Commercial Payments Bill [HL]

Committee stage
Tuesday 21st July 2026 Lords Chamber

Committee

Northern Ireland, Scottish and Welsh legislative consent sought. Relevant document: 2nd Report from the Delegated Powers Committee.

17:17

Clause 1: Payment terms

Amendment 1

Moved by

[Lord Holmes of Richmond]

1: Clause 1, page 2, line 5, at end insert—
“(1A) The purchaser must advise the supplier how the supplier should submit notice as set out in subsection (1).(1B) Where the purchaser fails to advise the supplier on how to submit notice, the supplier may rely on the notice commencing by submitting a written document (for example, a delivery notice or invoice) to the person requesting the goods or services within the purchaser’s business. (1C) The purchaser must adopt internal systems that recognise that the serving of notice commences at the point the supplier complies with subsections (1A) and (1B).”Member's explanatory statement
This amendment seeks to require the purchaser to give instructions as to how notice should be given. Where the purchaser gives no advice on notice, the supplier may rely on notice having been given by providing a delivery notice or invoice to the person within the purchaser’s business who is requesting the goods or services.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to start this Committee on the Commercial Payments Bill. In doing so, I declare my relevant technology interests as adviser to the Crown Estate and Simmons & Simmons LLP, and as non-executive director of the Avalanche Foundation and Avalanche (BVI) Inc. The Bill is incredibly significant, particularly for a small business or microbusiness which has found itself for far too long on the wrong end of late payments.

In many ways, my Amendments 1 and 9 in this group go to the very essence of the Bill. There is much that is significant in the Bill but, largely, all of it is subsequent to that fundamental point around the 60-day and 30-day payment periods. Everything else in the Bill is largely supportive of that reality, so this first group of amendments addresses the fact that it is critically important that the Bill is absolutely precise as to when the clock starts and ends. As the Bill is currently drafted, it is not only entirely possible but an actuality for thousands of businesses that they will be told that they will receive 60-day payment terms, when in reality the payment may not arrive within 60 days, 80 days, 100 days or up to 120 days. That will still be possible if the Bill remains in its current form. There needs to be greater precision about the start point and end point of that clock.

Amendment 1 in my name addresses that start point and suggests that the purchaser has to give clarity to the supplier about how they are to give notice. This is critical because at the moment time can disappear, with an invoice or other notice being given by the supplier in good faith only for them to find themselves bounced around that often larger business—this is not necessarily because it is gaming, although sometimes that is certainly the case, but because of its multidepartmental and multipoint nature—until that 60-day clock starts. Amendment 1 addresses this and would sharpen up how that notice period has to begin. If clarity is not provided, the amendment would give clarity in that the notice can be deemed to have been given by the provider of the product by means of a recognised document that anybody in business would recognise—the obvious one being an invoice.

Similarly, Amendment 9 goes to the issue of verification. It would stop, as a consequence of the Bill, verification being used to expand or extend terms other than what the Bill seeks to achieve. Together, the amendments look at the start point of the clock and would give the precision required to stop days going by before day one is triggered. We will come to amendments in later groups about effective precision around ending the clock, but these amendments, particularly Amendment 1, would give the precision required for all involved to know that day one means day one. I look forward to the debate and the Minister’s response. I beg to move.

[Lord Fox (LD)]

My Lords, I will speak to Amendment 10 in my name. Before that, I commend the noble Lord, Lord Holmes, on Amendments 1 and 9. These seem to be eminently sensible suggestions. I wonder whether, if the Small Business Commissioner makes very clear their view on when the clock starts ticking, that would make it very clear should any dispute become necessary. At the very least, there needs to be clarity from the Small Business Commissioner if these amendments are not accepted.

I thank the noble Lords, Lord Sharpe, Lord Hunt and Lord Leigh, for their support of Amendment 10. The intention of the amendment is clear. Increasingly, economic activity is switching from familiar structures and supply chains to one where businesses market their goods and services via third-party marketplaces and intermediaries, and where the subsequent payment goes back through those intermediaries. The amendment would bring such marketplaces and intermediaries into the context of the Bill by providing that payment is not treated as made to a supplier until the supplier actually receives the money, by requiring any intermediary that collects on a supplier’s behalf to pay it within seven days, regardless of how the intermediary is legally categorised.

I think this is a fair change, though I am sure that there will be resistance from the sector. The focus may well be on the time needed by the intermediary to make the payment to the vendor. A distinction may have to be made between when an intermediary has control of the goods in a warehouse and when it is purely acting as an agent. I am happy to have a discussion and debate about this, and there may be ways in which this can be dealt with. However, it would be very remiss for the legislation to leave your Lordships’ House without any provision, either primary or secondary, for the Small Business Commissioner to have or take the power to bring intermediaries into the remit of the Bill.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank my noble friend Lord Holmes of Richmond for introducing this debate. I welcome all noble Lords back for what will, I am sure, be a productive Committee stage.

I shall begin with Amendment 1. I understand the principle behind my noble friend’s approach. The Bill performs a balancing act, relatively successfully, between good payment practice and regulation. In achieving the former, we have to be careful not to overstep into the latter. It is my interpretation that new Section 2B, to be inserted by Clause 1, already succeeds in ensuring that both parties to a contract are made aware of the payment terms in the four cases that are accounted for. For that reason, I am hesitant to support requiring the purchaser to give instruction on how a payment notice should be given. However, like the noble Lord, Lord Fox, I ask the Minister first to outline what the Government regard as best practice for issuing notices under the Bill, which may very well include the Small Business Commissioner making it extremely clear what they think are the right best practice terms for issuing these notices.

I am much more supportive of my noble friend’s Amendment 9, which would prohibit the increasing of a verification period after the day on which the Bill is passed. The Bill is about increasing payment efficiency; ensuring that the verification of a payment does not take longer than was previously necessary is obviously a core part of achieving that.

Alongside my noble friends Lord Hunt of Wirral and Lord Leigh of Hurley, I have added my name to Amendment 10 in the name of the noble Lord, Lord Fox. It is eminently sensible that an intermediary should not be used to delay or circumvent payment terms; in other words, an intermediary should be used as an intermediary. Ensuring that payments go through third parties swiftly and efficiently, and that the payment is not treated as complete until it reaches its final destination, is surely the key to improving payment practice. I hope that the Minister will agree in his response.

[The Parliamentary Under-Secretary of State, Department for Business and Trade (Lord Leong) (Lab)]

My Lords, first, I thank all noble Lords for their contributions to this short debate; I thank in particular the noble Lords, Lord Holmes and Lord Fox, for their Amendments 1, 9 and 10. I pay tribute to the noble Lord, Lord Holmes, for all his work in the area of AI and digital technology, which we welcome. I recognise that these amendments were tabled in a constructive spirit, seeking to ensure that suppliers are paid promptly, with which we do not disagree; to ensure that payment processes are clear; and to ensure that purchasers cannot use contractual mechanisms to delay payment unjustly. Those are their aims, which the Government share.

Amendment 10 would create a new legal requirement for intermediaries, including online marketplaces, to send payments to a supplier within certain time limits. I understand the concern underlying the amendment. Where a small business sells through a platform or marketplace, it is important that the money due to that business is not held unnecessarily. However, that is neither the purpose nor the structure of the Bill. The Bill focuses on late payments under commercial contracts for the supply of goods and services. It strengthens the consequences that arise where qualifying commercial debt has been created and where payment is overdue. It sets clear limits on payment terms between suppliers and purchasers, and strengthens the framework for interest enforcement and accountability. Those protections already apply where there is a relevant commercial contract between a supplier and a purchaser, including where the supplier is ultimately paid via an intermediary.

However, where a platform or marketplace is merely holding, processing or transmitting funds between others, the Bill is not intended to regulate the wider intermediary relationship. Accepting this amendment would, therefore, move the Bill into a different area of regulation. It would establish a new statutory regime for online marketplaces and payment intermediaries, rather than maintaining the Bill’s clear focus on commercial payment practices between suppliers and purchasers. As such, although I respect the intention behind Amendment 10, I do not believe that this Bill is the appropriate legislative vehicle for it.

Amendment 1, tabled by the noble Lord, Lord Holmes, seeks to ensure that purchasers provide suppliers with greater clarity on how notices under the new Section 2B are to be served. I understand the practical purpose of the amendment. Suppliers need to know when they have properly notified a purchaser of the amount that is due. Purchasers also need clarity so that payment processes are efficient and unnecessary disputes are avoided. However, I hope to reassure noble Lords that the Bill is already sufficiently clear on this point.

17:30

As part of the late payments consultation, we asked businesses whether the trigger events under the Late Payment of Commercial Debts (Interest) Act 1998 are still appropriate. Businesses told us that those triggers should be kept. They did not identify a material problem with clarity of service of notices. Clause 1 therefore provides that a payment period can begin on the day on which the purchaser has notice of the amount of the payment. The Government’s view is that this formulation is clear, familiar and practical for business. In developing this Bill, our intention is not to limit all the ways in which a business can provide a notice to pay, as businesses often have their own systems and relationships with suppliers. We do not want to impose requirements on purchasers or suppliers regarding the specific systems or forms of notices that should be adopted, or to suggest which of the parties should have the power to determine what form that notice should take. Businesses should be open to determining the systems that they have in place for themselves. For that reason, I do not consider Amendment 1 to be necessary.

On Amendment 9, I fully understand that the noble Lord, Lord Holmes, wishes to protect suppliers from unnecessary and unwarranted contractual changes, especially where the only effect of those changes is to provide the buyer with longer verification. The Government agree that suppliers should be paid on time for goods and services that are supplied properly. Verification must not be used as a means of postponing payment. However, acceptance and verification procedures are recognised and legitimate features of many commercial contracts. They allow a purchaser to verify that the goods or services supplied meet the agreed contractual requirements before payment falls due. In many cases, that process will be straightforward and brief. In others, it may legitimately take longer. There are sectors where more detailed verification is essential and required. Safety-critical products and complex services may require careful inspection, testing or certification—one can think of shipbuilding, aerospace components, jet engines, specialist machinery, infrastructure equipment or other technically complex products. In those circumstances, a purchaser may need a longer period to confirm that the supplied goods are safe, compliant and fit for purpose.

The Bill therefore strikes a careful balance. Unless the parties agree otherwise, the verification period is deemed to be completed by the end of 30 days from the relevant trigger point. If a purchaser wishes to agree a verification period of longer than 30 days, the longer period must be fair and reasonable. That is an important safeguard. It prevents purchasers imposing unjustified verification delays while still allowing longer periods where they can be properly justified by the nature of the goods, services or sector involved.

The difficulty with Amendment 9 is that it would impose a broad restriction on extending verification periods when contracts are updated or replaced, even where such an extension is fair, reasonable and commercially necessary. That could have unintended consequences. It would discourage purchasers from buying new, complex or innovative products if they cannot secure an adequate verification period. It would also create difficulties in sectors where product development, safety assurance and technical testing requirements evolve over time. The Government’s approach is therefore to protect suppliers from unreasonable delays without impeding the legitimate verification arrangements. The Bill already achieves that balance. I therefore ask that Amendment 1 be withdrawn.

[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who have taken part in this debate and the Minister for his response. Amendment 1 is not seeking to be overly prescriptive but merely to be clear. While I understand the Minister’s points, there is still a gap in the middle with the provisions if Amendment 1 or Amendment 9 are not accepted, with possibly too much space where the purposes and provisions that the Bill seeks to achieve may not come to pass. However, for the time being, I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.

Amendment 2

Moved by

[Lord Holmes of Richmond]

2: Clause 1, page 2, leave out lines 8 and 9 and insert “30 days”
Member's explanatory statement
This amendment seeks to make the maximum payment period 30 days, instead of 60 days, where the purchaser is not a public authority.

[Lord Holmes of Richmond (Con)]

My Lords, there is a wonderful structure to the groupings so far. Group 1 started with Amendment 1 and group 2 starts with Amendment 2—we are all following so far. In moving Amendment 2, in my name, I will speak to Amendment 7.

Amendment 2 is simply a probing amendment and seeks to suggest 30 days as the period—period. There would be no sense of different payment periods. It would be 30 days, be you a local authority or not. In no sense am I expecting this to be accepted into the Bill. My purpose in tabling the amendment is to test where the thinking is on bringing those positions closer together over time. Ultimately, as we will come to in later groups, the potential is that, through smart contracts and fintech solutions, it will be possible to have all the terms set out. Once they are satisfied, atomic settlement automatically occurs by virtue of that smart contract and payment is instant.

Now, we are not there. On that journey, accessibility and inclusion, not least digital inclusion, need to be at the fore, and alternative means always need to be in the mix. However, as that is entirely possible today, 60 days seems somewhat old-fashioned in the light of what is already possible. It is fair to try to get all to the 60-day point because, as noble Lords will know, and as smaller micro entities out there will know even more painfully, oftentimes it is double that, never mind 60 days, if not more. However, I am interested in the Government’s plans to bring 60 through 45 to 30 on a continuing route, and to keep reducing that, because 60 is still far too long. In most instances even today, it is not justifiable or necessary.

Amendment 7 goes to the point of stopping the clock to have some greater precision as to what the end point is of that 60 or 30 days. I have used “unencumbered” funds as a proxy for that. It is not suggesting that this is the best or only measure, but there is a need for a more precise measure and to put in practical terms what this means for the service provider. If 60 days is always extended at the outset and then potentially stretched at the end, so that the funds finally get telegraphed only on the final day, there are a number of days for those funds to be unencumbered in that business’s account. But that is not 60 days. I appreciate that there are difficulties in trying to then work out what is standard practice for various financial service institutions to clear their funds. However, there are industry standards which could be considered, if not included, in that 60-day period. I look forward to the debate and to the Minister’s response. I beg to move.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

I advise the Committee that if this amendment is agreed to I will be unable to call Amendments 3 to 5 for reasons of pre-emption.

[Lord Leigh of Hurley (Con)]

My Lords, I rise to follow my indefatigable noble friend Lord Holmes and congratulate him on his Amendments 2 and 3. I agree that there is a real risk that 60 days will become the default, whereas 30 days is the market norm. I took the trouble to check with one of the co-directors of my family company—for which I declare an interest along with the others on the register—and he told me that we always pay the week after receipt of invoice, which I did not know. Therefore, one does not want to do anything that encourages companies to pay longer than their current practice is the case. The Government perhaps might have made it clear that the maximum is a maximum, but to say, “Thank you, good luck, and carry on”, for people who were paying earlier.

In respect of Amendment 4, we do need to clarify what is a public authority for these purposes; it is very important. But on the meat of the group, in terms of a company involved in an SAR—a special administration regime—I am grateful for advice and guidance given to us by some suppliers who have been in touch and are affected by this. It is estimated that some £835 million will be written off by those who are Thames Water suppliers, and that is just a direct cost; there will be a ripple effect for subcontractors and others. It does not seem right that, even though a supplier will be paid after an SAR, they may have to write off all their invoices for services provided to Thames Water before an SAR. This could be a disaster for many SMEs. Of course, contractually they have to keep supplying to make sure that, for example, the sewage is not running in the streets, and that the other essential services of Thames Water continue. This is very acute and needs immediate attention on the part of the Government.

I am surprised that the noble Lord, Lord Fox, has not signed our Amendment 100, as he normally likes these sorts of reviews. But I hope he and all others see the merit in having that.

Amendment 51 is a bit of a probing amendment, but it could become very important, as we could see, in the future, large purchasers contractually forcing smaller companies to accept cryptocurrency. It is not specified in the amendment that it is cryptocurrency, but it is clear that is what we mean. Many people would not want to be forced to accept cryptocurrency, but such is the power of a larger company they may find themselves in a position so to do. The amendment is predicting what might happen in the marketplace and asking the Government to think about it now and let us know their view. It would be perfectly reasonable for this to happen if both parties genuinely agreed, but not if one is, frankly, bullied into it.

I am very interested in Amendment 52 from the noble Baroness, Lady Bowles, and look forward to hearing her arguments.

[Baroness Bowles of Berkhamsted (LD)]

That was a hint to rise. I will speak to my Amendment 52, but I must first apologise to the Committee that I was unable to speak at Second Reading, my scrutiny hours having been occupied in the passage of another Bill, which also accounts for why this was rather a last-minute—almost literally—amendment, so there was no pre-discussion with anybody, but I would have liked to give it some airing.

I wholeheartedly support the core intention of the Bill, and I will make no secret of the fact that I would have preferred an immediate 45-day limit rather than 60 days. But scanning through the Bill and the amendments once I was released to have the time to do so, it seemed to me that there is a blind spot in that there were no rules to ensure that small businesses could receive stage payments, leaving them at risk of being forced to rely on end-of-contract invoicing. In some instances, way-stage payments may be agreed, but many businesses feel that they cannot take the risk to bid for a contract in the first place. Others are exploited and put dangerously at risk of non-payment in contractor insolvencies, the very issues that the Bill seeks to resolve, so there is a huge loophole.

In the Government’s own consultation phase last year, small business federations and independent suppliers explicitly warned against an invoice-centric blind spot. Yet here we are, with it unsolved. We do not need to look far for a solution. Stage payments have been a standard procedure in construction for 30 years, so why not follow that precedent? If it works for construction, why not for the wider economy?

My amendment proposes a simple entitlement: for contracts exceeding 45 days, small undertakings—which I have defined as having up to 50 employees—must have the right to invoice at intervals of no more than 45 days. If you do the sums on this, under my amendment a small firm must fund its own costs for 45 days before invoicing, but then it still has to wait up to 60 days for payment. That is 105 days, or three and a half months, before a single penny arrives, during which all the salaries and business costs have to be paid. That is still an enormous burden. But without this amendment, that gap is effectively uncapped.

