will, by 2031, either be done or have a completion date. The completion date could be one or two years away.
Baroness Taylor of Stevenage (Lab)
It is expected to be a reasonable date. We are not going to let people push it forward another 10 years, for example; that would be unreasonable.
I note noble Lords’ comments about the insurance industry. We continue to work with the insurance industry on this matter. I understand that this is a difficult issue.
The noble Lord, Lord Young, asked about non-qualifying leaseholders; I know that this matter has been a very sore point with such leaseholders. The leaseholder protections were designed to protect people living in their own homes. That is why the threshold was set at ownership of three properties in total: to distinguish between owner-occupiers and those who have made investment decisions. However, there is still substantial support. All leaseholders benefit where a responsible developer has been identified or where the freeholder is or was associated with the developer, and all leaseholders benefit from protections in relevant buildings if it is their principal home.
Where no responsible developer can be identified or made to pay, the cladding safety scheme funds eligible cladding remediation for buildings over 11 metres, ensuring that leaseholders do not face cladding bills. The law also allows for the recovery of costs for interim measures and expert reports via remediation contribution orders, placing costs with those responsible rather than residents. Even if some leases are non-qualifying—those for investment properties, for example —a leaseholder’s principal home on 14 February 2022 in a relevant building can still be a qualifying lease and benefit from protections if it meets the statutory criteria.
On the issues around construction product manufacturers, the power to charge the levy in the Building Act 1984 do not allow for it to be charged on construction product manufacturers. In February 2025, the Government published the construction products Green Paper, setting out comprehensive proposals for system-wide reform of that construction products regime. We are reviewing consultation responses, including on measures to introduce sufficiently robust sanctions, penalties and liabilities in order to hold economic operators, including construction product manufacturers, to account. The Government are committed to ensuring effective redress for manufacturer failings, whether they are historical or arise in future.
The cost of remediation must be shared equitably among those who have profited from or have an interest in the development and construction of unsafe buildings. It is unacceptable that some construction product manufacturers have not yet made a fair contribution to resolving this building safety crisis; I want to be very categorical about that. The Building Safety Act introduced new provisions in Sections 147 and 151 to enable developers, building owners and leaseholders to bring a claim against construction product manufacturers and suppliers where a product has been mis-sold or is inherently defective; Section 149 allows claims for historical defects where cladding products have rendered a building unfit for habitation. These provisions create redress routes where no direct contractual relationship exists.
Developers sit at the apex of the industry and are therefore well positioned to take the lead in funding and co-ordinating remediation works. Once they are complete, developers can seek to recover costs from the other parties involved in the supply chain. We are currently reviewing those sections of the Building Safety Act to make sure that the redress routes are robust, support effective cost recovery and promote accountability. We will provide an update on that later this year.
On the protection for buildings over 11 metres or five storeys—we have had this discussion before—evidence shows that problems with historical fire safety defects are concentrated in medium and high-rise buildings, where the risk to life tends to increase with height. By contrast, buildings under 11 metres typically present lower risks and can often be managed with other proportionate mitigations rather than remediation schemes. I know that there is a dispute with the insurance industry over that and, as I said, we continue our dialogue with it.
Leaseholders in collectively owned buildings are excluded from the leaseholder protections because the freehold is owned by some or all of the leaseholders, and the protections would therefore not have their intended effect. Collectively owned buildings are still eligible for the Government’s cladding safety scheme and the responsible actors scheme, and they can also bring remediation contribution orders against former owners, developers or associated persons. We are committed to reviewing how better to protect leaseholders from costs.
The noble Lords, Lord Fuller and Lord Jamieson, raised the pace of housebuilding and its impact. The levy has been designed to minimise potential housing supply impacts while balancing the need to raise the revenue required to make homes safe. All the issues raised with me at the SME round table I attended earlier this afternoon are already being explored and looked at, and I will continue that dialogue with those people. I have undertaken to give them some feedback.
Developers have had plenty of notice that the levy is coming and to include it in their viability plans. It was announced in 2021, and developers have had 15 months from being provided with the detailed design until the launch in 2026. Levy measures to minimise the housing supply impact—I mentioned these in my introduction—include variable levy rates at local authority level, the discount on developments on previously developed land, exemptions for affordable housing and developments of fewer than 10 dwellings. We expect that the cost of the levy will, in time, be reflected in the price that developers pay for land. Affordable housing is exempt from the building safety levy, and the Government are unlocking housebuilding at an unprecedented level. We have already taken urgent action through the planning reforms, which we will discuss next week, and through the £39 billion of investment for social and affordable housing.
