Companies (Directors’ Report) (Payment Reporting) Regulations 2025

Wednesday 15th October 2025 Grand Committee

Considered in Grand Committee

17:37

Moved by

[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.

17:45

Can the Minister explain why the Government chose the directors’ report for disclosures rather than the notes to the accounts? What if the disclosures are inadequate, deficient or misleading? That is not beyond the realm of possibility. The Minister knows that the UK does not have a central enforcer of company law. In its absence, can he explain who would be responsible for monitoring and enforcing the legislation that he just presented? It seems that there is absolutely nobody. I know from experience that the department of trade stands in as a regulator by default, but you will then be chasing your tail, because the department acts not only as a regulator but as a promoter of the industry: judge and jury—the whole lot. The outcome will be incredibly unsatisfactory.

Disclosures are always helpful in giving things visibility and enabling us to talk about them because they have been given visibility. But transparency alone cannot empower stakeholders; there has to be some mechanism for action. Where is the mechanism to ensure that SMEs will not be exploited by large companies? I cannot see any. If a company is squeezing creditors, which government department or regulator would respond and what would it ask the company to do? Would it ask it to go easy on SMEs or what?

SMEs are in a comparatively weak bargaining position when it comes to dealing with large companies. They do not have the same market power, financial power or even political power. They cannot come along, buy political parties or hand consultancies to legislators and say, “Please look after our interests”, whereas large companies can do that with considerable ease. If a small entity objects to an extra-long credit period demanded by a large company—for example, a large supermarket, phone, energy, water or other company—that large company can always find an alternative source of supply. There is nothing that small companies can do to stop them and they are inevitably blackmailed into accepting whatever the large companies impose on them.

Through this legislation or any other, the Government are not really addressing these power asymmetries. It is hard to see how disclosures, on their own, would improve the bargaining position of small or even medium-sized companies. The Government could have supported SMEs to form co-operatives and act together to secure better trading terms from large corporations, but no such policy has been developed by any Government for as long as I can remember. They could reform insolvency laws to help SMEs. In the event of a bankruptcy of a major customer, SMEs rank as unsecured creditors and recover almost nothing of the amounts owed to them. If the insolvency law were changed—say, for example, 30% to 40% of the proceeds from the sale of assets were reserved for unsecured creditors—SMEs would get something, which would enable thousands of them to survive to become the next big giant business that we badly need. But that is not on any Government’s agenda either.

Overall, this legislation looks persuasive, but I very much doubt that it will change the power relations between SMEs and large companies. I hope the Minister will answer my questions.

[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.

17:59

Sitting suspended for a Division in the House.

18:10

[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 Fox (LD)]

The Minister has sat down.

[Lord Leong (Lab)]

My noble friend must be very brief.

[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.

Motion agreed.

Committee adjourned at 6.15 pm.