17:45

If we really want to support the small businesses that are the backbone of the economy, we must stop asking them to act as the interest-free bank for big business. If large contractors employed their own staff, they would not be able to delay paying those salaries for months on end, so why should they be allowed, effectively, to do that to their suppliers? I do not claim my amendment is perfect. In reality, I am being generous to large undertakings. The ultimate standard should be the monthly invoicing cycle we see in Section 109 of the construction Act 1996. My proposal is a modest, pragmatic bridge towards that standard—noble Lords might note my 45 days is half way between the 60 days and the standard of the construction Act. It would close a loophole that would otherwise render the 60-day cap toothless in many circumstances.

[Lord Sharpe of Epsom (Con)]

My Lords, I will begin by picking up where I left off in group 1, by briefly touching upon Amendment 7 in the name of my noble friend Lord Holmes of Richmond. Just as we should not define a payment as complete until it has passed through an intermediary and reached its final recipient, nor should it be considered complete until the supplier has received all owed funds. I therefore support my noble friend’s amendment.

I completely understand the strength of the arguments that were made just now by the noble Baroness, Lady Bowles of Berkhamsted, on her Amendment 52. In particular, she raised a very interesting point about the likely deterrent effect on small businesses bidding for some of these longer-duration contracts. I suspect that more work needs to be done on that very subject to find out exactly what the scale of the problem might be. For now, while we think we should, of course, pay due regard to the ability of small businesses to make payments, we do not think they should come at the expense of other businesses receiving them. Making payments, of course, may create cash-flow issues, but exactly the same can be said about not receiving them or receiving them in instalments, as this amendment suggests. We therefore prefer the blanket payment period regardless of business size, as the Bill already suggests, while also acknowledging, as I have said, that we should be looking into this in more detail.

Moving on to the actual length of payment periods, I suspect that the argument for shorter payment periods will continue to rear its head through the passage of the Bill. I will therefore begin by making His Majesty’s Opposition’s position clear. We would like to see a move to shorter terms but, given the fact that businesses have been told that a 60-day limit will be implemented and have begun to prepare for that, that is what we plan to support. For that reason, I cannot support my noble friend’s Amendment 2. Although a shorter payment term is desirable, it would currently be too much of a jump to reduce this to 30 days immediately. The impact assessment suggests that the difference between SMEs using 60-day and 45-day payment terms is roughly 360,000 businesses. I suspect that this number would be significantly larger for those using 30-day terms. These businesses need time to transition, which is why I support the principle behind Amendment 11 from the noble Lord, Lord Fox, which would require the transition to a 45-day term over a five-year period.

We can debate the exact number of days and the length of the transition period, but I expect that we all want this to move in the same direction. For that reason, I hope the Minister can commit to, at a minimum, reviewing the length of private sector payment terms over a set number of years.

Amendments 3, 5 and 25 in my name all probe the same point. What is the status of a payment that is delayed past the maximum threshold, not due to a fault of the purchaser? My amendments offer two examples. First, it is not uncommon for businesses to make their payment runs at the end of the month. These are often then processed over the next few working days, meaning that they are received several days after month end. This is a scenario that Amendments 3 and 5 account for. We do not want to see the payment terms increased, but we also do not want businesses sacrificing efficiency and shunning payment runs because there is a chance that banks will be slow in processing them and the purchaser will be charged interest. Can the Minister confirm that interest will not apply in such cases? Amendment 25 offers another example: that of delays due to public holidays. Can the Minister also assure the Committee that such delays pushing payments over the 30 or 60-day period will not be subject to statutory interest?

Amendments 4 and 8 are also in my name and those of my noble friends Lord Hunt of Wirral and Lord Leigh of Hurley. They seek to probe the status of nationalised bodies simply to seek clarification as to which entity status they will fall under—private or public bodies. Given the pertinence of British Steel, and potentially now Thames Water and whichever other companies the new Prime Minister takes a disliking to, I hope the Minister can provide an answer at the Dispatch Box today.

Speaking of Thames Water, Amendments 42, 43 and 100 raise an issue regarding businesses placed under special administration regimes and similar statutory moratoria. I very much thank the Lanes Group for highlighting this for us. Supply made after a special administrator’s appointment is ordinarily payable as an expense, but no provision currently requires payment within any defined period. Suppliers to SA regimes cannot terminate for the insolvency and cannot make continued supply conditional on payment of arrears, so it is unclear whether the payment terms in the Bill survive such a moratorium. Amendment 42 would ensure that such provisions continue past entering administration.

Amendment 43 is based on much the same premise: suppliers cannot make continued supply conditional on the payment of arrears, and payment protection under the Insolvency Act 1986 applies only prospectively. This amendment would ensure that the receivable’s ability to withdraw supply is once again protected. The sums owed would be restricted to undisputed sums and could be subject to caps and eligibility limits set by regulations.

Amendment 100 would require a review of this process as a whole. It is apt, when we have been considering the nationalisation of certain companies and will soon be considering placing others under special administration, that there should be a review of how associated businesses are impacted by these measures and how the system operates as a whole. I hope the Minister agrees that now is a good time to undertake such a review.

Finally, Amendment 51 would prevent a party to a contract forcing another party to use payment methods other than those that are contractually specified. My noble friend Lord Leigh of Hurley has done much to highlight this, but we do not want to see smaller businesses bullied into using cryptocurrency—the example that my noble friend gave—just because it suits a larger business partner. I hope the Minister will agree with this and the many other points raised.

[Lord Fox (LD)]

Your Lordships have shown a degree of creativity on this group. We have talked about end-of-month processing, public holidays and the effect on privatisation, nationalisation or special administration, and we have just heard about crypto payments. Of those four, I ask that the Minister focuses first on the special administration point made by the noble Lords, Lord Leigh and Lord Sharpe. I think we will be moving into that very quickly, so I urge some action. The two issues that we have talked about more are the maximum time and stage payments.

When I was in my first proper job, I was sent to the national oil company of a very hot foreign country to try to get paid. At that time, the days receivable was 645—and I failed. In that context, a 60-day maximum looks like a step forward. But, on the point that my noble friend Lady Bowles made, if it actually sticks to 60 days, small companies would really be subsidising the free cash or cash flow of their customers. That is why Amendment 52 seeks to put on statute a way of materially helping small businesses where cash flow is an existential concern. My noble friend set that out with her usual precision, and we look forward to the Minister’s response.

On the 60-day limit, I thank the noble Lord, Lord Sharpe, for his encouragement of my Amendment 11. What I have tried to do with that is to square the circle. As the noble Lord set out, businesses are set up for a 60-day limit at the moment; however, much of the consultation process proposed a 45-day limit, which goes much further than 60 days. We have heard various arguments in either direction. My Amendment 11 is a way of pointing to a direction of travel and putting down a marker. I am very happy to discuss different ways of doing that. It would require the Secretary of State, within five years, either to lay draft legislation reducing the maximum period from 60 to 45 days or to explain to Parliament why it is not 45 days. That would make it very clear to business and all sides of the supply chain where this is headed. Some of the technology about which the noble Lord, Lord Holmes, talked very eloquently will then be in place, and rapid payments will be available. So I think there are some important bones for the Minister to pick through in this group.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords for their contributions and amendments in this group. The Government share the objective of fair payment rules and are committed to ensuring that businesses, especially SMEs, are paid promptly. The 60-day period was set following extensive consultation with industry, with more than 850 responses across all sectors and business sizes. The Government consider the 60-day cap to be a balanced and proportionate approach.

As I mentioned at Second Reading, there is no reason why businesses cannot pay before 60 days and I think most do. I am sure that noble Lords here who have businesses pay much earlier than 30 days; the Department for Business and Trade—now called the Department for Business, Innovation, Science and Trade—pays 99% of its bills within 30 days. We are trying to encourage behavioural and cultural change, and 60 days is a maximum. I am sure that most businesses pay within that period.

[Lord Holmes of Richmond (Con)]

Does the Minister have an analysis of the various levels and sizes of the entities that responded to the consultation, married to the length of time that they sought? If he does not have it at his fingertips, he could write. In effect, does the research show an interesting picture about which size of entities were asking for which length of payment period?

[Lord Leong (Lab)]

I am sure we do; I will speak to officials and make sure I share that information with all noble Lords.

This represents a significant strengthening of existing law, where payment terms of more than 60 days are often imposed on suppliers. Some smaller businesses argue that 60 days remains too long, while some larger businesses express concerns about the impact of maximum payment terms on working capital and established commercial arrangements. The 60-day period therefore represents a carefully considered balance between those competing concerns.

Amendments 2 and 11 would reduce payment periods either by creating a statutory expectation that the maximum period will be tightened in future or by reducing the cap for non-public authority purchasers to 30 days. Reducing the maximum period to 45 or 30 days may not work effectively across all sectors, particularly those with complex supply chains. Amendments 3 and 5 would move in the opposite direction, extending the maximum period to 35 days for public authorities and 65 days for other purchasers. The Government cannot support these changes either. The Bill’s 30-day period for public authorities is aligned with wider public procurement rules; extending those periods would weaken the Bill’s ambition and delay payments to suppliers, including small businesses.

Amendment 7, in seeking to define payment more clearly by reference to funds being received, could result in purchasers that have done their best to pay on time being punished for issues that are out of their control—for example, when a payment instruction has been made on time by the purchaser but is subsequently delayed by banking processes outside the purchaser’s control. The Government believe that the Bill provides sufficient clarity and improvement of payment practices, taking into account the need for businesses’ flexibility on how payments are made.

18:00

Amendment 7 also seeks to bring advance payments and construction payments within the scope of new Section 2B, which would not be workable in practice. These exclusions are deliberate features of the Bill and are necessary to ensure that the different payment regimes operate effectively. Advance payments are due before the supplier has performed its relevant contractual obligation. It is right, therefore, that they are excluded from the payment terms provision. Once the supplier has performed its obligations, statutory interest may arise if payment is late.

In regard to Amendments 4 and 8, we have not consulted on any requirement that nationalised bodies adopt shorter payment terms of 30 days, and this goes beyond the policy intention of the Bill. Nationalised bodies are not public authorities and will be treated as other companies operating in commercial markets. We are cautious of unintended consequences and do not accept this amendment.

Amendment 25 would create an exemption from statutory interest where a payment was delayed because of a public holiday. Statutory interest is intended to compensate suppliers where payment is late. Creating specific carve-outs for non-working days would weaken that protection and introduce uncertainty.

Amendment 51 would prohibit purchasers forcing suppliers to use a particular payment method different from that specified in the contract. The Government do not consider this amendment necessary. Terms that are not agreed by the parties will likely be unenforceable, and if a purchaser withholds payments unless a supplier agrees to amend its terms, the Small Business Commissioner has the power to adjudicate payment disputes and investigate where a larger business persistently engages in poor payment practices.

Amendment 52 would create a right to instalment or staged payments for small undertakings where the contract duration is expected to exceed 45 days. The Government recognise the importance of cash flow for small businesses. The Bill addresses this by introducing a statutory maximum payment period of 60 days in most commercial contracts while allowing parties the flexibility to agree instalments or staged payments where appropriate. The Government do not consider it necessary to regulate such contractual arrangements in legislation or add further complexity and therefore do not support this amendment. Construction payments are dealt with separately in Clause 2, the new Section 2D payment terms for construction contracts.

Finally, Amendments 42, 43 and 100 concern special administration and insolvency moratoria. Amendment 42 is not required. Where goods and services are supplied after a purchaser enters special administration, the Bill’s late payment provisions will apply. Special administrators are independent officeholders acting under court supervision and should not be treated as public authorities. Amendment 43 would cut across the established insolvency framework. Providing preferential treatment to one group of suppliers would disadvantage other creditors and undermine the purpose of the existing insolvency regime. Amendment 100 would require information that is not currently collected. Compiling it would create additional costs that would ultimately reduce whatever funds were available for distribution to creditors.

The Government remain committed to ensuring payment is prompt and terms are as short as possible. Alongside the Bill, the Fair Payment Code encourages businesses to move towards 30-day terms, and the Reporting on Payment Practices and Performance Regulations 2017, which were brought in by the previous Government, provide transparency over payment performance. We will continue to monitor the impact of these measures and consider carefully whether further action is required. For that reason, I respectfully ask the noble Lord to withdraw his amendment.

[Lord Leigh of Hurley (Con)]

Before the Minister sits down, may I push him a bit on a point he made? He said that Amendment 43 could not be accepted because it would cut across all insolvency legislation by not treating all suppliers or creditors equally. Does he recognise the special situation of certain suppliers under the LPCDIA 1998 whereby those suppliers are obliged to carry on doing business with the company SAR, which is Thames Water in this case? They are not the same as any other creditor, and it would therefore be possible and appropriate to treat them differently.

[Lord Leong (Lab)]

I am grateful to the noble Lord for bringing that specific example. I need to be very specific about this, because it refers to a particular organisation; I need to get my facts correct and will write to him.

[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who participated in this debate and tabled amendments, and I thank the Minister for his response. It was already clear but is particularly so with that final exchange: the SAR provisions are particularly significant and could barely be more up to the minute, timely, and in need of serious consideration to ensure that they are got right. As my noble friend Lord Leigh pointed out, it is a very specific and very different situation to that of almost all creditors in those circumstances.

I also thank the noble Lord, Lord Fox, for his example of going to a hot country for 645 days; it is not clear whether the term was only 60 days when he went there but he liked it so much that an additional 585 days were added to the term. It is also fantastic to have the noble Baroness, Lady Bowles, on the bus for the Bill.

I think we will be coming back to some of these issues on Report, and between Committee and then— particularly those pertaining to SAR situations, to stress it again. For now, I beg leave to withdraw my Amendment 2.

Amendment 2 withdrawn.

Amendments 3 to 5 not moved.

Amendment 6

Moved by

[Lord Leong]

6: Clause 1, page 3, line 2, leave out “(implied payment terms in certain public contracts)”
Member’s explanatory statement
This minor amendment omits a description of sections of the Procurement Act 2023 which was not wholly accurate.

[Lord Leong (Lab)]

My Lords, I will now introduce government amendments in my name. Turning first to the amendments to the Procurement Act 2023, I hope noble Lords across the Chamber will agree that the Government and the wider public sector must set a good standard for good payment practice. If we expect businesses to pay promptly and fairly, public authorities must lead by example. The Government’s clear policy is that, in contracts where a public authority is a purchaser, payment terms should not exceed 30 days. That is already reflected in Cabinet Office guidance, but the current wording of the Procurement Act 2023 could allow an invoice to provide for a later date for payment. This could enable contracting authorities to agree a due date that results in a payment term longer than the 30 days intended by the Bill. While we do not believe that this is happening in practice, these amendments bring the Procurement Act 2023 more into line with the Bill and require payments made by public authorities to be made within 30 days of the receipt of an invoice by them. These amendments also ensure that all those subcontracting within public procurement supply chains, including regulated below-threshold contracts and related subcontracts, are subject to the same 30-day payment terms. The amendments also make minor consequential changes to other provisions of the Bill for the purposes of consistency and clarity.

These amendments also provide specific provisions within the Procurement Act 2023 for public construction contracts. As noble Lords are aware, the Bill already aligns late payment policy, including maximum payment terms, with the construction industry’s established statutory payment regime and specific terminology under Part 2 of the Housing Grants, Construction and Regeneration Act 1996, which I shall now refer to as the construction Act. It is therefore appropriate to also align public construction contracts to ensure consistency between the legislative regimes of the construction Act, the Procurement Act and the Bill. Corresponding amendments are also made to the Construction Contracts (Northern Ireland) Order 1997.

Construction contracts subject to the Procurement Act payment terms have an implied maximum payment term of 30 days. However, currently, there is no explicit reference to the payment notice system or payment triggers for construction contracts under the construction Act within this legislation. It is therefore currently unclear on the trigger points for the maximum payment terms and on how implied payment terms from the Procurement Act interact with the scheme for construction contracts. The intended amendments will set this maximum payment term at 30 days from the due date to the final date for payment. In the rare occurrence that the payment term is not provided or a contract term allows for a payment later than the permitted period, the maximum implied period of 30 days would apply. This will provide clarity for construction contracting parties in relation to payment terms within construction contracts or subcontracts that are subject to the Procurement Act and ensure maximum payment terms of 30 days for construction contracts where a public authority is the client.

Finally, I turn to the five amendments concerning provisions relating to the Small Business Commissioner. All five are minor and technical amendments that clarify drafting and ensure consistency of approach. The amendments support the legislation’s overall objective, which is to provide a clear, practical and enforceable regime that strengthens payment discipline, improves suppliers’ confidence and ensures that smaller businesses are not left to bear the cost of poor payment practices.

Taken together, these government amendments do three things: they reinforce the 30-day standard for public contracts, provide clarity for public construction contracts, and ensure that the Small Business Commissioner provisions work as intended. They are therefore targeted, practical and consistent with the central purpose of the Bill. I beg to move.

[Lord Fox (LD)]

My Lords, I thank the noble Lord, Lord Leong, for his clear exposition of his collection of amendments. This might seem like a lot of government amendments to those who are not veterans of the previous Parliament, but I remember when the noble Lord, Lord True, brought 250 amendments on the first day in Committee on the Procurement Bill, so this rather pales into insignificance. However, it begs the question: at what point did it dawn on the Government that they needed to align across the legislative process? That strikes me as something that should have been in the original document. I am glad that we have caught it, but it seems to be a problem that we did not get it in there earlier. It all seems sensible, as far as I can see. I had to go back over the horrors of the Procurement Bill and reread bits of it, so reliving those moments all over again, but from our perspective, this seems to be okay.

On Amendment 77, I offer my support for the legislative back-up for the Small Business Commissioner to exercise the right to recover costs. I would have hoped that this was there anyway, but it is good to have the legislative back-up. Similarly, Amendment 82 will enable the Government to leverage the practical experience of the Small Business Commissioner. I would have hoped that the Government would have been leveraging the experience of the SBC, but again, this dots an “i” and crosses a “t”. From these Benches, we are happy to accept the Government’s amendments.

[Lord Sharpe of Epsom (Con)]

My Lords, I am also grateful to the Minister for his comprehensive explanation. I am pleased that this tidying-up exercise, if you will, around existing legislation is happening, because that forms the basis of all the amendments in the group that we are about to debate, which are all mine, which I am now very confident the Minister will accept.