I will make some comments on the building safety regulator because it is really important and noble Lords have mentioned it. Local authorities will administer the levy even when the building safety regulator is the Building Control Authority. The levy has been designed to minimise additional responsibilities imposed on the BSR. On 30 June, we announced a new phase for the BSR, including strengthening the leadership of that organisation, tackling operational challenges and moving it from the HSE to a stand-alone body. The building safety regulator has been open and transparent about the challenges of implementing a significant shift in the way building safety is now regulated in high-risk buildings.
The BSR has implemented a range of operational improvements, and it will recruit over 100 new staff to strengthen capacity by the end of the year. Over the past three months, the BSR has made major changes to improve the processing of gateway 2 applications, including a new fast-track innovation unit. Early indications suggest that the new model is working effectively. We expect the model to start to deliver improvements in processing times in the coming months, and we continue to commit to the highest standards of safety. The fast-track process is about refining a new system, not stepping back on commitments. I take the noble Lord’s point about the quality of responses; it is clearly not acceptable to send a response back with just “roof” written on it. I will take that back. His points about digital compatibility are well made. I will take those back and reply to him in writing.
On the payment point, I understand that the levy is paid at building control application, and in a major development that would probably be phased, so the building levy would be applied in that phased way. The noble Lord asked for a delay to the introduction, but developers have already had 15 months after being provided with the detail, so I do not think that that would be justified.
On the SME point, we are still consulting on the issue around medium-sized developments. I will respond in due course, once we have analysed those responses.
The noble Lord, Lord Shipley, asked about reviews. They can be more frequent—the minimum is three years—and there will be a continual review process. We need a balance, providing certainty with an ability to amend in the light of changing circumstances. We will continually keep this under review. In response to his question about PBSA, 30 bed spaces in PBSA are roughly equivalent to 10 dwelling-house thresholds, so that is why it has been set at that rate.
In conclusion, we think that the building safety levy is essential to fund the remediation of these historic building safety issues without further burdening residents and leaseholders, who have already suffered quite considerably through all this. The Government are committed to delivering 1.5 million homes to meet the country’s long-term housing needs and to unlock growth. That must work in parallel with our commitment to remedying the building safety failures of the past. The industry that contributed to such problems must pay to remedy them. The draft regulations set out a fair approach to collect the required funds, while ensuring minimal impact on housing supply and industry.
Lord Jamieson (Con)
The Minister very kindly commented on the improvements in the speed and transparency of the building safety regulator—that is very good. Is there a timetable of targets for how quickly it will turn around gateway 2, gateway 3 and gateway 4? I do not expect an answer now, but, if so, would the Minister be kind enough to write to us on that?
Baroness Taylor of Stevenage (Lab)
I thank the noble Lord for his comments. A new person—Andy Roe—is in charge of the building safety regulator. It would be helpful for me to ask Andy to draft a letter for noble Lords to set out our progress on making the BSR more effective.
Aviation Safety (Amendment) Regulations 2025
(1 day, 12 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Hendy of Richmond Hill
That the Grand Committee do consider the Aviation Safety (Amendment) Regulations 2025.
Relevant document: 34th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)
My Lords, noble Lords will wish to know that the Joint Committee on Statutory Instruments has considered a draft of the order before it was laid and then gave informal pre-laying approval. After the draft order was laid on 16 July, it was formally cleared by the Joint Committee. Likewise, the Secondary Legislation Scrutiny Committee formally cleared the draft order. The committee raised no specific concerns about this instrument, although it noted it as an instrument of interest, the reasons for which will be addressed later in my speech. Prior to this, the department had responded to preliminary inquiries from the committee’s clerk to the satisfaction of the committee.
This instrument amends existing aviation safety regulations to update and rationalise requirements for the maintenance and repair of aircraft, and to clarify the Civil Aviation Authority’s powers of delegation. These amendments ensure that UK law remains clear and proportionate.