I have two brief questions. New Section 68B, to be inserted by Amendment 41, provides for an appropriate authority to make regulations altering the maximum payment term. It would be useful to know why the Government believe that power to be necessary and in which circumstances they might use that power.

I have further questions about Amendment 102, which permits the Chancellor of the Duchy of Lancaster to make consequential amendments by regulations, as well as the Secretary of State. For what purpose have the Government made that amendment? Why does the Cabinet Office need to be able to make such amendments? Is it not sufficient for the Secretary of State at the department for business and whatever else it is called these days to make such regulations? I will be grateful to the Minister for answers.

[Lord Leong (Lab)]

My Lords, I thank the noble Lords, Lord Fox and Lord Sharpe, for their contribution on these amendments in my name. It is best that we get any legislation right in the first place, and I appreciate the support given to the Government on these amendments. There is a lot of tidying up and, as the noble Lord, Lord Sharpe, said, it is best that we address it now, which we are doing.

The noble Lord made a point about the Chancellor of the Duchy of Lancaster. Procurement falls within the Cabinet Office, so the responsibility lies with the Cabinet Office. I will need to get back to him on his earlier question about the public authority.

The amendments reinforce the principle that the public sector should lead by example in prompt payments, provide much needed clarity on construction contracts within the scope of the Procurement Act and make a number of minor but important improvements to the Small Business Commissioner provisions. Taken together, they enhance the effectiveness of the Bill, improve consistency across related legislative frameworks and provide greater certainty for businesses and public authorities alike.

18:15

[Lord Lansley (Con)]

The Minister is changing the Procurement Act with this Bill. The power to reduce the payment term to below 30 days was in the Procurement Act. It is being renewed here and extended to construction contracts. In the Procurement Act provision, the period was 30 days or later if the invoice had a due date that was later. I think that is being removed. I am not entirely sure why, if public authorities receive an invoice from a supplier that has a due date later than 30 days, they would not be able to extend it beyond 30 days.

[Lord Leong (Lab)]

My Lords, that would be inconsistent with the Bill, because the Bill sticks at 30 days for public authorities. We are trying to tidy this up. Any provisions that provide an extension for more than 30 days for public authorities will not happen. That is why we are sticking to 30 days for public authorities.

[Lord Fox (LD)]

I ask the Minister to go back and have another look at the point made by the noble Lord, Lord Lansley, because there are vague stirrings in the back of my mind that there is a point there. It might be worth finding out why it was put in in the first place.

[Lord Leong (Lab)]

I will do that.

Amendment 6 agreed.

Amendments 7 to 10 not moved.

Clause 1, as amended, agreed.

Amendment 11 not moved.

Clause 2: Payment terms: construction contracts

Amendments 12 to 17

Moved by

[Lord Leong]

12: Clause 2, page 5, line 12, leave out “68 or 88” and insert “68A or 88A”
Member’s explanatory statement
This amendment is consequential on my amendment inserting sections 68A and 88A into the Procurement Act 2023. It excludes payments under public construction contracts from inserted section 2D of the Commercial Payments and Interest on Late Payment Act 1998.

13: Clause 2, page 5, line 13, leave out “(implied payment terms in certain public contracts)”
Member’s explanatory statement
This minor amendment omits a description of sections of the Procurement Act 2023 which was not wholly accurate.

14: Clause 2, page 5, line 20, at end insert “; and see sections 68A and 88A of the Procurement Act 2023 regarding the final date for payment in certain contracts to which that Act applies”
Member’s explanatory statement
This amendment expands a signpost in the Housing Grants, Construction and Regeneration Act 1996 to point to new relevant sections of the Procurement Act 2023.

15: Clause 2, page 5, leave out lines 23 to 33 and insert—
“(3A) Subsection (3AA) applies if—(a) section 2D of the Commercial Payments and Interest on Late Payment Act 1998 applies in relation to the payment, and in the case of the contract in question the permitted period referred to in subsection (1) of that section is the period of 30 days beginning with the day after the payment due date, or(b) section 68A or 88A of the Procurement Act 2023 applies to the contract.(3AA) If the operation of subsection (3) of this section would (absent this subsection) result in the final date for payment being postponed to a day after the last day of the period of 30 days beginning with the day after the payment due date, subsection (3) operates so as to postpone the final date for payment to the last day of that 30-day period.(3AB) In subsection (3A)(b), the reference to a contract to which section 68A or 88A of the Procurement Act 2023 applies includes a public construction sub-contract within the meaning of section 73 of that Act and a regulated below-threshold construction sub-contract within the meaning of section 88C of that Act.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. This provision in the Housing Grants, Construction and Regeneration Act 1996 should now refer to the sections of the Procurement Act 2023 that achieve 30-day payment terms.

16: Clause 2, page 6, line 9, at end insert “; and see sections 68A and 88A of the Procurement Act 2023 regarding the final date for payment in certain contracts to which that Act applies”
Member’s explanatory statement
This amendment expands a signpost in the Construction Contracts (Northern Ireland) Order 1997 to point to new relevant sections of the Procurement Act 2023.

17: Clause 2, page 6, leave out lines 12 to 22 and insert—
“(3A) Paragraph (3AA) applies if—(a) section 2D of the Commercial Payments and Interest on Late Payment Act 1998 applies in relation to the payment, and in the case of the contract in question the permitted period referred to in subsection (1) of that section is the period of 30 days beginning with the day after the payment due date, or(b) section 68A or 88A of the Procurement Act 2023 applies to the contract.(3AA) If the operation of paragraph (3) would (absent this paragraph) result in the final date for payment being postponed to a day after the last day of the period of 30 days beginning with the day after the payment due date, paragraph (3) operates so as to postpone the final date for payment to the last day of that 30-day period.(3AB) In paragraph (3A)(b), the reference to a contract to which section 68A or 88A of the Procurement Act 2023 applies includes a public construction sub-contract within the meaning of section 73 of that Act and a regulated below-threshold construction sub-contract within the meaning of section 88C of that Act.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. This provision in the Construction Contracts (Northern Ireland) Order 1997 should now refer to the sections of the Procurement Act 2023 that achieve 30-day payment terms.

Amendments 12 to 17 agreed.

Clause 2, as amended, agreed.

Clause 3: Exempted contracts: no restriction on payment terms

Amendment 18

Moved by

[Lord Sharpe of Epsom]

18: Clause 3, page 7, leave out lines 3 to 16
Member’s explanatory statement
This amendment seeks to probe the scope and impact of exempting upwards payments from the restriction on payment terms, given the fact that many of the suppliers will still be small or medium businesses.

[Lord Sharpe of Epsom (Con)]

My Lords, it is a pleasure to introduce group 4, which primarily covers the important issue of the definitions of different sized businesses. Before I open that debate, I will touch on the other amendments in this group.

Amendment 18, which was signed by my noble friends Lord Hunt of Wirral and Lord Holmes of Richmond, probes the expected impact of exempting upward payments from the new payment terms. As a preliminary question, what economic impact do the Government specifically consider new Section 2E(2) will have? The Government’s argument is that the Bill will prevent the late payments that cost the United Kingdom £11 billion and cost small businesses almost eight days a year in chasing overdue invoices, yet they are exempting upward payments, including those from micro and sole undertakings, to small businesses. I understand that smaller businesses often appear more vulnerable and will often have tighter margins and a smaller cash flow, but that does not mean that the supplier, especially if it is also a small business, can necessarily take the hit of an indefinite or delayed payment term.

More broadly, the purchaser almost always has the power in a contractual agreement. They are the ones who hold the capital. Exempting upward payments merely because the purchaser is smaller will exempt contracts that really should fall under the scope of the Bill.

That brings me to the most long-standing issue this group addresses, which is the definition of businesses. There are currently at least six different definitions in law of business sizes. There are the Companies Act 2006, the Enterprise Act 2016, and the Small Business, Enterprise and Employment Act 2015. Standard settlers use the definition “less complex entities”, while this Bill uses the Procurement Act 2023, alongside giving the Secretary of State powers to make definitions.

We are not arguing that discretion is not needed in separate areas of policy, but it is widely thought that we have reached the point of confusion. At the very least, any new definition created under this Bill should not differ from any pre-established definition; that is the argument that Amendment 22 is attempting to make.

In a more ideal scenario, Amendments 20, 21, 23 and 101 attempt to offer a new standardised definition of business sizes that we believe more accurately represents the nature of today’s economy. Currently, the most used definitions in the Companies Act use a numerical number of employees as a factor in defining the size of a business. The amendments in my name, alongside those of my noble friends Lord Hunt of Wirral and Lord Holmes of Richmond, aim to replace this nominal headcount with a full-time equivalent number of employees.

I offer just one important example of the importance of this change. In doing so, I thank UKHospitality for its campaign on this issue. Members of the hospitality industry often hire more than the threshold 50 or 250 employees at their venues or events, but do so on shorter, low-hours contracts. While they may therefore have an employee count well over the threshold, it often does not reflect the amount of work that is being done by these employees. We believe that the Government should be able to offer a more nuanced system that more accurately reflects the amount of labour that a business employs.

Finally, exacerbating this amalgam of definitions is the lack of public information about which business falls where. Restricting the definitions of businesses is important, but I pre-empt that the Minister will argue that this Bill is not the vehicle for that discussion. In a sense, he is quite right. Under new subsection (7) in Clause 3, the Secretary of State could define small businesses as those with £100 million turnover. It would not matter if businesses did not know which partners fell under this definition. This is hyperbole, but it illustrates the point that, without some form of database through which businesses can see who falls under which payment term in this Bill, definitions have little meaning. At the very least, businesses will be forced to complete the administrative work themselves.

In speaking to industry representatives in preparation for this Bill, there has been general consensus that Companies House is not fulfilling this role. The Bill aims to create more symmetry between different-sized businesses, yet that cannot be achieved if there is obscure or asymmetrical information. Can the Minister confirm today that he will look into the efficacy of Companies House and, if need be, provide additional support for businesses so they do not have the burden of defining businesses themselves placed upon them? I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, I support my noble friend Lord Sharpe, having signed all the amendments in his name. There are two key principles at stake here, as he eloquently set out: first, not to introduce yet another definition and, secondly, to take the opportunity to bring some clarity, consistency and coherence of definition. This would not just be beneficial for this Bill but have benefits far beyond it. As he rightly set out, this Bill may not be the place for that second objective. It is obviously the place for the first but, if it is not the place for the second, it would certainly seem to provide the right level of focus and spotlight to enable the department to look at this and bring forward plans to have definitions and classifications that are clear and consistent but also provide what anybody in whatever size of business they are involved with needs. So those definitions are useful.

[Lord Fox (LD)]

My Lords, the noble Lord, Lord Sharpe, brought up a number of important issues, but I do not think he brought up any viable solutions. He spoke at the beginning about the proliferation of definitions, then sought to add to that proliferation with some new definitions.

He is right that some level of consistency should be required. For the purposes of this Bill, that consistency has to come from the purchasing Act 2023, unless that is not available. However, the point made by the noble Lord, Lord Holmes, is that there should be a more concerted effort in another place to get meaningful definitions of business sizes. The noble Lord, Lord Sharpe, made a point on the ease of determining those definitions. As the noble Lord, Lord Leong, will know, I am always keen to have a look at Companies House and see how it is doing. It has an important role in a number of different areas; this is just one. A progress report on Companies House when we get back would not be amiss.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords, and thank the noble Lords, Lord Sharpe and Lord Hunt, for tabling these amendments.

Amendment 18 concerns specific exemptions from 60-day maximum payment terms. The Bill will allow contracts to be exempt where the purchaser is a smaller party. It is also the Government’s intention, subject to consultation, to exempt contracts to import or export goods or services from maximum payment terms. These exemptions will support businesses in the UK. The exemption for smaller purchasers, where the larger supplier agrees, will support supply chains where goods are slow moving or niche and where market power sits with the supplier, such as independent booksellers. During the late payment consultation, retail businesses told us that, without this exemption, smaller businesses would struggle to stock their stores appropriately. Where the purchaser is a smaller party, the power dynamic will not lead to unfair payment terms being imposed on suppliers. The exemption is a proportionate mechanism to support smaller businesses.

Amendments 20 and 23 focus on the definitions of business sizes, which are important for the size-based exemption set out in the Bill. The definition of business sizes will be clearly defined in secondary legislation following consultation. The Government want to ensure that thresholds are appropriate and avoid unintended consequences. We recognise the intention to provide consistency across the statute book, and noble Lords and I have had many conversations on this. However, these amendments would unduly constrain the flexibility needed to ensure that this regime operates as intended. These amendments would require the Secretary of State to adopt an existing definition of size of undertaking designed for different purposes, or to introduce a single definition across different pieces of legislation. This is not the approach taken in this Bill. New Section 2E will provide the necessary delegated power to define micro, small, medium and large undertakings for the purpose of exempting certain contracts from new Sections 2B and 2D. These will be subject to consultation and parliamentary approval.

In relation to the Small Business Commissioner, Amendment 101 would

“amend the definition of a small business in the Enterprise Act 2016”

by setting fixed statutory thresholds based on employee numbers and turnover or balance sheet total in primary legislation. The Enterprise Act 2016 already includes the definition of a small business and the Secretary of State has an existing delegated power to make further provisions about the definition in regulations, subject to parliamentary approval. We believe that the regulations are the appropriate place for that detail rather than the Bill.

We do not propose changing the definitions of small or larger businesses to refer to full-time equivalent instead of headcount. These definitions have been in place since the establishment of the Small Business Commissioner and are consistent with the definitions in the wider Bill, which the commissioner is to enforce. Changing this would result in further compliance costs for businesses and be complex to administer. I understand the concerns raised by particular industries, such as hospitality, and would be happy to ensure that the commissioner works with these groups to support businesses to understand how the new measures will impact them. The Government’s view is that the level of detail proposed is better suited to secondary legislation. Furthermore, it would remove the Government’s flexibility to adjust thresholds in future.

Different aspects of payment legislation, where it is related to exemptions from maximum payment terms or the Small Business Commissioner’s power, require definitions that reflect commercial realities and changing payment behaviours. Rigid definitions developed for other purposes risk undermining the Bill’s objective. The Government intend to draw on existing frameworks and keep definitions simple and effective. However, we must retain the ability to depart from them where necessary so that the regime operates fairly and definitions can evolve alongside policy objectives. A one-size-fits-all approach risks unintended consequences.

Finally, Amendment 99 would require the Government to establish and continually update a database of businesses affected by the Act. This would create a significant administrative burden and be difficult to maintain as business circumstances change. We do not consider a statutory register to be a proportionate means of supporting compliance.

18:30

The Bill strengthens the Small Business Commissioner’s role in helping businesses understand their rights and obligations with regard to advice, information and training. Guidance will make it clear that any exemptions are limited, targeted and subject to regulatory conditions. This complements existing transparency measures, including the reporting on payment practices and performance regime, which promotes better payment practices.

These amendments are well intended, and I thank the noble Lord for that, but they would introduce unnecessary rigidity and constrain our ability to deliver a regime that is properly targeted at tackling late payment or supporting small businesses. The Government will draw on existing definitions where appropriate, while retaining the flexibility needed to ensure that the regime remains effective and proportionate.

As I have mentioned to noble Lords, after Recess I will convene a round table with Companies House so that interested colleagues can have conversations with Companies House about its various enforcement powers.

For those reasons, I respectfully ask that the amendment is withdrawn.

[Lord Sharpe of Epsom (Con)]

My Lords, I am grateful to the Minister for his explanation and for the context around some of the amendments that he has provided. I thank all noble Lords who spoke in the debate, especially my noble friend Lord Holmes. I will be brief in response.

I totally accept that the Government do not want to use this Bill, which they rightly want to get through the House quickly, for a protracted debate about business definitions, which obviously would spill across several different pieces of legislation. However, I hope that the Government at least accept or acknowledge that this is becoming a growing concern. It is a confusing picture, as I think all noble Lords would acknowledge. I urge the Government and the Minister to at least consider Amendment 22, which would ensure that this problem was not made worse by this otherwise very sensible legislation.

I accept what the noble Lord, Lord Fox, said. We are trying not to propose solutions but to probe the Government’s intentions, and the Minister has gone some way to setting those out. We are also trying to highlight the fact that the nature of employment and small businesses is in itself changing, and therefore some of the more rigid and perhaps elderly definitions are no longer necessarily fit for purpose.

I appreciate the Minister’s responses regarding the exemption on upward payments and a business database. The context there was useful. On that, I would greatly appreciate it, if he has any information regarding the projected economic impact of this policy, if he was willing to write to me about it.

I hope the Minister will take our suggestion away before Report. As I outlined in my opening speech, this is a good opportunity to use data that is already held by the Government to help businesses be more efficient and competitive. I hope that after the Recess we can reconvene and take this issue further and continue our discussions.

It was remiss of me not to thank the Minister for his offer of the Companies House meeting, which he made the other day in private. I meant to do that but totally forgot. I thank him, and yes please. I beg leave to withdraw the amendment.

Amendment 18 withdrawn.

Amendment 19

Moved by

[Lord Thomas of Cwmgiedd]

19: Clause 3, page 7, line 23, at end insert “save that the Secretary of State must not specify in regulations which have or will continue to have effect after 1 April 2029 any contract of a description which relates to—
(a) the supply of any goods or services by a person in the United Kingdom to any person for use outside of the United Kingdom, or(b) the supply of any goods or services by a person outside the United Kingdom for use in the United Kingdom.”Member’s explanatory statement
This amendment would end the power under the regulations to exclude import and export trade contracts from the provisions of the Act, but do so only at a time which provides for ample familiarisation to make use of the Electronic Trade Documents Act 2023 and which coincides with the imposition of e-invoicing by HM Revenue and Customs.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I declare my interest as chairman of the board that advises the International Centre for Digital Trade and Innovation. I am grateful to the noble Lord, Lord Holmes, for his support in this, and for the time that the Minister and his officials afforded to discuss it.

I set out at Second Reading the background to this amendment and how it fits entirely with the implementation of the Electronic Trade Documents Act and our participation and lead in the international moves to move payments out of the 13th century, or modifications since then, into the 21st century. I am sure no one needs to be reminded how conservative—with a small “c”—processes in business are. They need something to move them, and what I propose would help to do so.

There can be no doubt that using electronic documents and payment systems is entirely consistent with the purpose of the Bill, in that it speeds up payment. If the system can be made to work for international trade, the Bill should not exclude international trade. We are at heart a nation of tradesmen and therefore we should be encouraging trade.

I spoke of the many advantages of the Bill, but there are only two that I need mention now. The first is that we are also, as the change in the name of the Minister’s department indicates, a nation intent on innovation. This is where I think, and I encourage people to see this, we are moving. The second is to mention that this is entirely consistent with the plans to move to e-invoicing on 1 April 2029. I mention that date because it is in the amendment.

I accept that we are not in a position today to make people pay within 30 or 60 days for international trade but there is no reason why we cannot do it in two years’ time, particularly with the new department. So the amendment is designed simply to leave the policy statement in the King’s Speech and the provision for making future regulations to exclude trade, as that is okay for now, but to set a withdrawal period. The Minister is bound to say, “You can trust us in the department. When things are ready, we’ll move there”, but unfortunately we all—businessmen particularly—need to be prodded. It took centuries for people to move away from using bills of lading in three sets rather than one, despite there being no earthly purpose to it. I therefore believe that we need something in the Bill to force the move to digitalisation. Now that the department has the word “innovation” in its name, let us hope that it can do that.

The Minister may not be terribly fired up by his officials to do this, and I will always welcome other suggestions, but we must have a policy for implementation. That is not my primary purpose but I hope that at least that could be offered as a consolation prize. I therefore beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my friend, the noble and learned Lord, Lord Thomas, and the excellent and eloquent way in which he introduced his amendment, which I was delighted to sign. As he rightly pointed out, this could be seen as the absolute premier DBIST amendment. It goes to the heart of what the department is. It has business and innovation at its very heart, and it would make complete sense for the department to pass it before Ministers have even changed the stationery in their various departmental boxes.

It was a pleasure to serve under the chairmanship of the noble and learned Lord as he chaired the Special Public Bill Committee on the then Electronic Trade Documents Bill. I variously described the Bill as

“the most important Bill that no one has ever heard of”.—[Official Report, 19/7/23; col. 2326.]

and the blockchain Bill that rightly never mentions blockchain. It was perfect in its two-page shortness—perfect, in that it never mentioned any specific technology. It merely set out criteria that any technology would have to meet to perfect an electronic trade document. When we talk about electronic trade documents, we are talking about economic, environmental and social benefits and, for the purposes of this Bill, payments efficiency and payments benefits.

The ability to combine everything in an electronic digital format is possible only because of the criteria that blockchain and distributed ledger technology allows to have a possessory document—that is, if you hold the document, you hold the goods. Only through those technologies is it possible to thus have those possessory documents in electronic form. This would be good for payment but it would also be good for UK trade. There is currently a huge trade finance deficit painfully suffered by many businesses already involved in trade but, perhaps even more significantly, by all those tens of thousands of businesses that currently do not trade internationally but could. The provisions in this amendment really highlight that opportunity.

As the amendment so clearly sets out, international trade should be within the purview of this Bill and, in many ways, this lays the groundwork for many of the technology amendments which we will come to later this evening. It makes the point about what is possible today without insisting that it has to be used and come into force on the date the statute comes into force. By being in the statute, with the time period as set out in the amendment, it states the case clearly. It provides the time for adoption but really speaks to the possibility and, largely, the economic opportunities for all those businesses, particularly small and micro-businesses, which could avail themselves of all the benefits of international trade.

[Lord Fox (LD)]

My Lords, very briefly, this would seem to be the perfect amendment for the Minister to accept. As pointed out, it signals an innovative forward direction for the new department, it utilises complex legislation that has already happened, it does not cost anything, and nothing will happen for two years—perfect.

[Lord Sharpe of Epsom (Con)]

My Lords, I am very grateful to the noble and learned Lord, Lord Thomas of Cwmgiedd, for introducing his amendment. I cannot really improve on what has already been said, except to say that this issue has been raised with His Majesty’s Opposition in the run-up to this Committee stage. It is right that, should technology permit it, import and export trade contracts should be treated the same as domestic documents. That may not be feasible now, but the noble and learned Lord’s amendment provides what seems to me a reasonable timeline to get to that point.

[Lord Leong (Lab)]

My Lords, I thank the noble and learned Lord, Lord Thomas, for tabling Amendment 19, and acknowledge his advocacy in relation to e-invoicing and electronic trade documents. However, the intention to exempt imports and exports from maximum payment terms through secondary legislation is crucial to supporting UK businesses. Whether helping British manufacturers import materials and parts or allowing British exporters to compete in overseas markets where longer payment terms are common, we do not want to undermine the ability of UK businesses to trade competitively by limiting this potential exemption through Amendment 19.

The delegated power in new Section 2E(4) allows Ministers to make exemptions where payment practices vary across sectors and to respond to changing market conditions. It will be used sparingly in a targeted and evidence-based way and ensures that the regime can adapt, while still improving payment practices and protecting smaller suppliers. Removing or unduly constraining the flexibility would risk unintended consequences for businesses, particularly in sectors with more complex supply chains or commercial arrangements where longer payment terms can be mutually beneficial. Retaining this power ensures that the regime can be adapted where necessary while still delivering the Bill’s core objective of improving payment practices and protecting smaller suppliers.

The Government want to tackle and end scenarios where businesses unfairly use their larger size and power to impose unfair payment terms on smaller businesses. In the limited circumstances covered by the exemption, we do not consider that such imbalance leads to unfair outcomes, and an exemption from maximum payment terms could benefit the purchaser and the supplier.

I remember the days when I worked in my dad’s import and export business, the days when you used trust receipts and bills of lading—I am sure noble Lords will remember those—and let us not forget telex machines either. We have come a long way. I remember also the days when you had to write up or type up your invoices and send them to your suppliers by post. These days we have platforms that do a lot of invoicing electronically. One has also to appreciate that businesses come in all shapes and sizes and while bigger companies have more sophisticated systems in place, smaller businesses may not. We need to be respectful of some businesses that may not have sophisticated systems.

As noble Lords will know, the Government are moving towards e-invoicing and, I hope, over time more and more business will be conducted electronically and we will not really need the noble and learned Lord’s amendment. For this reason, I ask him to withdraw Amendment 19.

18:45

[Lord Lansley (Con)]

Before the noble and learned Lord, Lord Thomas of Cwmgiedd, responds, can I just ask the Minister something? It seems to me that he is accepting the proposition, with which I entirely agree, that the nature of e-invoicing and the use of electronic trade documents will make it possible for the imposition of a limit on payment terms in relation to trade documents in the future. It is possible to do it. But the Minister seems to be saying that there are two parts to this amendment—one about people here selling goods or services abroad and the other about people abroad selling goods and services into the United Kingdom. On the first one, I kind of go with the Minister. I can understand the point he is making: that we do not want to disadvantage our companies in other markets where the payment terms may be different and longer. But for those who are selling into this country, surely the whole point is that they should be operating on the same payment terms. Is there not an argument for the Minister to look at the second limb of what Amendment 19 is proposing?

[Lord Leong (Lab)]

I appreciate what the noble Lord has just said, but it is important that the scope of the Bill is targeted at UK businesses and small businesses. A commercial arrangement between a company based in the UK or a business based elsewhere is probably outside the scope of this Bill in that regard.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I thank everyone who has spoken in this short, slightly esoteric argument and on these interests. I simply say that I do not think that this issue will go away. First, the payment terms in the Bill are 60 days and in modern international trade that is a long time. I do not buy this argument that we would somehow lose competitiveness by having this here, certainly as regards imports. Secondly, it is important to stress that we are not tradesmen who trade with each other—say, between Wales and England and Scotland. We trade internationally and need to do everything to encourage us to trade. Thirdly, if we are to innovate, and this is an era of innovation, setting a good example will be a good thing.

I hear what the Minister says. I look forward to what the department will do to encourage it. If it will not do this, I might, if circumstances look providential, bring it back on Report to see whether the Minister can come up with some alternative in innovating because it is fair to say that it has been the department of innovation for only a day. I beg leave to withdraw the amendment.

Amendment 19 withdrawn.

Amendments 20 to 23 not moved.

Clause 3 agreed.

Clause 4: Statutory interest

Amendment 24

Moved by

[Lord Holmes of Richmond]

24: Clause 4, page 9, line 2, at end insert—
“(3) Statutory interest is to be remitted to the supplier within five working days of payment of the invoices.(4) “Remitted” in subsection (3) means the point at which the supplier has unequivocal and unencumbered use of cleared funds remitted by the buyer.(5) Where statutory interest is not paid in accordance with subsection (3) the non-payment of statutory interest incurred in accordance with the period for which statutory interest runs in CPILPA 1998 will constitute a qualifying debt in the sum of the statutory interest, and will thus incur statutory interest on the unpaid original statutory interest. (6) Where statutory interest is not paid in accordance with subsection (3) it will be deemed late and be subject to the provisions relating to compensation arising out of late payment.(7) Where statutory interest is to be paid in accordance with subsection (3) and it has not been paid, the directors must write to the Small Business Commissioner stating the reasons for non-payment.”Member’s explanatory statement
The amendment seeks to require the buyer to calculate and pay interest so as not to disrupt the buyer-supplier relationship.

[Lord Holmes of Richmond (Con)]

My Lords, I look forward to the debate on this group. Amendment 24 is incredibly straightforward. It requires that the purchaser calculates the interest and makes the payment in all circumstances because they have the means and the resources and are in the position to do such. In doing that, it does not just lead to an efficient process; crucially, it means that the relationship between the parties is maintained and not adversely affected as a consequence of these provisions. I beg to move.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank my noble friend Lord Holmes of Richmond for this amendment. I am sorry that noble Lords have caught me eating a toffee, which was a terrible error.

The ability to charge statutory interest on late payments was established by the Late Payment of Commercial Debts (Interest) Act 1998. That Act, however, introduced that right only as a right to charge, which many businesses may choose not to exercise out of fear of damaging commercial relationships or losing out on contracts. With this Bill, statutory interest becomes an implied mandatory term of a commercial contract. Therefore, the interest will accrue automatically on overdue payments and the burden will not fall on the suppliers to claim that interest.

The amendment from my noble friend seeks to ensure that late payment interest is paid to a supplier within five working days. It further provides that where statutory interest is not paid within that timeframe, the unpaid interest will itself form a part of the qualifying debt and therefore be liable to a further charge of statutory interest. While we support this policy, we must ensure that businesses, particularly SMEs, are given adequate time to adapt to the new regulations.

The impact assessment recognises that small and medium-sized businesses will shoulder

“a higher proportion of net costs”

associated with this policy. It further states:

“The policy does not create specific mitigations for SMEs, rather information will be provided to all business, to support their understanding and complying with the new policy requirements, in line with previous guidance issued on statutory interest”.


Those words might not be particularly comforting for many small businesses that are already struggling. Might I suggest that the Government do a little more to explain precisely how they will support those businesses? What kinds of information will they provide?

I have tabled an amendment to the commencement clause of the Bill, to be debated later, which would prevent that clause being brought into force for one year. That is the kind of measure that will give businesses the time to adapt, understand the new guidance and prepare for the new regime. I hope that when we come to debate that amendment, the Minister will give it serious consideration.

[Lord Leong (Lab)]

My Lords, I thank the noble Lord, Lord Holmes, for this amendment. I understand the concern that statutory interest is not always claimed or paid in practice, and I agree that it is important to find ways to make the systems work better for suppliers. However, the Bill already strikes the right balance. It strengthens the existing framework by making the right to statutory interest universal, ensuring it cannot be contracted out of, and underpinning it with significantly stronger enforcement and transparency. This signifies a significant advancement, transitioning from a system where the right exists, but remains underutilised, to one where all suppliers are explicitly entitled to it and are supported in its enforcement.

This amendment would go further by introducing rigid and prescriptive requirements that risk undermining the balanced approach. A fixed five-day deadline for the payment of interest does not accurately reflect the practical realities of commercial and accounting practices and processes; it may pose a risk of technical breach to businesses that are otherwise compliant. The proposed definition of payment as an

“unequivocal and unencumbered use of cleared funds”

could lead to legal and operational uncertainties, diverting attention from timely payment to technical disagreements over banking procedures.

Additionally, classifying unpaid interest as new qualifying debt, which then accumulates more interest, risks creating disproportionately large and growing liabilities. The obligation for directors to report instances of non-payment to the Small Business Commissioner would also introduce supplementary administrative burdens, without a distinct enforcement advantage beyond the provisions already established in the Bill.

Taken together, these provisions risk creating complexity and uncertainty, rather than improving payment outcomes in practice. The Bill aims to enhance behaviour by establishing clear rights, enforceability and robust oversight, rather than specifying detailed operational rules in primary legislation. I therefore ask the noble Lord to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank my noble friend Lord Sharpe and the Minister for their comments in this short debate. In spite of the Minister’s comments—I particularly appreciate his comments on the five-day period—there is a principle at the heart of this, which is worth exploring between Committee and Report. For now, I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

Amendment 25 not moved.

Clause 4 agreed.

Clause 5: Period for which statutory interest runs

Amendments 26 to 34

Moved by

[Lord Leong]

26: Clause 5, page 9, line 37, leave out from second “to” to end of line 5 on page 10 and insert “—
(a) the day that has effect under provision agreed by the parties to the contract as the last day for payment to be made, or(b) the day that has effect, in accordance with the implied term described in (as the case may be) section 68(2) or 88(2) of the Procurement Act 2023, as the last day for payment to be made.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. The changes result from the implied terms in sections 68 and 88 of that Act being brought into closer alignment with the payment terms that will be implied into other commercial contracts by the Bill.

27: Clause 5, page 10, line 6, leave out “(9) or”
Member’s explanatory statement
This amendment is consequential on my amendment of clause 5 leaving out lines 15 to 26 on page 10.

28: Clause 5, page 10, line 9, leave out “day” and insert “date”
Member’s explanatory statement
This is a minor drafting amendment.

29: Clause 5, page 10, line 12, leave out “day” and insert “date”
Member’s explanatory statement
This is a minor drafting amendment.

30: Clause 5, page 10, line 13, leave out “the relevant Construction Scheme provision (see section 15A)” and insert “the implied term described in (as the case may be)—
(i) the relevant Construction Scheme provision (see sections 2D(6) and 15A);(ii) section 68A(3) of the Procurement Act 2023;(iii) section 88A(3) of the Procurement Act 2023.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. The amendment refers to provisions of that Act specifying 30-day implied terms for construction contracts covered by that Act.

31: Clause 5, page 10, leave out lines 15 to 26
Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. The amendment leaves out a subsection of section 4 of the Commercial Payments and Interest on Late Payment Act 1998 which is no longer needed because of my amendment of the previous subsection.

32: Clause 5, page 10, line 40, leave out “that Act” and insert “the Procurement Act 2023”
Member’s explanatory statement
This amendment corrects some unclear drafting.

33: Clause 5, page 11, leave out lines 4 to 7
Member’s explanatory statement
This amendment is consequential on my amendment to clause 5, page 9, line 37, replacing inserted section 4(7) of the Commercial Payments and Interest on Late Payment Act 1998.

34: Clause 5, page 11, leave out lines 20 and 21
Member’s explanatory statement
This amendment is consequential on my amendment to clause 5 leaving out lines 15 to 26 on page 10.

Amendments 26 to 34 agreed.

Clause 5, as amended, agreed.

Clauses 6 and 7 agreed.

Clause 8: Meaning of construction payment etc

Amendments 35 and 36

Moved by

[Lord Leong]

35: Clause 8, page 14, line 19, leave out “110(3)” and insert “110(4)”
Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 2, which means that the reference to section 110(3) of the Housing Grants, Construction and Regeneration Act 1996 should be a reference to section 110(4).

36: Clause 8, page 14, line 23, leave out “9(3)” and insert “9(4)”
Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 2, which means that the reference to Article 9(3) of the Construction Contracts (Northern Ireland) Order 1997 should be a reference to Article 9(4).

Amendments 35 and 36 agreed.

[The Deputy Chairman of Committees (Viscount Colville of Culross) (CB)]

After Clause 8, I call the noble Lord, Lord Fox, to move Amendment 37.

[Lord Fox (LD)]

My Lords, Amendment 37 is in my name. This amendment would confirm on the face of the Bill that the Act does not apply to contracts principally for the licence or assignment of copyright—

[The Deputy Chairman of Committees (Viscount Colville of Culross) (CB)]

With apologies to the Committee and the noble Lord, Lord Fox, I omitted to have Clause 8 agreed. The Question is that Clause 8 stand part of the Bill.

Clause 8, as amended, agreed.

Amendment 37

Moved by

[Lord Fox]

37: After Clause 8, insert the following new Clause—
“Agreements relating to copyright and other intellectual propertyAfter section 15A of the CPILPA 1998 insert—“15B Agreements relating to copyright etc.(1) The provisions in Part 1A, Part 1B, section 4, section 6A, section 11A and section 15A do not apply to a contract that is, or is principally, for—(a) the licence or assignment of, or(b) the grant of any other right in or in relation to,copyright or rights in performances.(2) Subsection (1) applies whether or not the work or other subject-matter to which the rights relate is in existence when the contract is entered into, and accordingly applies to a contract under which the supplier is to create, write or otherwise produce that work or subject-matter. (3) A contract is not prevented from falling within subsection (1) by reason only that it also requires the supplier to do one or more things in connection with the work or other subject-matter, including to deliver, check, edit or revise it, to review proofs, to engage in relation to its design or packaging, or to undertake promotional or similar activities.(4) Accordingly, no royalty, advance on royalties, residual or other payment under a contract within subsection (1) is a relevant payment or a qualifying debt for the purposes of this Act.(5) In this section “rights in performances” has the same meaning as in Part 2 of the Copyright, Designs and Patents Act 1988.””Member’s explanatory statement
This amendment would confirm on the face of the Act that the Act does not apply to contracts principally for the licence or assignment of copyright or rights in performances, so that royalties, advances and residuals under publishing, music, screen and similar agreements fall outside the late payment regime.