I will start by providing some background information about these regulations. UK airspace and airlines are among the safest in the world. Even with this success, we are not complacent, and the Government are committed to maintaining and improving the high safety standards in aviation. The UK is therefore committed to ensuring that technical requirements remain up to date, and in line with international standards and best practice set by the International Civil Aviation Organization. The Civil Aviation Authority is the UK’s independent safety regulator, responsible for advising the Government on amendments to technical aviation safety requirements and regulations.
Baroness Foster of Oxton (Con)
My Lords, I thank the Minister for his comprehensive outline of this topic. I seek clarification on two areas.
In paragraph 6.4 of the EM, reference is made to low-risk parts. Paragraph 5.4 also talks about allowing
“certain aircraft components to be installed without needing a Form 1, as long as they are declared safe by the design organisation”.
I want a little clarification here on what is defined as a low-risk part. I ask this for the right reasons, having spent 25 years in the industry—much of that time onboard aircraft—and having dealt with primary legislation for many years as a Member of the European Parliament.
In 1990, there was an incident involving a BAC 1-11. When a windscreen was replaced, the incorrect screws were used. That caused what we would have called a rapid decompression; they called it an explosive decompression. I knew the crew. The captain survived; he was swept out of the window. Since that accident, there was also a rise in fake parts, about which the industry was very concerned. Barcoding was introduced to ensure that the equipment, parts and components were all absolutely authentic.
My point is that the component that caused the accident was a tiny screw. You would look at it in the round as being a fairly low-risk component. It was just a general thing; it was nothing complex. I ask the Minister: what do the Government consider “low-risk parts”? Would they be used on certain parts of an aircraft that would not require a Form 1? We cannot be too general about these things because there is always a chain of events; the smallest component can cause a technical incident or accident. That is my first point.
My second point concerns drones. I drafted the drone report in the European Parliament in 2015. It was about the civil use of drones and the rise in the industry. The CAA has been extremely good. We have a fantastic organisation in it—as well as an excellent Department for Transport, if I may say so, having worked closely with many members of that department over time. My question is: does the CAA intend to delegate the assessment of drone pilot competency and of drones’ flightworthiness to third parties? The CAA has introduced excellent training for drone pilots—it did that itself—but who would these third parties be, in terms of taking over the role that the CAA currently holds, in which it is absolutely diligent in giving out licences?
Lord Kirkhope of Harrogate (Con)
My Lords, following on from my noble friend Lady Foster, I will touch on the second point she raised, because it is relevant. We have a situation where the CAA’s delegation and decision-making powers are being changed because of the nature of the arrangements with the European Union.
This whole set of regulations is part of a much broader project led by the CAA at the moment, which deals with, among other things, the simplification of the licensing and training of general aviation pilots—of which I am one. The issues around the changes in licensing are very important, because they bring about the ability of someone, who, like me, flies a single-engine piston aircraft, to fly an electric aircraft. I will not go into the shock-horror that the likelihood of me flying an electric aircraft is equivalent to my enthusiasm for driving an electric car, which is rather limited at the moment.
My question, which follows on from the point raised by my noble friend Lady Foster, is about the delegation of powers to the CAA. She raised a very good point on drones, but I would like the Minister to set out for us whether there were any changes as a result of these circumstances in the agencies, which can have a delegation from the CAA to make decisions, and whether that is adequate in terms of who looks into which agencies can have those delegated powers.
I will raise another point. This statutory instrument does not appear to have happened through impact assessments or anything else; it is a usual statutory instrument where nothing seems to have been necessary to draw to anyone’s attention. To what extent are the resources of the CAA being tested, as a result of these regulations or of ones that have been envisaged? As I think we are all aware, the CAA is short of cash. It is already doing a considerable number of functions, including coming up to date on the things that I have referred to: technology, licensing, the training of pilots and so on.
There is also the question of safety, which develops inexorably as we go along due to the rise of new-generation aircraft. There is also the issue around airports, including the changes in the control zone basis of airports, which must be costing the CAA considerable sums of money. Can the Minister also confirm that there are adequate resources for the operation of the CAA to pay agencies or others to which it delegates powers, and that he is satisfied that we will not need to go back to the Treasury and ask it for more cash? Safety in the air—the safety of training and the other uses of pilots et cetera—must be paramount if our skies are to be secure.
Lord Moylan (Con)
My Lords, I express my gratitude to the Minister for arranging a very helpful briefing by officials.