[Lord Fox (LD)]

Fortunately, this is a short speech so I can lengthen it by repeating that.

This amendment would confirm on the face of the Bill

“that the Act does not apply to contracts principally for the licence or assignment of copyright or rights in performances, so that royalties, advances and residuals under publishing, music, screen and similar agreements fall outside the late payment regime”

as envisioned by the Bill. Noble Lords will not be surprised to learn that this amendment has been supported by Creative UK, PRS for Music, which is UK Music, and the Publishers Association. It would insert a new clause after Clause 8—which we have now agreed—and seeks to make a clear distinction between contractual remuneration and royalties.

I know that the Minister has been in discussion with the publishing industry and that, given his business background, he is clear on this issue. However, I do not think the Bill is as clear as the Minister is on this, so it would be very helpful for him to set out in detail these distinctions, effectively putting royalties outside the scope of the Bill. I would prefer an agreed amendment to come forward on Report but, at the very least, some clear Pepper v Hart-style assurances need to be made from the Dispatch Box. I beg to move.

[Lord Hunt of Wirral (Con)]

My Lords, we are all very grateful to the noble Lord, Lord Fox, for tabling Amendment 37, which seeks clarity on this important issue. As he explained, this amendment would confirm in the Bill that the Act-to-be

“does not apply to contracts principally for the licence or assignment of copyright or rights in performances, so that royalties, advances and residuals under publishing, music, screen and similar agreements fall outside the late payment regime”.

But it also opens the debate to raise some interesting questions on whether the Bill should be sector-indiscriminate or whether there are certain industries for which regulations regarding late payment must be more bespoke. There may be strong reasons for stipulating that publishing, music and screen agreements fall outside the late payment regime. We look forward to hearing the Minister outline the Government’s position on that specific question.

However, if that is the case, noble Lords must ask two questions: first, whether these reasons could equally apply to other industries that should therefore also be exempted; and, secondly, whether there exist other distinct but legitimate reasons for different industries to be exempted. Even if there are good reasons for exempting certain industries, we must be wary of opening the floodgates such that this late payment regulation loses its practical force. Again, we all look forward to hearing the Minister detail the Government’s stance on this important issue.

19:00

[Lord Leong (Lab)]

My Lords, I thank the noble Lord, Lord Fox, for his Amendment 37, and I thank the Publishers Association for meeting with me. I can be very clear and confirm that the Bill does not substantially alter the contracts in scope of the Late Payment of Commercial Debts (Interest) Act 1998. Where this is the case, the protections offered by that Act will apply to a contract, and where they do not, they will not. The Bill does not alter the effect of existing case law in scope of the Late Payment of Commercial Debts (Interest) Act 1998 where it is found that the mere licence of copyright was not within scope.

Performers, authors, musicians and other creators are often freelancers or very small businesses. They may have limited bargaining power and may depend on timely payment for work created, delivered or licensed. During the Government’s consultation, we heard from authors and musicians who were waiting for many months to be paid. That is precisely the kind of poor payment practice that the Bill is designed to address. Where relevant contracts entered into by small businesses, freelancers or individual creators are for the supply of goods and services, the Bill will ensure that payment is made within the statutory maximum period of 60 days from the agreed trigger point.

However, there may be agreements involving intellectual property rights that are not properly characterised as contracts for the supply of goods or services. Some arrangements may concern the assignment, licensing or exploitation of intellectual property in ways that fall outside the late payment framework. The Government’s position is therefore clear: creators and freelancers should be paid on time where their contracts fall within the commercial payments regime.

Amendment 37 risks blurring established distinctions in contract and intellectual property law and would create uncertainty about which agreements are covered. For that reason, while I understand and sympathise with the intention behind this amendment, I do not consider it necessary or appropriate. Consequently, I ask the noble Lord to withdraw Amendment 37.

[Lord Hunt of Wirral (Con)]

Before the Minister sits down, can he address the two questions I raised? Are there other industries that might similarly be affected? If so, how do the Government intend to reach an end conclusion?

[Lord Leong (Lab)]

As far as the Bill is concerned, we are not providing any particular exemption to any particular sector. As far as intellectual property law is concerned, there were concerns from the various trade organisations that the Bill may also include the licensing of copyright. That is not the case, because that has been decided by case law under the earlier legislation I mentioned. If a contract says that someone has been contracted to write a particular book, novel or whatever, then that falls within scope of the Bill, but copyright contracts do not.

[Lord Fox (LD)]

My Lords, I should have said that my wife is a published author, so I have some family interest in this. Following the Minister’s last statement, I am still not clear on this. As the Minister knows, a classic book contract often involves an advance followed by royalties. The advance is sometimes an actual payment, or it is an advance against royalties. It is not clear which of those three conditions fit into the Bill and which do not. I do not know whether it is in order for the Minister to answer that question now, or whether he will have to come back.

[Lord Leong (Lab)]

I will quickly answer that. If the contract is for a book, and, as part of the contract, the creator is advanced a sum of money with an additional royalty arrangement, then the contract for that sum of money is covered within the scope of the Bill. The payment of copyright is outside the scope of the Bill.

[Lord Fox (LD)]

That is clearer. I will climb through the words we have exchanged as a result of this debate and see whether any comeback is required on Report. Pending that, I beg leave to withdraw the amendment.

Amendment 37 withdrawn.

Clause 9: Further amendments in connection with Chapter 1 of Part 1

Amendments 38 and 39

Moved by

[Lord Leong]

38: Clause 9, page 14, line 35, leave out “in connection with provision” and insert “in consequence of the amendments of the CPILPA 1998”
Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023.

39: Clause 9, page 14, line 36, at end insert—
“(c) Part 3 amends the Procurement Act 2023 in connection with provision made by this Chapter.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023.

Amendments 38 and 39 agreed.

Clause 9, as amended, agreed.

Schedule 1: Chapter 1 of Part 1: further amendments

Amendments 40 and 41

Moved by

[Lord Leong]

40: Schedule 1, page 46, leave out lines 25 to 36 and insert—
“(a) a reference to a contract to which section 68 or 88 of the Procurement Act 2023 applies includes a contract into which the terms in section 68(2) to (5) or section 88(2) to (5) of that Act are (to any extent) implied as a result of section 68A, 73, 88A or 88C of that Act (sub-contracts etc);(b) a reference to a term in subsection (2) or (3) of section 68 or 88 of that Act includes a reference to the term—(i) as implied into a contract by any of the sections mentioned in paragraph (a);(ii) as modified by section 73 or 88C of that Act;(c) a reference to a contract to which section 68A or 88A of that Act applies includes a public construction sub-contract within the meaning of section 73 of that Act and a regulated below-threshold construction sub-contract within the meaning of section 88C of that Act;(d) a reference to the term in section 68A(3) or 88A(3) of that Act includes a reference to the term as implied into a contract by section 73 or 88C of that Act.”Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 1 amending the Procurement Act 2023. It ensures that references in the Commercial Payments and Interest on Late Payment Act 1998 to relevant sections of the Procurement Act 2023 cover related sub-contracts etc where appropriate.

41: Schedule 1, page 47, line 32, at end insert—
“Part 3Procurement Act 202316 The Procurement Act 2023 is amended in accordance with this Part of this Schedule.17 (1) Section 68 (implied payment terms in public contracts) is amended as follows.(2) In subsection (1)—(a) omit the “or” at the end of paragraph (b);(b) at the end of paragraph (c) insert“, or(d) a relevant construction contract within the meaning of section 68A (but this paragraph is subject to subsection (7)(b) of that section, which provides for this section to apply if and to the extent that any sums due under a relevant construction contract are not construction payments).”(3) For subsection (2) substitute—“(2) Any sum due to be paid under the public contract by the contracting authority must be paid before the end of the period of 30 days beginning with the day on which an invoice is received by the contracting authority in respect of the sum.”(4) Omit subsection (10).18 After section 68 insert—“68A Implied payment terms in public construction contracts(1) This section applies to a public contract that is a relevant construction contract and is entered into by a contracting authority, except a public contract that is—(a) a concession contract,(b) a utilities contract awarded by a private utility, or(c) a contract awarded by a school.(2) The term in subsection (3) is implied into a contract to which this section applies if—(a) the contract does not provide for a final date for payment in relation to a sum that is due under the contract (in breach of the requirement imposed by section 110(1)(b) of the HGCRA 1996 or Article 9(1)(b) of the Northern Ireland Order 1997), or (b) the contract provides for a final date for payment in relation to a sum that is due under the contract but that date does not fall within the permitted period.(3) The final date for payment in relation to a sum that is due under the contract is the last day of the permitted period.(4) Any term of a contract to which this section applies purporting to provide for a final date for payment that does not fall within the permitted period is without effect.(5) It is an implied term of every contract to which this section applies that a contracting authority may not arrange for a third party to pay a sum to the payee which, under the contract, is due to be paid by the contracting authority to the payee, unless the payee has consented to the arrangement.(6) Any term purporting to restrict or override the term implied by subsection (5) is without effect.(7) But if any sum due under a contract to which this section applies is not a construction payment, then, in relation to such a sum—(a) the terms in subsections (3) and (5) are not implied into the contract (and subsections (4) and (6) do not apply);(b) instead, the terms in subsections (2) to (5) of section 68 are implied into the contract (and the rest of that section applies).(8) In this section—(a) references to the permitted period are to the period of 30 days beginning with the day after the payment due date;(b) the reference to the payment due date is to (as the case may be)—(i) the date provided for by the contract as the date on which the payment is due (as required by section 110(1)(a) of the HGCRA 1996 or Article 9(1)(a) of the Northern Ireland Order 1997), or(ii) the date that has effect as the date on which payment is due as a result of an implied term of the contract (see, in particular, section 114(4) of the HGCRA 1996 and Article 13(3) of the Northern Ireland Order 1997).(9) In this section “relevant construction contract” means—(a) a construction contract, within the meaning of Part 2 of the HGCRA 1996, to which that Part (or any provision of that Part) applies, or(b) a construction contract, within the meaning of the Northern Ireland Order 1997, to which that Order (or any provision of that Order) applies.(10) In this section—“construction payment” has the same meaning as in the Commercial Payments and Interest on Late Payment Act 1998 (see section 15A of that Act);“final date for payment” has the same meaning as in Part 2 of the HGCRA 1996 or the Northern Ireland Order 1997;“the HGCRA 1996” means the Housing Grants, Construction and Regeneration Act 1996;“the Northern Ireland Order 1997” means the Construction Contracts (Northern Ireland) Order 1997 (S.I. 1997/274 (N.I. 1)).68B Power to shorten implied payment terms(1) An appropriate authority may by regulations substitute the number of days for the time being specified in sections 68(2) and 68A(8)(a).(2) Any such regulations—(a) may not specify a number of days higher than 30; (b) must specify the same number of days in sections 68(2) and 68A(8)(a).”19 In section 69 (payments compliance notices), in subsection (2)(a), for “compliance with the term set out in section 68(2) (payment within 30 days)” substitute “payment performance”.20 (1) Section 73 (implied payment terms in sub-contracts) is amended as follows.(2) After subsection (1) insert—“(1A) But those terms are not implied into a public construction sub-contract, except as provided for by subsection (4E)(b) (sums due under a public construction sub-contract that are not construction payments).”(3) Omit subsection (2).(4) In subsection (3), for “this section” substitute “subsection (1)”.(5) In subsection (4)—(a) for “this section” substitute “subsections (1) and (3)”;(b) after “public sub-contract” insert “into which the term in section 68(2) is implied”;(c) for “the term in section 68(2)” substitute “that term”.(6) After subsection (4) insert—“(4A) The term in subsection (3) of section 68A (implied final date for payment in public construction contracts) is implied into a public construction sub-contract if—(a) the contract does not provide for a final date for payment in relation to a sum that is due under the contract (in breach of the requirement imposed by section 110(1)(b) of the HGCRA 1996 or Article 9(1)(b) of the Northern Ireland Order 1997), or(b) the contract provides for a final date for payment in relation to a sum that is due under the contract but that date does not fall within the permitted period.(4B) Any term of a public construction sub-contract purporting to provide for a final date for payment that does not fall within the permitted period is without effect.(4C) The term in subsection (5) of section 68A is implied into every public construction sub-contract.(4D) Any term purporting to restrict or override the term implied by subsection (4C) is without effect.(4E) But if any sum due under a public construction sub-contract is not a construction payment, then, in relation to such a sum—(a) the terms in subsections (3) and (5) of section 68A are not implied into the contract (and subsections (4B) and (4D) of this section do not apply);(b) instead, the terms in section 68(2) to (5) are implied into the contract (and subsections (3) and (4) of this section apply).(4F) For the purposes of this section—(a) references to the contracting authority in any term in section 68 or 68A implied into a public sub-contract by this section are to be read as references to the person to whom goods, services or works are supplied under the contract, and(b) section 68(8)(a) (electronic invoices) does not apply.”(7) After subsection (5) insert—“(5A) In this section, “public construction sub-contract” means a contract which is both—(a) a public sub-contract, and (b) a relevant construction contract.(5B) In this section—“construction payment” ,“final date for payment” ,“permitted period” , and“relevant construction contract” ,have the same meaning as in section 68A.”21 (1) Section 88 (implied payment terms in regulated below-threshold contracts) is amended as follows.(2) After subsection (1) insert—“(1A) But those terms are not implied into a regulated below-threshold contract that is a relevant construction contract within the meaning of section 88A, except as provided for by subsection (7)(b) of that section (sums due under a relevant construction contract that are not construction payments).”(3) For subsection (2) substitute—“(2) Any sum due to be paid under the contract by the contracting authority must be paid before the end of the period of 30 days beginning with the day on which an invoice is received by the contracting authority in respect of the sum.”(4) Omit subsections (8) and (9).(5) Omit subsection (12).22 After section 88 insert—“88A Implied payment terms in regulated below-threshold construction contracts(1) This section applies to a regulated below-threshold contract that is a relevant construction contract and is entered into by a contracting authority.(2) The term in subsection (3) is implied into a contract to which this section applies if—(a) the contract does not provide for a final date for payment in relation to a sum that is due under the contract (in breach of the requirement imposed by section 110(1)(b) of the HGCRA 1996 or Article 9(1)(b) of the Northern Ireland Order 1997), or(b) the contract provides for a final date for payment in relation to a sum that is due under the contract but that date does not fall within the permitted period.(3) The final date for payment in relation to a sum that is due under the contract is the last day of the permitted period.(4) Any term of a contract to which this section applies purporting to provide for a final date for payment that does not fall within the permitted period is without effect.(5) It is an implied term of every contract to which this section applies that a contracting authority may not arrange for a third party to pay a sum to the payee which, under the contract, is due to be paid by the contracting authority to the payee, unless the payee has consented to the arrangement.(6) Any term purporting to restrict or override the term implied by subsection (5) is without effect.(7) But if any sum due under a contract to which this section applies is not a construction payment, then, in relation to such a sum—(a) the terms in subsections (3) and (5) are not implied into the contract (and subsections (4) and (6) do not apply);(b) instead, the terms in subsections (2) to (5) of section 88 are implied into the contract (and the rest of that section applies).(8) In this section— (a) references to the permitted period are to the period of 30 days beginning with the day after the payment due date;(b) the reference to the payment due date is to (as the case may be)—(i) the date provided for by the contract as the date on which the payment is due (as required by section 110(1)(a) of the HGCRA 1996 or Article 9(1)(a) of the Northern Ireland Order 1997), or(ii) the date that has effect as the date on which payment is due as a result of an implied term of the contract (see, in particular, section 114(4) of the HGCRA 1996 and Article 13(3) of the Northern Ireland Order 1997).(9) In this section “relevant construction contract” means—(a) a construction contract, within the meaning of Part 2 of the HGCRA 1996, to which that Part (or any provision of that Part) applies, or(b) a construction contract, within the meaning of the Northern Ireland Order 1997, to which that Order (or any provision of that Order) applies.(10) In this section—“construction payment” has the same meaning as in the Commercial Payments and Interest on Late Payment Act 1998 (see section 15A of that Act);“final date for payment” has the same meaning as in Part 2 of the HGCRA 1996 or the Northern Ireland Order 1997;“the HGCRA 1996” means the Housing Grants, Construction and Regeneration Act 1996;“the Northern Ireland Order 1997” means the Construction Contracts (Northern Ireland) Order 1997 (S.I. 1997/274 (N.I. 1)).88B Power to shorten implied payment terms(1) A Minister of the Crown or the Welsh Ministers may by regulations substitute the number of days for the time being specified in sections 88(2) and 88A(8)(a).(2) Any such regulations—(a) may not specify a number of days higher than 30;(b) must specify the same number of days in sections 88(2) and 88A(8)(a).88C Implied payment terms in regulated below-threshold sub-contracts(1) The terms in subsections (2) to (5) of section 88 (implied payment terms in regulated below-threshold contracts) are implied into every regulated below-threshold sub-contract.(2) But those terms are not implied into a regulated below-threshold construction sub-contract, except as provided for by subsection (9)(b) (sums due under a regulated below-threshold construction sub-contract that are not construction payments).(3) Any term purporting to restrict or override the terms implied by subsection (1) is without effect.(4) But nothing in subsections (1) and (3) prohibits the parties to a regulated below-threshold sub-contract into which the term in section 88(2) is implied from agreeing that a sum due under the contract must be paid earlier than would be required by that term.(5) The term in subsection (3) of section 88A (implied final date for payment in regulated below-threshold construction contracts) is implied into a regulated below-threshold construction sub-contract if—(a) the contract does not provide for a final date for payment in relation to a sum that is due under the contract (in breach of the requirement imposed by section 110(1)(b) of the HGCRA 1996 or Article 9(1)(b) of the Northern Ireland Order 1997), or (b) the contract provides for a final date for payment in relation to a sum that is due under the contract but that date does not fall within the permitted period.(6) Any term of a regulated below-threshold construction sub-contract purporting to provide for a final date for payment that does not fall within the permitted period is without effect.(7) The term in subsection (5) of section 88A is implied into every regulated below-threshold construction sub-contract.(8) Any term purporting to restrict or override the term implied by subsection (7) is without effect.(9) But if any sum due under a regulated below-threshold construction sub-contract is not a construction payment, then, in relation to such a sum—(a) the terms in subsections (3) and (5) of section 88A are not implied into the contract (and subsections (6) and (8) of this section do not apply);(b) instead, the terms in section 88(2) to (5) are implied into the contract (and subsections (3) and (4) of this section apply).(10) For the purposes of this section, references to the contracting authority in any term in section 88 or 88A implied into a regulated below-threshold sub-contract by this section are to be read as references to the person to whom goods, services or works are supplied under the contract.(11) In this section, “regulated below-threshold sub-contract” means a contract that is wholly or substantially for the purpose of performing (or contributing to the performance of) all or any part of a regulated below-threshold contract.(12) In this section, “regulated below-threshold construction sub-contract” means a contract which is both—(a) a regulated below-threshold sub-contract, and(b) a relevant construction contract.(13) In this section—“construction payment” ,“final date for payment” ,“permitted period” , and“relevant construction contract” ,have the same meaning as in section 88A.””Member’s explanatory statement
This amendment: (1) brings the payment terms implied into contracts by the Procurement Act 2023 into closer alignment with the payment terms that will be implied into other commercial contracts by Part 1 of the Bill; (2) clarifies how the Procurement Act 2023 implied terms work for construction contracts.