Like my noble friend Lady Foster of Oxton, I had some concern about the abandonment of the use of Form 1 for certain non-safety critical parts. We can rely only on the personal assurance of the Minister that, in proceeding in this route, he and his department will take full responsibility for the consequences of that decision. As my noble friend pointed out, the notion of a non-safety critical part can be deceptive because of the close integration of every working part on an aircraft. We cannot challenge the statutory instrument on that basis; we have to accept that the Minister and his department know what they are doing and that they are willing to accept the responsibility that falls on them from pursuing this proposal.
I also share the caution expressed by my noble friend Lord Kirkhope of Harrogate about the delegation of Civil Aviation Authority powers, and I look forward to hearing what the Minister has to say about that. Beyond that, and with those reservations, the Official Opposition have no objection to this instrument, which consists largely of consolidation and clarification. We have no objection to it, but we would like to hear the Minister’s response on those areas that cause us some potential concern.
Lord Hendy of Richmond Hill (Lab)
My Lords, I thank all noble Lords for attending the debate and for their input. I listened intently to the highly experienced noble Baroness, Lady Foster. She raised a valuable point about the minute parts that might cause a serious failure. I recall the example used, albeit not as a practitioner. The answer to that is that type certificate holders will have a design process in place to establish the potential failure impact of every part, and that design process has to be established by the CAA as adequate. Any potential failure must be shown to have a negligible effect on the functioning of the aircraft. The screw that the noble Baroness referred to, part of the assembly of a windscreen, would be considered within the design process so that it would not be excluded from form 1 if the design process for the more major component was safety critical. You could not exclude the screws and still have the windscreen assembly—that is the practical answer to that question.
The noble Baroness asked who the CAA will delegate to. I cannot give her the names of the third parties, but the CAA has set out stringent requirements for third parties to be qualified entities. Qualified entities will be subject to an audit regime to ensure continuing compliance with the CAA’s requirements. They will clearly need sufficient subject matter expertise and regulation capacity, and the CAA will accredit and monitor their performance to ensure continuing safety. The CAA has to set out in detail how it intends to assess the competence of qualified entities for drone flightworthiness, assessment and training. It has experience of doing that in respect of how it dealt with the pilots of fixed-wing and rotary aircraft, so we are entitled to conclude that those processes are robust.
The noble Lord, Lord Kirkhope, referred to the delegation of powers. The criteria are more or less what I have just said, but if there is any omission from the explanation that I should have given as a consequence of his question, I will write forthwith. As for the testing of adequate resources for the Civil Aviation Authority, I believe that it is the Government’s responsibility to ensure that the resources are adequate and that it has adequate resources to pay the agencies to which this work should be delegated. Again, for the avoidance of doubt, I will write to the noble Lord and confirm that that is the case in respect of this element of these regulations.
The noble Lord, Lord Moylan, rightly asked whether the department, and I as the Minister proposing these regulations, take responsibility for them and for the proposal to delegate. The answer to that is, of course, yes. The department should not propose such regulations without feeling confident that it is competent to propose them and that what it is proposing is the right thing to do.
I believe that I have answered all the points raised. I conclude by saying again that the safety of aviation and of the travelling public is a priority for the Government. My department is committed to ensuring that aviation remains safe. The draft regulations form part of an important legislative programme which implements proportionate best practice in aviation safety regulation. I commend the regulations to the Committee.
Baroness Foster of Oxton (Con)
When I referred to the screws, the noble Lord quite rightly pointed out that we were looking at the design, et cetera, which makes sure that it is a bona fide part. The air accident that took place was not because the screws themselves were badly designed, or that they failed because of what they were, it was when they were fitted—it was the incorrect component. There is a differentiation here between something failing because of a design fault and something failing because the incorrect component has been fitted into a specific, probably critical, area of an aircraft. Could I just leave that with the noble Lord? I thank him.
Lord Hendy of Richmond Hill (Lab)
I am very happy that the noble Baroness leaves it with me. I will make sure that I write to her. I recognise the issue that we are dealing with—the incorrect fitment of correct components.
Companies (Directors’ Report) (Payment Reporting) Regulations 2025
(1 day, 12 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Leong
That the Grand Committee do consider the Companies (Directors’ Report) (Payment Reporting) Regulations 2025.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, late payments are estimated to cost the UK economy close to £11 billion per year. Small businesses are the backbone of our economy, employing millions of people and enriching our lives. Late payments lead to 14,000 business closures each year—an average of 38 businesses per day.
The Government have already taken action to improve payment practices. In February, the new Fair Payment Code was launched, and we introduced secondary legislation requiring construction businesses to publish reports on their retention payment practices. In July, we launched a public consultation considering additional legislative measures to hold businesses to account on payment performance. This will go even further and will be the most significant legislation to tackle late payments in over 25 years and will give the UK the strongest legal framework on late payments in the G7.
These regulations will further increase transparency around the payment practices of large businesses, building on existing regulations that have already helped to improve payment times across the United Kingdom. We want to continue that trend by introducing payment data headlines into directors’ reports. Large companies are already under a duty to report biannually on their payment practices and performance. These regulations will require large companies to disclose payment reporting data within a directors’ report required under the Companies Act 2006, further increasing the transparency of payment performance to their boards, shareholders and auditors.
As a former business owner myself, I know all too well the importance of paying small businesses on time, and that is why I am proud that the Government are bringing forward these regulations as a means to tackle this issue and to support small businesses across this country.
I will now outline the key elements of this statutory instrument. These regulations amend Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and introduce a requirement for large businesses to report information about their payment practices within their directors’ reports. The payment data headlines will include statements on payment practices, including the average time to pay, as well as the percentage and sum of payments made before 30 days, between 31 and 60 days, and after 60 days. It will also include the sum and proportion of payments that were not paid within the agreed payment period.
This data will publicly illustrate a company’s approach to payment. This is only a small ask for large businesses, which will help with the continuous improvement of payment times. The Government are committed to ensuring that this legislation continues to work, and this instrument will be subject to a review within five years. I hope that everyone present today can see the benefits that these regulations provide and agree with the introduction of this affirmative statutory instrument. I beg to move.
Lord Sikka (Lab)
My Lords, I thank the Minister for his introduction. I have a few questions for him, mainly because I have been unable to answer them for the businesses that have written to me about the statutory instrument.
First, can the Minister confirm that the payment practices disclosure regime—the PPRR—still remains in place, and that the directors’ report is an additional place where this information will need to be disclosed? If so, that means that SMEs will need to look in more than one place to find out what a particular large entity’s payment policy is. Would it not have been better to streamline the policy and have it all in one place? That would have at least reduced the search costs for businesses.
Secondly, this legislation appears to have a very limited scope. For example, it does not apply to the public sector. Do their SME creditors not matter? Do they not need to know the disclosures? The disclosures in the directors’ report regime do not seem to apply to medium-sized companies, which have thousands of SME creditors.
Thirdly, does this apply to LLPs? My reading of the SI appears to suggest that it does not. Private equity operates through limited liability partnerships, and some of those entities are larger than many of the large companies, yet they are not being required to disclose the payment policy either. Can the Minister clarify why the SME creditors of those entities should not be informed of the payment policies? The economic landscape is shifting and, in particular, private equity operating through LLPs is becoming more powerful. I hope that the Minister will not say that it would cost more to require medium-sized companies or LLPs to publish this information, because any business worth anything would already know the schedule and analysis of its creditors.
There is also an issue about who will check this. There is no check on the authenticity of disclosures. If the disclosures were in the notes to the annual accounts, external auditors would have to corroborate that information; in other words, they would need to verify whatever management has disclosed. However, the Government have chosen to put these disclosures in the directors’ report. The directors’ report is not explicitly subject to an audit, so anyone can dream up any number when they are analysing the age of the creditors and put it in the directors’ report—there is no way of knowing.
Lord Fox (LD)
My Lords, I was surprised to hear the noble Lord, Lord Sikka, describe this SI as looking persuasive, as nothing he said prior to that indicated that that was how he felt. I will pick him up on one point on auditors, having been responsible for the content of dozens of annual reports at a corporate level: although the auditors may or may not have had a legal responsibility for directors’ reports and strategic reports, there is not a single directors’ report or strategic report for which I have been responsible where the auditors did not pick up and verify the points within. I am merely observing this; I do not think we need a debate on it because it is not relevant to the statutory instrument. It was just because the noble Lord brought it up.
Late payment remains a significant issue for UK businesses, as the Minister said—particularly small businesses but other businesses too. Our calculations show that, in 2024, small businesses were owed an average of £21,400 in late payments. This clearly has a significant effect on cash flow and it creates a real challenge.