Amendments 40 and 41 agreed.

Schedule 1, as amended, agreed.

Clause 10 agreed.

Amendments 42 and 43 not moved.

Clause 11: Construction contracts: retentions

Amendment 44

Moved by

[Lord Lansley]

44: Clause 11, page 15, line 19, at end insert—
“(1A) Sections 113B to 113E apply only where B is not a micro, small or medium-sized undertaking according to the regulations made under section 2E(7)(a) (exempted contracts: no restriction on payment terms) of the Commercial Payments and Interest on Late Payment Act 1998.”

[Lord Lansley (Con)]

My Lords, with Clause 11 and this group we move to the question of retention payments. We should not elide the question of late payments and retention payments, as if they were somehow part of the same argument. They are different arguments. Retention payments are not a late payment; they are a payment designed to allow the purchaser of a new building to have an opportunity to assess the quality of the new build and remedy any defects before the point at which a final payment is made. That is in theory. In practice, sometimes retention payments are a device for withholding cash, and they can be quite prejudicial to the contractor and imperil their cash flow. We all know that, for small businesses in particular, cash flow is of the essence. My amendments are intended to probe the circumstances in which retention payments make sense and the extent to which the ban is required. They will test some of those propositions.

Noble Lords will recall that, at Second Reading, I referred to representations that had been made by the National Housing Federation. It had expressed a concern about the ability of registered providers of social housing to assure themselves of the quality of the social housing build that they had contracted for, and it was looking for an exemption for social housing. I am not proposing that in any of these amendments. We should try to tackle this as a broad construction industry issue.

Since Second Reading, I have had two sets of conversations. I am grateful to the Minister and his officials for the opportunity to discuss retention payments. I also had the opportunity to talk with Real Estate:UK, which includes what we think of as the old British Property Federation. It is concerned about a complete ban on retention payments. Where it is coming from is that they are its means of securing quality assurance and defect remediation. This can be, as it says, especially important in high-risk and often high-rise residential buildings, in so far as it has to secure the construction industry’s compliance with building safety regulations. The importance of holding contractors to that is emphasised in its representations.

If retention payments are banned, the practical issue of how payments are then staged but do not fall into the category of retention payments is quite interesting and knotty. I am particularly grateful to, and look forward to hearing from, my noble friend about his Amendment 49. It is important that we do not slip into thinking that the final staged payments are retention payments; they may be a perfectly valid agreement into which contractors—two parties—enter.

I want to focus on my three amendments. They do not seek to frustrate the intentions of the Bill, but I want to probe whether some degree of compromise should be met between the concerns of the industry about the impact of an overall ban and the need to protect businesses and contractors, particularly small housebuilders, that are otherwise threatened by the lack of cash payments. Amendment 44 focuses on the small and medium enterprises—we have discussed those definitions—on the basis that the threat of a lack of cash and cash payments, and the consequences for their cash flow, is an issue for them. The purpose of this amendment is to ensure that they benefit from the ban on retention payments but that the same benefit is not extended to large businesses, which are better able to cope. Where large contractors are concerned, it may also have the additional benefit of holding them to account.

Amendment 45 looks at whether the contractor and the purchaser can agree on a period during which defects are to be remedied. It seems to me that, if we are looking at staged payments, there is a stage at which the contractor hands over a property at the conclusion for it to be transferred to the purchaser. The purchaser should have a period, even if it is only a matter of days, during which they are able to identify whether there are snags, defects or quality failings that are the basis on which the final payment should be made. If we are treating any period during which payment is retained as a retention payment, we run the risk of simply intruding into what ought to be a genuinely contractual relationship between two parties: the party who is agreeing to buy something and the purchaser who is agreeing to pay for it. They need to be able to agree on their terms of payment, on what will be provided and on when it is to be provided, so we need to understand why that period is being precluded and referred to.

Amendment 48 looks at whether the problem is the amount of the retention payment. By and large, it tends to be 5%, but it has in the past sometimes been more. The question is: if we were to limit retention payments to no more than 2% of a contract value, would that remove the problem? Would it enable the purchaser of a building still to secure the remedying of defects but not prejudice the cash flow of the builder?

Those are the three amendments, the purpose of which is, in essence, to say: is there a reason for not going to a full ban but stepping slightly back from that? If the Minister wishes to continue with a full ban, I put to him—I hope he might be able to respond in this debate, and we can look at it perhaps again on Report—the question of whether there is in fact a complementary package that Ministers can bring forward alongside a ban on retentions. If the issue is about quality assurance, the remedying of defects and making sure that people get the building they have paid for, we already have the powers to implement a new homes ombudsman scheme and a code of practice through the terms of Sections 136 to 140 of the Building Safety Act 2022 and Schedule 9 to it. At the moment, all but one major housebuilder has signed up on a voluntary basis to this code of practice, so we know that we are not far from where we need to be. But it is not mandatory and, to take it to the next stage, it would really need to be—and the powers exist, as I say, in the Building Safety Act 2022.

19:15

It would make very good sense if, at the same time as Ministers implemented the ban on retention payments through this legislation, they also brought forward regulations rapidly to commence the provisions of Sections 136 to 140 of the Building Safety Act— I hope they can do all this in the course of this year, rather than, as I think is intended, well into next year—and implemented the tender to procure the new homes ombudsman scheme and the code of practice. If we are proceeding with a full ban on retention payments, that would be an extremely good complement to that, because it would provide purchasers with a scheme designed to ensure that the homes being built for them are of the quality they expect. I beg to move Amendment 44.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank my noble friend Lord Lansley for speaking in this debate and introducing his amendments. Banning retention payments is one of the key changes that this Bill will introduce, but it is also one of the most contested, so I will begin by outlining our general position on these Benches.

We do not in principle oppose this step by the Government. To outline the scale of this issue, which I am sure the Minister will reiterate: 65% of retentions are not released on time and 20% are never recovered. Estimates of retentions lost due to insolvencies range from £0.25 billion to over £1 billion, and one need only look at the scale of the Carillion collapse to see that this is unsustainable. But, past the losses, retentions have been used for means other than what they were intended for. They are now widely used to retain cash flow and, in doing so, they transfer risk and reduce the margins of smaller subcontractors. So change is evidently needed.

While we therefore support the Government, we still must not lose sight of the intended use of retentions. They are supposed to act as insurance against defective work. If they are to be scrapped, we think that something must replace them. As my noble friend Lord Lansley argued persuasively, they provide qualitative assurance. I appreciate that the Government are discussing this with industry and that that they expect the market to find a suitable alternative, but some clarity about what they have in mind would be helpful.

Amendments 46 and 49, in my name and that of my noble friend Lord Hunt, seek to probe two potential alternatives: escrow and staging payments. Most importantly, the Government’s consultation on retention suggested a ban or something very similar to an escrow-type arrangement. Given that they went with the former, can the Minister confirm today at the Dispatch Box that escrows will not be banned by the backdoor?

Amendment 47, also in my name and that of my noble friend Lord Hunt, seeks to probe what the Government are doing to speed up their own transition away from retention payments. Public contracts make up roughly one-third of withheld retention payments, so it is only right that the Government lead from the front and demonstrate that they are driving this change.

Amendment 50 would exempt resident-run and resident-owned property companies from the ban on retention payments. I hope the Minister can confirm that this is already the case, but it is worth reiterating that residents should not fall under this ban on specific construction contracts.

I understand the principle behind the amendments in the name of my noble friend Lord Lansley. On Amendment 44, I will, however, make the same argument my noble friend made earlier about exempting SMEs from payment terms. Just because a small business is more vulnerable to retention payments, it does not follow that there is no risk involved for other businesses. We are therefore not in favour of specific commercial exemptions.

I am sympathetic to Amendment 48, but I would like to hear what the Minister has to say regarding alternatives before we consider watered-down forms of amendments. I hope that he will confirm in his reply that serious alternatives are being considered and that they are sufficient.

[Lord Fox (LD)]

My Lords, the Minister has said in the past that there may be other means to ensure the necessary delivery of projects without retention, and this group is designed to probe those other means. I am grateful to the noble Lord, Lord Sharpe, who set out the reasons why we too support the need for change, and to the noble Lord, Lord Lansley, who points out the need for ensuring quality of delivery. It is a difficult conundrum that faces the Minister.

Amendment 46, from the noble Lords, Lord Hunt, Lord Sharpe and Lord Holmes, sets out the possibility of escrow and whether that remains legal. I would add bonds and insurance solutions, which may be solutions to a similar delivery problem, or the nature of certification, which is the point that the noble Lord, Lord Lansley, made. Either way, there is an issue around staging payments, which we see in Amendment 49 and discussed in a different vein in Amendment 52 from my noble friend. There comes a point when we have to ask: when is a staging payment a retention and when is it not? We start to have this grey area.

The Minister has a difficult job, but it is an important part of the Bill to get that right. Like other noble Lords, we are available to have those discussions, but, when we get to Report, there needs to be a way of squaring the issue of the abuse of retention with the need for delivery.

[Lord Leong (Lab)]

My Lords, I thank the three noble Lords for their amendments in this group and for their contributions.

Taking Amendment 46 first, I reassure the noble Lords, Lord Sharpe and Lord Hunt, that the Bill does not prevent parties in any sector, including construction, making use of payment arrangements through third-party providers. A business may use a bank, payment agent or escrow account or provider to facilitate the transfer of funds from one party to another. Such arrangements can, in some circumstances, support better cash flow management, provide greater transparency and give parties additional confidence in how funds are handled. Nothing in the Bill is intended to prevent the use of those legitimate payment mechanisms. Therefore, Amendment 46 is unnecessary, but I shall make a further point, if I may.

As drafted, this amendment risks unintentionally undermining the policy intent behind the proposed ban on retentions. Its practical effect could be to preserve the option of still using retention clauses, provided that the retained sums are held by third parties. That would run counter to the Bill’s purpose. Retentions have been used in the construction sector for well over a century, but the evidence from consultation, research and engagement with businesses is clear: retentions are neither an effective way to prevent defects or to remedy poor-quality work. In practice, retentions often reduce cash flow for contractors and subcontractors, increase financial risks across the supply chain, and leave businesses exposed to late and non-payment or to the loss of retained sums through insolvency. The Government’s view is that the industry must now move beyond reliance on retentions. Therefore, we are not proposing any exceptions to the ban, nor do we want to permit retention practices to continue in another form.

I recognise the intent behind Amendment 47. The public sector is a major construction client and there is a strong case for it to lead by example. Phasing out retentions in public construction contracts will send a powerful signal, help establish new standards and support a fairer payment environment for smaller businesses. The Government recognise that the public sector has an important leadership role, but we must also recognise the practical realities that construction clients face, whether public or private.

The Bill reflects typical project durations, existing contractual arrangements and the time required for businesses to adjust their commercial models. During the transition period, the Government will work with industry through the Construction Leadership Council and with clients across the public and private sectors, the financial services sector and the supply chain. The purpose of that work will be to improve quality, reduce the level of defects, and help the market to develop alternative forms of surety for clients and the supply chain, whether it is performance bonds or other forms of financial instruments. That is the right way to achieve lasting reform. It gives the sector a clear end point and a realistic path to get there.

I thank the noble Lord, Lord Lansley, for Amendments 44, 45 and 48, and for his constructive engagement with the Bill. I fully understand the concern underlying these amendments. Everyone in your Lordships’ House wants construction work delivered to a high standard. Everyone agrees that defects should be remedied by the party responsible for them. The question is not whether quality matters—it clearly does—but whether cash retentions are the appropriate way to secure that outcome. The Government’s answer is clear: they are not. These amendments would create wide-ranging exemptions from the Bill’s retention provisions. Their practical effect would be to remove or significantly reduce the protection that the Bill is intended to provide for many businesses in the construction supply chain. That would be a serious step backwards. It is designed to protect cash flow, reduce exposure to insolvency risks and end the long-standing practice of withholding money already earned.

If these exemptions are accepted, many of the risks that the Bill aims to address would remain. Businesses would still experience reduced cash flow, retained sums would still be vulnerable to late release, non-payment and loss through insolvency, and clients would still have to incentivise to preserve mechanisms that reduce payments to suppliers rather than adopt better ways of managing quality and defects. That would undermine one of the Bill’s central purposes. If we create broad exemptions now, we risk preserving the very practices that have held us back for so long.

It is important to recall the evidence from the 2018 consultation conducted by the previous Government. Contractors reported significant difficulties in obtaining the release of the second half of the retention at the end of the defects period. The final retention payment was often used as leverage in negotiations over the final amount. That experience demonstrates why seemingly limited retention arrangements can become a source of real commercial pressure. There is also the possibility that if exemptions are introduced, clients might try to extend defects periods beyond the usual 12 to 24 months seen in construction contracts, which could extend the timeframe for withholding funds.

The Government fully accept that quality and defects must be addressed. However, the answer is not to continue withholding cash from supply chains but to improve quality, reduce the incidence of defects, and develop fairer and more effective alternatives to retentions. That is the work we intend to take forward with industry throughout the transition period. The Government’s approach therefore strikes the right balance. It offers a clear incentive for essential reforms, it protects smaller businesses from the cash flow and insolvency risks linked to retentions, and it gives the industry time to adapt to a significant and necessary change.

In relation to Amendment 49, I reassure noble Lords that no provision in the Bill will change the ability of construction clients and firms to agree either staged or interim payments under construction contracts. Therefore, this amendment is unnecessary.

We understand the intention behind Amendment 50, that resident-owned firms undertaking essential remediation work can ensure that the work done is of high quality, but we do not believe that retention ensures this. As Dame Judith Hackitt has noted, the practice is ineffective and undermines the effectiveness of the supply chain, which is why alternatives are required.

Let me respond to the question from the noble Lord, Lord Lansley, on the new homes ombudsman scheme and the code of practice. The Government have already stated their intention to bring forward a statutory new homes ombudsman scheme. Requirements are being developed and the Ministry of Housing, Communities and Local Government may undertake market engagement to assist in further developing this. This would be done transparently via government portals.

With that, I ask that the amendment be withdrawn.

19:30

[Lord Sharpe of Epsom (Con)]

I totally understand where the noble Lord is coming from, of course, and I think we have indicated already that we are broadly supportive of the direction of travel. What he is in effect saying is that the suppliers have to behave better, reduce defects and do all sorts of other good stuff, all of which is admirable and worthy, but what are the incentives to ensure that they do? I am sure the noble Lord is familiar with the famous saying of Charlie Munger, who was Warren Buffett’s partner: “If you show me the incentives, I’ll tell you the outcomes”. At the moment there are no incentives, so the outcomes will not be good.

[Lord Leong (Lab)]

I think the mere incentive of getting the money earlier will ensure that the service and the quality of work will be done to specification. Otherwise, the claim for compensation will come in, so the whole incentive is to get the work done properly in the first place.

[Lord Lansley (Con)]

I am most grateful to noble Lords for this short but really rather—forgive the pun—constructive debate. I think we were trying to probe quite how the Government are thinking about the implementation of a ban on retention payments. The Minister was very clear about what the Government are trying to achieve. If we follow down that path, I hope that, when we come together to consider this on Report, we might in the meantime have looked at the question of stage payments and what the Minister has said about nothing being ruled out where stage payments are concerned, so that there is no inadvertent limitation on the ability to stage payments during the course of a construction contract.

I would like to come back in the intervening period between now and Report to test the Minister, and through him the Ministry of Housing, Communities and Local Government, because they can be getting on with this. It is about not simply pre-market engagement but issuing an invitation to tender and making the regulations necessary to bring the provisions of the Building Safety Act into force, so that we can get on with this. That is part of the package that I think the Minister was alluding to, of trying to ensure that we have means other than retention payments to try to ensure the quality of new build. I hope we can continue to discuss those issues. That said, I beg leave to withdraw Amendment 44.

Amendment 44 withdrawn.

Amendments 45 and 46 not moved.

Clause 11 agreed.

Clause 12: Ineffective retention clauses

Amendment 47 not moved.

Clause 12 agreed.

Clause 13: Ban on retention clauses

Amendments 48 and 49 not moved.

Clause 13 agreed.

Clauses 14 to 17 agreed.

Amendments 50 to 52 not moved.