Without cash flow, business viability is threatened and people are unable to invest in their businesses. Late payment undermines growth and drives some firms out of business. Some businesses use their suppliers’ balance sheets to fund their cash flow. We have seen notorious examples of this; for example, it seemed that Carillion’s entire business model was based on funding its activities through the cash flow of its supply chain. This sort of statutory instrument should be able to identify those operators effectively.
This legislation goes some way to strengthening transparency around how large companies pay suppliers. Here, I agree with the noble Lord, Lord Sikka: it is not a universal panacea but a small step, and we should be careful not to invest too much in this step. Businesses have been expected to report on a number of issues, such as their environmental performance and the number of women in particular roles, for many years, yet change at the corporate level has been very slow despite the transparency that was earned through legislation.
This SI should enable investors, auditors, shareholders and potential suppliers to get a better idea of what a company is about, as much thematically as definitively. If a company always files late numbers, that tells you something about how the business is managed; in some cases, one-off things may make that happen. As the Minister set out, though, there is more to be done. However, he did not mention the role of public procurement, which is vital to driving the right behaviours in business. I would like the Minister to talk about that and accept that the Government have a strong leadership role around public procurement and that there is still a lot of work to be done.
That said, taking into account its limited objectives, we support this statutory instrument.
Lord Sharpe of Epsom (Con)
My Lords, following on from the noble Lord, Lord Fox, so do we.
As the Minister rightly outlined, this instrument introduces new requirements for large companies to report annually, through their directors’ reports, on their supplier payment practices and performance. Although the content of these disclosures remains broadly in line with the existing reporting framework, the shift to include them in the directors’ report—alongside their existing publication on the government portal—is a notable development in terms of transparency and scrutiny.
We recognise the intent behind these regulations and support the objective of improving payment practices, particularly given the long-standing and well-documented impact of late payments on small businesses. At this point, I was going to take a detour into some statistics, but the noble Lord, Lord Fox, has shot my fox and quoted them already. We do have a few questions, though; they follow on from those asked by both of the previous speakers.
First, how will these new reporting obligations interact with enforcement? Transparency is important, but it must be coupled with accountability. Will the Government monitor compliance with these new requirements? Are there plans to review their impact in due course? I think I heard the Minister say that there is a plan to review these measures in due course; I would be grateful if he could confirm that.
Secondly, although the inclusion of this data in the directors’ report means that it will be seen by shareholders and auditors, does the Minister expect this alone to drive behavioural change? Beyond disclosure, what further steps are the Government considering to tackle poor payment practices where they persist?
Thirdly, we note that the instrument does not introduce changes to the underlying payment terms or practices; it merely brings reporting into a different format. Do the Government believe that there a risk that companies may comply in form but not necessarily in substance?
None the less, from these Benches, we continue to press for action to support small businesses and ensure that they are paid fairly and on time. On that, we share the ambitions of the noble Lords, Lord Fox and Lord Sikka. The problem of late payment is persistent, and while the measure may support transparency, it must not become a substitute for enforcement or cultural change. On that basis, we do not oppose these regulations. We urge the Government to treat them as part of a broader, ongoing effort to improve business practices and protect small suppliers.
Lord Leong (Lab)
My Lords, I am really conscious of what is happening in the Chamber, so I will try to be as comprehensive as possible and brief at the same time. I am really grateful to noble Lords across the Committee for their contribution. It is evident that we all agree that tackling late payments is crucial for driving the economy forward and I thank all those who have spoken in this debate. I will try and answer as many of the questions as possible, especially those from my noble friend Lord Sikka. If I have not answered all his questions, I will go through Hansard and write to him.
My noble friend Lord Sikka asked why there are so many places where businesses have to report on their payment method. This gives businesses two places where they can look for the same information. It should not increase costs, and it basically gives flexibility and the choice for businesses as to where they look for this information. I would say it is good that there is not only one place but various places that they can look for such information.
The noble Lord asked who enforces company law. I am sure that he will know that Companies House is also an enforcement agency, and we have invested a fair bit to ensure that it is able to enforce company law accordingly.
The point about directors’ reports not being audited is not correct. Auditors do audit directors’ reports under the Companies Act 2006. They must say whether information in the directors’ report is consistent with the annual accounts and must highlight any material misstatements or inconsistency.