Schedule 2: Chapter 2 of Part 1: further amendments

Amendments 53 and 54

Moved by

[Lord Leong]

53: Schedule 2, page 48, line 6, at end insert—
“1A In section 110 (dates for payment)—(a) in subsection (3), for “subsection (1)” substitute “subsection (1)(a)”;(b) after subsection (3) insert—“(4) If or to the extent that a contract does not contain such provision as is mentioned in subsection (1)(b), the relevant provisions of the Scheme for Construction Contracts apply.(5) But subsection (4) does not apply to a contract into which the term in section 68A(3) or 88A(3) of the Procurement Act 2023 is implied (implied final date for payment).””Member’s explanatory statement
This amendment concerns what the rule is where a construction contract does not specify a final date for payment in relation to a sum that is due—clarifying that in the case of public construction contracts covered by the Procurement Act 2023, the implied term in that Act applies.

54: Schedule 2, page 49, line 4, at end insert—
“6A In Article 9 (dates for payment)—(a) in paragraph (3), for “paragraph (1)” substitute “paragraph (1)(a)”;(b) after paragraph (3) insert—“(4) If or to the extent that a contract does not contain such provision as is mentioned in paragraph (1)(b), the relevant provisions of the Scheme apply.(5) But paragraph (4) does not apply to a contract into which the term in section 68A(3) or 88A(3) of the Procurement Act 2023 is implied (implied final date for payment).””Member’s explanatory statement
This amendment mirrors my other amendment to Schedule 2, by making provision for Northern Ireland corresponding to that for Great Britain.

Amendments 53 and 54 agreed.

Schedule 2, as amended, agreed.

Clause 18: Adjudication scheme

Amendment 55

Moved by

[Lord Hunt of Wirral]

55: Clause 18, page 21, line 23, leave out “(but no other type of person)” and insert “or consumer”
Member’s explanatory statement
This amendment, and another in the name of Lord Hunt, is intended to probe the Government’s reasoning for restricting the adjudication scheme solely to disputes involving small businesses as claimants.

[Lord Hunt of Wirral (Con)]

My Lords, we now move to a very important part of the Bill, namely Part 2, on the Small Business Commissioner. I praise all those involved in the build-up to the Enterprise Act 2016. After a lengthy period of consultation, in which I was privileged to participate, the Conservative Government set up the role of the Small Business Commissioner. Its purpose was to tackle overdue payments and unfavourable payment practices. So it is a pleasure to open this debate by moving Amendment 55 and speaking to the others in this group in my name and that of my noble friend, because we now seek to expand the role of the Small Business Commissioner. I am pleased to start by saying that His Majesty’s Opposition support these changes. Our many amendments to this group are simply to clarify or build on the Government’s already solid proposals.

Amendments 55 to 57 probe the reasoning behind limiting the scope of the commissioner’s powers to disputes between small and larger businesses. I understand the argument that small businesses or consumers are more likely to be bankrupted by dispute proceedings, but the same cannot be said of small businesses on the receiving end of poor payment practices. I wonder whether the Minister can outline the rationale for expanding the commissioner’s powers to include these size-adjacent disputes.

Amendments 64 and 65 probe what additional grounds may be included in the reasons for declining to adjudicate disputes and which additional disputes may be exempted from adjudication. These powers have the potential to be used both widely and arbitrarily, which is why we have tabled Amendment 72, which would require both Houses of Parliament to approve any new regulations. In general, if the Minister could anticipate what these powers might be used for, I think we would all find that extremely helpful.

Similarly, Amendment 62 from my noble friend Lord Leigh of Hurley would require a reason to be given for declining to adjudicate a dispute. I think this is a courteous, low-cost measure that would do much to increase the transparency of the commissioner’s office.

Amendment 71 in my name and Amendment 59 in the name of the noble Lord, Lord Fox, aim to set a timeline for resolving disputes. I am conscious that the cases brought to the commissioner may differ greatly, both in scope and resolution and in the amount of time required. As such, I am aware that any timeline could create a bottleneck. That being said, I believe that some expectation should be placed on the commissioner’s office to resolve disputes in a timely manner. So, if the Minister cannot agree with either of these terms, I hope he will be able at least to suggest another solution in his response.

I also consider Amendment 75, tabled by my noble friend Lord Leigh, to be very important. Currently, under the Bill, a larger business may be investigated should it persistently engage in poor payment practices, with “persistently” being defined as an equally vague “sufficient” number of times. Businesses deserve to know what this means, if for no other reason than so that they can avoid it. Discretion should not be introduced where it does not need to be, so I hope the Minister can put a number on what exactly constitutes “persistently”.

However, these amendments are ultimately fruitless if they are not taken in conjunction with Amendments 69 and 93. The amendments in this group aim to increase the efficiency and transparency of the Small Business Commissioner’s office, which is now rightly having its powers greatly expanded—though the funds and resources the office will receive to carry them out remain very vague and opaque, so we seek more clarity from the Minister. Last year, the Small Business Commissioner had a net operating expenditure of just under £1.1 million. It was not allowed to hire permanent staff members and handled a total of 591 inquiries—not disputes.

It is not good enough for the Minister to say that extra resources will still be available, as he did at Second Reading, but not to give any further details. The time has come when we need to have a very clear steer on exactly what this budget will include and amount to. This is a root and branch reform that will not just completely change the nature of the commissioner’s office but have ramifications for businesses up and down the country. It must have a clear funding plan laid out. That is why we support Amendment 93 from the noble Lord, Lord Fox. It would ensure that the commissioner’s new functions would not be commenced until a funding plan has been laid before and debated by Parliament. This is the bare minimum, surely, for a reform of this kind.

Both the commissioner’s office and the businesses that will rely on it need to know that they will be adequately provided for. One cannot instil institutional trust in a reform if it appears that it is being underfunded. I hope the Minister can now commit to a funding plan. If there is no clear plan, neither I nor the noble Lord, Lord Fox, will be satisfied and we will return to the matter on Report. The Minister has a real opportunity now to answer all these questions; let us get ahead with this very important reform. I beg to move.

[Lord Fox (LD)]

My Lords, it is a real pleasure to follow the noble Lord, Lord Hunt, given his continued involvement with the Small Business Commissioner. There are a lot of amendments in this group. In order not to overstay my welcome, I will not speak to his amendments—but I am broadly in agreement with everything he has just said.

I have a number of amendments in this group. Amendment 59 would require payment disputes referred to the adjudication scheme to be resolved within 60 days, unless the Small Business Commissioner considers a longer period reasonable. The Bill creates a 60-day limit by which private organisations must pay back small businesses. However, although in the case of a dispute there is a time limit for the dispute to be raised, there is no time limit for the case to be resolved. This means that large companies could in effect raise a dispute and delay resolution, putting pressure on the SMEs to settle.

As can be seen from the amendment, it calls for the adjudicator to

“reach a decision determining a relevant payment dispute before the end of the period of 60 days beginning with the day on which the dispute is referred to adjudication under the scheme”.

To facilitate this, the adjudicator must

“compel parties to share relevant information with itself, if the sharing of such information is necessary for the fulfilment of the duty”.

However, where necessary, the commissioner may extend the period to resolve a particular issue, having regard to the complexity of a dispute and the conduct of the parties. The commissioner must set out reasons for any extension. This amendment addresses this, and it is an issue to which we attach quite a lot of importance.

As the noble Lord, Lord Hunt, just said, Amendment 71 looks at a 28-day limit. Separately, Amendment 79 in the name of the noble Lord, Lord Holmes, looks at 12 months for an investigation. That is a very long time, but I look forward to what he has to say.

19:45

Amendment 63, also in my name, seeks to protect small businesses from blacklisting, contract termination and other retaliation for using the adjudication scheme or assisting an investigation. It would void contract terms enabling such retaliation and place the burden on larger businesses to show that any detriment had a legitimate cause. The system being proposed by the Government to hold large companies to account is welcome but works only if companies feel—and are—safe to report information to the Small Business Commissioner without fear of repercussions.

The Minister will say that the Small Business Commissioner is equipped to investigate systematic issues and that no one needs to be the wiser as to the source of any intelligence or complaint. Especially given the statistics we have just heard from the noble Lord, Lord Hunt, this is an example of hope over expectation, unless there is a major change of gear within the SBC. Secondly, it does not matter what I think or, with respect, what the Minister says; if the small business in question believes it is exposed to potential retaliation from a major client and does not believe it will be protected, it will not take the steps it should take to get recompense. For these reasons, we are convinced that it is important to set down an amendment like this to clearly state that retribution is not allowed.

Of Amendments 88 to 91 in my name, Amendment 91 is the substantive amendment and would require the regulations defining a company’s turnover to disregard arrangements designed to shrink the penalty, preventing avoidance through profit shifting. It would make further provision for determining the turnover of a company, including that turnover should be calculated as turnover both within and outside the United Kingdom. Section 204(1) of the Digital Markets, Competition and Consumers Act 2024 allows a determination of turnover both inside and outside the United Kingdom. This amendment takes the same wording for this Bill, and it seems to me inexplicable why it would not be applied in this situation when it is already being applied in other situations in law.

Finally, Amendment 93—I thank the noble Lords, Lord Hunt, Lord Sharpe and Lord Holmes, for co-signing it—is where the future Act will sink or swim. That is because all the measures in the Bill hinge on and will rely on the effectiveness of the Small Business Commissioner as a quasi-regulator, whether that is on how well it can investigate complaints, how it deals with its client companies, how it covers online supply chains or simply whether it has the horsepower to take on some very difficult industries.

Amendment 93 would prevent the commissioner’s new adjudication and investigation functions being commenced until the Government have laid before Parliament a funding plan. The statement must, in particular, set out

“the resources the Secretary of State considers the Commissioner will require to operate the SBC adjudication scheme and to carry out investigations … the funding the Secretary of State intends to make available for each of the first three financial years following commencement, and … the basis on which the adequacy of that funding will be kept under review”.

There is a precedent for this. When we were discussing the economic crime Bill, the Minister in question set out the extra resources that Companies House would receive in order to meet the conditions of the new Bill. Therefore, it is absolutely the case that we should do the same here. I am happy to discuss this, but from our perspective on these Benches this is an absolutely central issue.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my friend, the noble Lord, Lord Fox, and to start with his Amendment 93, which I was delighted to co-sign. As he stated in finishing, it goes to the heart of this issue. A lot is being asked of an organisation that is currently small and obviously not set up to perform the tasks that are being asked of it by the Bill, as it is currently structured. To not have clarity as to what provisions are going to be put in place, while putting the obligations on the commissioner, does not seem to be the right way to get optimal results from this.

As the noble Lord, Lord Fox, said, there are a number of examples where regulators and other bodies have been given packages that sit alongside the obligations required of them from previous Bills that we have all worked on. So there is nothing extraordinary or unusual about this. It is critical to have sight of that before having a sense of the likelihood of success or, indeed, of what other route we may choose to take with amendments when we come to Report.

I support the principles behind all the amendments in the group. In many ways, they are all in pursuit of clarity and precision. We heard in earlier debates that certain phrases and sections of the Bill were need of precision. We see it again with some of the key phrases here. I support all these amendments. I look forward to the Minister’s response.

[Lord Leigh of Hurley (Con)]

My Lords, we now come, as my noble friend Lord Hunt of Wirral said, to the heart of the Bill, as far as I am concerned. For many, it is the most important part. I have tabled a number of amendments, starting with Amendment 62. As my noble friend said, it seems only sensible that if the Small Business Commissioner has decided not to adjudicate, she should set out in writing the reasons why. The particular emphasis on this is to understand whether that is because of a lack of resources within the commissioner’s office. If that is the case, we want to know, so that we can push harder for proper funding for the office. I hope the Minister regards the amendments in this group as being constructive. They reflect feedback from the world of business.

In respect of my Amendment 75, I think it is reasonable to push the Government to be more specific and explain what they mean by

“a sufficient number of occasions”.

It is, bluntly, fairly meaningless and extremely woolly as is, as my noble friend Lord Hunt of Wirral has indicated. There is no point giving us a number; it has to be a number in a certain period and perhaps quantified as well.

To be honest, I am not entirely happy with new Sections 2K and 2L, as amendments to Section 2 of the Enterprise Act 2016, as mentioned in Clause 19, headed “Publication directions” and “Enforcement directions and financial penalties for non-compliance”. The Bill does not specify all that might be required of a company. It gives examples in new Section 2L(2). Indeed, it actually rules out a larger business being required to publish information or make payments or comply with a decision given in legal proceedings, but I would like to see some greater powers here.

Therefore, I ask the Minister to have another look at new Sections 2K and 2L and perhaps, over the summer months, consider with us what might be included within “enforcement directions”. For example, I have in mind that a company that is in breach of late payments best practices should not be given government contracts. Has that been considered at all by the Government? It seems an obvious point that if there is a serious breach and a company is constantly paying late, why would the Government want to give it any contracts at all? That would bite and force companies to think again. It may be that the Government have this in mind but do not have it in legislation, and want to do it through regulation or something, but it would be helpful to hear from the Minister, now or later, his views on that.

In my view, a solution is that the guilty company should be given the cold shoulder by the Government and, indeed, the wider business community. To be given the cold shoulder is difficult to define, although it is used in the City, as the Minister knows, in the Takeover Code—it is very rarely applied, but with great effect. For example, I would be extremely disappointed to see the chairman of a company that consistently practises poor late payment policies be given any sort of honour or award. It may be difficult to put that into legislation, but the Minister might indicate to us his views on that, and there might be from the Dispatch Box, now or later, comfort given to us that the Government will not look kindly on such companies and will take such steps as are necessary to push them along.

We have quite a long time until Report, and indeed there will be, as I understand it, a new Minister in the other place. I hope that the Minister in this House, who I am confident and hopeful will be in his seat when we return, might invite participation and agree some further amendments to this part of the Bill.

[Lord Leong (Lab)]

First, I thank all noble Lords who have contributed to the group of amendments, and I acknowledge the work done by the previous Government in establishing the Small Business Commissioner. We are building on the work done by the previous Government to give the SBC more powers to do the work under the Bill. I listened to the very innovative suggestions from the noble Lord, Lord Leigh. I will definitely bear some of the suggestions in mind when I speak to my officials. I will not guarantee or promise him anything, but I will bring it up.

I recognise the shared objective behind Amendments 59, 66 to 68, 71 and 79. Payment disputes should be resolved quickly, fairly and with proper safeguards. That is what the Bill is designed to achieve. This group of amendments is huge, and I will try to address as many of the questions as I can. If I do not, I promise to go through Hansard and write to noble Lords.

The Bill enables regulations to set time limits for each stage of adjudication, including the adjudicator’s decision, and to make further provisions about investigation. It allows the detail of procedural rules to be informed by consultation and approved by Parliament, and, where appropriate, with the consent of the devolved Governments, it gives the scheme the flexibility to be adjusted, including to set a shorter timeframe than 60 days for an adjudicator to determine a payment dispute, if appropriate. I understand the desire to put firm deadlines and procedural requirements in the Bill, but doing so would risk making the scheme less effective. In particular, requiring both parties to agree to extensions could allow one party to frustrate the process and jeopardise a fair outcome.

Similarly, removing the adjudicator’s ability to give directions or take steps to secure fair adjudication of a dispute would make the scheme more rigid and could prevent adjudicators detailing properly, with complex or incomplete evidence. The Bill already contains important safeguards. Adjudicators must act fairly and impartially, give parties a reasonable opportunity to present their case, and operate within a framework that is set out in regulations and subject to scrutiny.

With regard to Amendments 55 to 57, 62, 64 and 65, the Government’s approach is deliberately targeted. The scheme is intended to address the power imbalance that can arise when a larger business owes money to a small business, including sole traders and the self-employed. It is not designed to duplicate existing consumer protections or create a general commercial dispute resolution service. Extending the scheme more widely would risk increasing complexity and case volumes and weaken the ability to provide a swift, low-cost route for small businesses—the group most affected by poor payment practices. The Bill sets out exclusions and grounds on which the commissioner may decline to adjudicate. The regulation-making powers will simply allow technical and proportionate refinements, informed by operational experience, so that the scheme remains effective.

On Amendment 62, I recognise the importance of transparency where adjudication is declined. The commissioner will usually give reasons to the smaller businesses, while retaining discretion where disclosure would harm commercial relationships or otherwise be inappropriate. For those reasons, the Government believe that the Bill strikes the right balance between clarity, safeguards and the flexibility needed to keep the scheme focused and workable.

On Amendments 69, 74 and 93, the Government are clear that these powers must be matched by the capacity to use them effectively. My department is already working closely with the commissioner to assess the staffing and funding needed ahead of commencement. The Bill also provides a practical mechanism for cost recovery in relation to adjudication so that the burden does not fall solely on taxpayers and larger businesses have a further incentive to resolve disputes promptly and pay suppliers properly. Those arrangements will be set out in regulations, subject to consultation and parliamentary scrutiny. The commissioner’s annual report will continue to provide transparency on staffing, funding and audited accounts.

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I will take Amendments 63, 70 and 75 together. On Amendment 63, the Government agree that small businesses must be able to use the scheme without fear of retaliation. The Bill already addresses this directly. Contracted terms restricting access to adjudication are void, and the commissioner is under clear confidentiality duties. On Amendment 70, we agree that any pre-referral steps must be clear, but the right place for that operational detail is in regulations, following consultation and approval by both Houses, so that the scheme can adapt as experience develops. On Amendment 75, the Government do not support a fixed numerical trigger for investigations. Poor payment practices differ in seriousness, scale and impact. A rigid threshold could miss serious cases or capture the wrong ones. The Bill will instead give the commissioner discretion guided by statutory criteria, including extent, impact, resources and proportionality. That is a stronger safeguard than an arbitrary number.

I recently met the Small Business Commissioner, Emma Jones, who updated me on the current working of the SBC, including the additional requirements that will be needed to properly enforce the requirements under the Bill. I would be more than happy to organise a meeting between noble Lords and the current Small Business Commissioner so that they can hear from her, at first hand, how she proposes to take the Bill forward.