The noble Lord also pressed on the Reporting on Payment Practices and Performance Regulations 2017, which also applies to LLPs. This requires large business in the UK to publish information biannually about their payment practices and performance to the GOV.UK portal. Initially introduced in 2017, these regulations were amended in 2024 and 2025 following a 2023 consultation. The current regulations do not apply to LLPs because LLPs do not publish a directors’ report.
The noble Lord, Lord Sharpe, asked about enforcement. The Financial Reporting Council has a responsibility to review the annual reports and accounts of large companies for compliance with accounting standards under the Companies Act 2006. Where potential non-compliance is identified or suspected, the FRC can write to the company for further clarification and will aim for voluntary amendment of the disclosure in subsequent periods. Where this is not possible, Section 456 of the Companies Act 2006 gives the FRC the power to apply to the court for a declaration that the directors’ report does not comply with the Act. In such circumstances, the court can order that the preparation and distribution of revised accounts be carried out at the directors’ personal expense.
The data produced by this report is analysed by the Department for Business and Trade and used to evaluate whether payment practices are improving. We can use this information to determine how beneficial the relations have been and where we can do more to help improve payment times. This regulation will be subject to statutory review on or before 6 April 2029.
Further, the Reporting on Payment Practices and Performance Regulations 2017 requires that large companies report their payment performance twice a year.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
My Lords, a Division has been called. The Committee will suspend for 10 minutes.
Lord Leong (Lab)
My Lords, I want to add to the point about enforcement that the noble Lord, Lord Sharpe, asked about. We have stepped up enforcement of these regulations and are currently writing to companies that we have identified as failing to comply with their reporting requirements. Out of the more than 500 companies contacted so far, over half have already returned to compliance or committed to do so. If necessary, we will take forward criminal prosecutions for non-compliant companies, which could result in an unlimited fine and criminal records for responsible company directors.
The noble Lord, Lord Fox, and my noble friend Lord Sikka asked about public procurement. Ministers from the Department for Business and Trade and the Cabinet Office have jointly written to government departments reminding them of their obligations to comply with the Procurement Act 2023, which compels public sector bodies to pay their suppliers within 30 days. It is vital that government leads by example. Government departments publish information about their payment performance in line with transparency requirements. The latest report shows that the Department for Business and Trade pays 96% of invoices within five days and 99% within 30 days.
The noble Lord, Lord Sharpe, asked what additional measures we are taking. As I said in my opening statement, we launched a public consultation in July 2025, including primary legislation measures that have not been consulted on previously. In this consultation we are proposing to increase the role that audit committees play in assuring payment performance data and to introduce measures to set maximum payment terms at 60 days without exception. Furthermore, we are consulting on the mandatory payment of interest-only invoices. We are also consulting on strengthening the Small Business Commissioner with additional powers to investigate poor payment practices and resolve late payment disputes. More importantly, we are also consulting on the practice of withholding retention payments, especially in the construction sector, to either prohibit the use of retentions or require firms to protect retentions from insolvency or non-payment. We will do more and are consulting to do more.
This Government are committed to tackling late payments. We want to make the UK the best place in the world for businesses. We believe that this legislation is an important step towards improving businesses’ payment practices and tackling the scourge of late payments. Small businesses are the backbone of the economy and as part of these regulations and the wider package of measures, we are delivering the biggest reform to payment regulations in 25 years. These regulations are just the first step in a wider package of measures that will be the most significant legislation to tackle late payments. I commend them to the Committee.
Lord Sikka (Lab)
My Lords, may I take a few moments to respond to a couple of things that have been said?
Lord Sikka (Lab)
I will be. A point was made about the auditors looking at the directors’ report. The law requires auditors to see that the directors’ report is consistent with the view given by the audited financial statements, but it does not require auditors to audit the directors’ report. There is a fundamental difference between examining and auditing. The Minister made a point about Companies House. Companies House is a giant filing box: it does not verify the contents of the financial statements, and no one at Companies House will be checking to see that the directors’ report has the information required by this statutory instrument.
Lord Leong (Lab)
I am afraid I disagree with my noble friend on the point about auditors. Auditors have to audit the entire company’s accounts and what is published in the directors’ report and form a view as to whether the directors’ report reflects what is happening in the company. On the point about Companies House, it is an enforcement agency and it has powers to enforce the law itself.