Turning to Amendment 72, I hope to reassure noble Lords that the Bill already provides the necessary safeguards. Regulations made under Clause 18 will be subject to the affirmative procedure and must be approved by both Houses before taking effect. The amendment would, therefore, duplicate existing scrutiny. The Government will also consult appropriate stakeholders and seek devolved consent where needed.

I thank the noble Lord, Lord Fox, for tabling Amendments 88 to 91, which would amend the maximum penalty for breaching payment reporting requirements by providing for it to be calculated based on a company’s global turnover, as well as the turnover of any parent or subsidiary company, rather than the company’s UK turnover. I reassure him that our intention is for fines to be substantial, while also being proportionate and reasonable. Financial penalties should be linked to the UK economic activity of the qualifying company that is responsible for the breach, rather than that of overseas or other connected businesses that are not subject to the reporting requirements. Further details on how turnover will be determined will be set out in regulations following consultation. With that, I ask that the amendment be withdrawn.

[Lord Fox (LD)]

Before the Minister sits down, I found his answer on Amendment 91 a bit disappointing, given that we went through the debate on the Digital Markets, Competition and Consumers Act and came to a different conclusion. It is not clear to me why, in this circumstance, the Government go one way when, with that Act, we went the other way. A conversation needs to be had about that.

[Lord Leong (Lab)]

I would be happy to follow that up in a further conversation with the noble Lord. I take his point, but we also need to be mindful that there are so many different structures in which a company can operate—a subsidiary here, a domain for UK purposes and so on. Nevertheless, I agree that we need to be very clear about what constitutes a UK trading company and what revenue should be taken into account. I welcome additional engagement with him.

[Lord Fox (LD)]

I am sorry to labour the point, but that use of structures is exactly what my amendment seeks to avoid, because it is through those structures that clever companies with very good corporate lawyers can remove profit that has been generated in this country and attribute it to other subsidiaries that are not in this country and would therefore not be subject to the calculation for fines. That is why we made that decision for the digital markets Act and why I propose that we should do the same in this one.

[Lord Leong (Lab)]

As I said earlier, we need to have further conversations on that, which I would welcome.

[Lord Hunt of Wirral (Con)]

My Lords, I thank all noble Lords for taking part in what has been a very important debate. I am grateful to the Minister for his response. I warmly applaud what the noble Lord, Lord Fox, said about the critical need for clarity—as my noble friend Lord Holmes of Richmond emphasised, not just clarity but precision. We believe that these elements are essential, particularly on resources. It is all well and good passing legislation—ground-breaking legislation, to some extent—but, if there are no resources behind that change in legislative structures, the ultimate objective will not be achieved.

Speaking on behalf of all those who have spoken, I believe that it is the intention of all of us that the expanded Small Business Commissioner’s office should work as the Government intend it to work. The amendments in this group simply represent different views on how best to achieve this. I warmly applaud my noble friend Lord Leigh of Hurley, who always gives us the correct feedback from the world of business. He did so again just a few moments ago. His remarks about giving the cold shoulder have been proved with the effectiveness of the takeover code. We have to isolate—perhaps we have not had enough discussion about this—those companies that have poor payment practices and get through to them that, across all parties, we condemn such action, in particular when it has such a dramatic impact on small and medium-sized enterprises.

I understand that the amendments in the name of the noble Lord, Lord Fox, would include overseas turnover when calculating a company’s turnover. We need to discuss that further. We need to get UK tax law right.

[Lord Fox (LD)]

Simple—have a flat tax.

[Lord Hunt of Wirral (Con)]

Anyway, that is a debate for another occasion.

The Committee has made it clear that we support the prohibition of new regulations without what they might be used for being outlined or without them being approved by both Houses of Parliament. I have also set out our position on the timeline for the adjudication of disputes. It is an argument that I believe has some merit and would benefit from at least some guidance from the Minister, but I warmly applaud the consensus across the Committee that the question of funding must be answered before the Bill passes. As I outlined at the start of this debate, businesses must be able to trust the office for it to function as intended, and trust includes knowing that it has the means to deal with the disputes with which it has been tasked by this legislation. I understand that the Minister cannot commit today to a set amount or a timeline, but I hope that, over the summer, he and his officials will come to a solution on this issue—perhaps with the support of a rejuvenated Treasury.

I look forward to revisiting this debate. On behalf of all those who are interested, I accept the Minister’s offer of a meeting with the Small Business Commissioner and her team, which I think would greatly enhance our ability to understand some of the issues involved. In the meantime, I beg leave to withdraw my amendment.

Amendment 55 withdrawn.

Amendments 56 and 57 not moved.

Amendment 58

Moved by

[Lord Leigh of Hurley]

58: Clause 18, page 22, line 26, at end insert—
“(1A) It is not a defence for the larger business to claim that payment was withheld due to the small business not complying with non-statutory environmental, social and governance requirements that are not included in the terms of the contract.”Member's explanatory statement
This amendment seeks to remove the non-compliance of non-statutory ESG requirements as a defence for larger businesses not paying small businesses.

[Lord Leigh of Hurley (Con)]

My Lords, my Amendment 58 comes out of discussions I have had with SMEs which are supplying much larger companies. I raised this at Second Reading and have now tabled this amendment to reflect that discussion. It may not be the most important to some, but I feel strongly that this issue needs to be addressed. To the extent that it can be addressed in this Bill, through these amendments, that is great, but it is part of a wider issue which the Government should look at.

Many SMEs that I talk to—and they will not put their head above the parapet and say so publicly—are spending significant time and resources assisting larger companies to fulfil their ESG ambitions. Whether or not it is obligatory, they still find themselves having to do it. What does that mean in practice? It means that they have to go on courses and webinars and fill out forms, all of which are completely vanilla, bland and meaningless, but tick a box for a larger company to say that, yes, it has gone through its supply chain to ensure that it is performing to the same standards and way of doing business as they are. It is detrimental to so many small businesses. Can a company that employs only six people be expected to have a diversity policy that is meaningful? What if all six are women? Good luck to it, but should that company be punished? It might be encouraged, but if all six are male then there would be a sharp intake of breath and a cross on the ESG form.

It is the same for small businesses having to analyse their travel activities and the amount of water that they use in their enterprise. We are talking about businesses where staff sit in an office in a building where the only water that gets used is in the facilities and the roof, but they have to fill out the form telling someone how much water they use. It is a complete and utter waste and abuse of their time, but nobody is standing up for SMEs and saying, “Up with this we will not put”.

I hope that the Government take this siren warning and pick up this issue elsewhere. In the context of this Bill, my concern is that, at some point, larger companies might wish to withhold or defer payments to suppliers whom they regard as being unhelpful to them in their ESG drive. I have no evidence of this happening but want to prevent it happening and to raise the issue for a wider debate within what is now, I think, the BIST team. I am sure that the Government can see the point and hope that they will consider it.

Although I like very many of my noble friend Lord Holmes of Richmond’s amendments, as always I am nervous about legislation that requires more disclosure in companies’ accounts. The average FTSE 100 company annual report has—are you ready for this?—97,000 words. I hope that we do not legislate to make them put more words in those reports, partly because nobody reads them and they are huge documents when printed out. I challenge anybody to say that they have read the annual report of any FTSE 100 company in full. They are expensive to produce and are read increasingly infrequently. I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Leigh of Hurley. My amendments in this group largely fit into support and assistance for the small businesses that need to be put in a position to avail themselves of these new provisions from the SBC.

We will come to it in the next group, but it is clear, as my noble friend somewhat alluded to, that this will produce potentially a lot of data which goes nowhere, is of no benefit and is not used to drive any change whatever. But given the nature of the requirements currently set out in the Bill, that data will be produced. Therefore, it seems helpful to look at the various categories of small business and the equalities issues there. Since that data will be part of the collection in any event, having that angle on it will show what targeted support could come from the SBC to support those businesses to better avail themselves of the services. A small business payments charter would be a good focal point for the provisions set out in this Bill, to ensure that those it is aimed at are aware of it and enabled and empowered to make use of it, as and when they need it.

20:15

There are also questions of digital access, which is critically important, particularly for small and micro businesses. It will obviously impact their ability to interact with the SBC. It is critical also to have non-digital pathways, but digital is coming whether people like it or not. Digital exclusion needs to be addressed, so that small and micro businesses are not excluded from being able to connect with this process and with the commissioner.

In many groups today, we have continually raised the question of clarity. I think a supply chain is the absolute example of opacity, if anyone tries to go back more than two or three steps in it. I also suggest amendments to look into the payment practices at each tier of the supply chain, particularly tiers 1 and 2, and how they impact the various layers of businesses in those tiers.

My final amendment on ESG is not really about ESG at all or about seeking more and burdensome reporting requirements on small businesses and micro-businesses. Rather, it goes to the point, which has been raised in many previous groups, about how we give clarity at every opportunity on which businesses are not currently good or “gold” when it comes to payments. Given that these ESG requirements exist for large businesses, it would make them more effective and more useful not to add to those 93,000 words but potentially to reduce them, to have some more meaning in them and, particularly in the S and G of ESG, to have the sense that that company has to give detailed reporting on its payment practices. If the large companies made the S and G have far greater meaning in those reports, they could even be shorter as a consequence.

[Baroness Kramer (LD)]

My Lords, my Amendment 81 in this group addresses a single issue. There is no possible way that the Small Business Commissioner can achieve his or her purpose without a strong whistleblowing framework incorporated into the office.

In this legislation, the commissioner is not even a prescribed person required to keep the disclosures of a whistleblower confidential. A complainant—someone raising an issue about wrong that they believe has been done to themselves—is very different from a whistleblower, who is identifying information which they believe demonstrates some form of bad practice, but they are not the victim of that practice and they are not bringing a complaint about themselves. That is one of the weaknesses in this legislation. Without those protections of being a prescribed person, even if the commissioner wants to keep an issue that she—later, it could be he—has discussed under wraps, all that will be subject to FOIs and subject access requests. Although there can be some redaction in those, it becomes extremely difficult when there is not a right of confidentiality.

Many suppliers who are paid late will be afraid to complain. That is simply a reality. They will be afraid to complain directly to the commissioner for fear of getting a reputation as troublemakers and losing future business. That is why the investigative powers of the commissioner are so important and such a significant part of the Bill. But in many cases, there is no way that the commissioner will be able to pursue an investigation without getting insider information. Insider information comes from whistleblowers, but very few will disclose the relevant information if it means the end of their careers and financial ruin.

The Bill presently offers no confidential route for a whistleblower and very little protection from detriment. An employee of a large company that is paying late, who speaks out to show that his or her employer is abusing payment rules and is consequently fired, can go to an employment tribunal. Some would say that is fine; that is the way to avoid retribution. He or she needs £40,000 to £50,000 to be able to get to a preliminary hearing. The case will not start for three years, because the tribunals are so backlogged. With appeals, even winning cases can take five to seven years. The word gets quickly around the industry, ensuring that the whistleblower cannot get another job. Some whistleblowers belong to trade unions. That trade union may well have an insurance agreement to pay for legal representation at the tribunal, but the terms of the insurance mean that the insurance company can withdraw if it decides the case is unlikely to succeed, or it can press for early settlement, which has the effect of silencing the content of the issue about which the whistleblowing was raised. Most insurance companies do one or the other; very rarely do they ever see a case through. For whistleblowers who are not employees—suppliers, associates, directors and competitors—there is not even the protection of the employment tribunal. There is absolutely nothing they can do to stop revenge and detriment.

The best investigators that we have in the finance and business sphere—HMRC, the SFO, the NCA and the CMA—all understand that whistleblowers are vital and have been strengthening their whistleblower framework, some of them very significantly, including with rewards. Most of their successful cases involve whistleblower-obtained evidence. The old trope that monitoring and supervision are sufficient has long been discredited. I would like to see an overarching office of the whistleblower sitting under the Cabinet Office, able to act as a hub with spokes going out to various people, including the Small Business Commissioner, but we are where we are and that does not exist.

I hope the Minister will look very seriously at the amendment I have put down and either accept it or come up with his own version. It provides for the Small Business Commissioner to have an office of the whistleblower within their purview. It provides a place for a whistleblower to make a disclosure that is protected and confidential, unless he or she gives permission for that disclosure to be made public—sometimes people will do that, particularly when taking a case to court. It provides for redress where the whistleblower suffers detriment. At the base of this, the commissioner would be a prescribed person and Parliament would receive annual reports. This is a missing element from the Bill and I hope that the Minister will address it, because, frankly, the effectiveness of the Bill will depend on there being an effective whistleblower route.

[Lord Thomas of Cwmgiedd (CB)]

I make one brief observation on Amendment 83. When one looks back at the last group of amendments and at this one, one sees that what is happening, in effect, is the creation of an entirely alternate system of dispute resolution—a new form of court or adjudication procedure. It is also apparent from the focus of the debate that this is not easy legislation to follow. I therefore think that, if one is to provide access to justice—that justice now being provided by the Small Business Commissioner—we must put the rights into ordinary language.

As experience showed in the 19th century, when the county courts were created—which had the same idea as all this—once you let lawyers in, you destroy them. It is imperative that lawyers do not become involved because it will destroy the system. It destroyed the county courts and it destroyed workmen’s compensation. Tribunals were created to get away from the lawyers. I will come back to this in a further amendment, but the key is to make procedure and law accessible without lawyers, or this system will not work.

[Lord Fox (LD)]

A lawyer steps up.

[Lord Leong (Lab)]

Declare yourself.

[Lord Hunt of Wirral (Con)]

As the Minister has just suggested, I should declare my interest as a practising solicitor in the City of London. I acknowledge the words of the former Lord Chief Justice, the noble and learned Lord, Lord Thomas of Cwmgiedd. We do need access to justice; I just happen to believe that it is best achieved by using lawyers. But I recognise the validity of what he just said and we need to reflect on that, just as we need to reflect on what was said by my noble friend Lord Holmes of Richmond on using plain English that people can understand.

In trying to create another dispute resolution system, as we discovered with the Financial Ombudsman Service—the noble Baroness, Lady Kramer, will know this from sitting in on the debates on the Financial Services and Markets Bill—allowing the Financial Ombudsman to decide what is fair and reasonable in all the circumstances, and not to have to rely on the common law, creates a difficult adjudicatory system. At the end of the day, we want right to succeed, and it can do so only if everyone understands what the law is and it is not left to the discretion of some intermediary.

Having now pleaded the case for the lawyers, I thank my noble friend Lord Leigh of Hurley for introducing what has been a very important debate. I acknowledge the fight of the noble Baroness, Lady Kramer, for the Cabinet Office to take a role in any whistleblowing regime. I hope she will understand that I am nervous about establishing another office within the Office of the Small Business Commissioner, but we look forward to hearing what the Minister says about that.

Amendments 86 and 87 are in my name and those of my noble friends Lord Sharpe of Epsom and Lord Holmes of Richmond. The Bill represents a shift in the Government’s policy, in that it favours small and medium-sized businesses. Payment terms and retention contracts will do much to prevent exploitative counterparts, while increasing the powers of the Small Business Commissioner will introduce another layer of protection.

However, I call it a “shift” because it is antithetical to the road that the Government have pursued until now, which has placed businesses, both small and large, under ever more regulatory and financial burdens. I am of course referring to the Employment Rights Act of last year. It seems unfair that businesses should be expected to comply with new payment practices that reduce cash-flow flexibility while the Government are simultaneously doing the same with their policies. The worst provisions of that Act have not even been implemented yet but are expected to cost an additional £1,000 million at a minimum. This will undoubtedly have an impact on the ability of businesses, especially smaller businesses with tighter margins, to pay back the debt that they owe within the allotted time.

20:30

Amendment 86 would therefore require a Small Business Commissioner review into the relationship between the Employment Rights Act 2025 and payment practices, while Amendment 87 would require all future changes in employment law to be tested against the prospective impacts as judged by the commissioner. This would allow for reflection on past mistakes and prevent such mistakes ever happening again.

I have also added my name to the amendment in the name of my noble friend Lord Leigh of Hurley, preventing the imposition of non-contractual ESG requirements. I believe an analogy may be drawn with retention payments, which have been used to withhold cash flow in the hands of larger business and transfer risk to smaller ones. ESG requirements do the same. Smaller businesses are forced to take them on, thereby assuming the cost and risk, while larger businesses benefit from being able to cite good practice. That is not right, and I hope the Minister will accept this amendment.

I similarly understand my noble friend Lord Holmes of Richmond’s Amendment 98. While Amendment 58 would prevent non-contractual ESG imposition, this amendment would allow for some regulation of how ESG requirements are imposed contractually. I look forward to hearing the Minister’s response.

I broadly support the rest of my noble friend’s amendments. In particular, the publication of data on payment disputes and investigations, as Amendment 80 would require, would do much to increase transparency and thus competitiveness. Amendment 83 would impose digital accessibility standards upon all SBC services and mandate non-digital alternatives. Again, this must be funded, but if it is done so adequately, I would support such an initiative.

Similarly, new Section 2G(2)(d) within Clause 18 allows for the restriction of onward disclosure of information in relation to an adjudication. This seems to me to account for whistleblowing and the protection of those who come forward. Again, we look forward to hearing from the Minister whether he can confirm that this is the case in his response.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords who have contributed on this group of amendments. Let me turn to Amendments 80, 83 and 85. The Government agree that the protections in the Bill must be accessible and effective for all small businesses. We know disparities exist for businesses led by women, ethnic-minority and disabled entrepreneurs. That is why the regulations for the adjudication and investigation scheme will be consulted on carefully.

The regime will be designed and implemented to support all small businesses, including those hardest to reach. The commissioner already provides a wide range of simple, small business-friendly guides to help small businesses understand and use its services, including their legal rights relating to payments. The commissioner also works with a diverse range of business groups, representative organisations and partners to promote its services and improve awareness among small firms. Furthermore, through the SBC’s annual report, the commissioner will report on these activities, including steps taken to ensure services are accessible to all groups. More broadly, the Government are already supporting underrepresented entrepreneurs through wider DBT-backed work. The commissioner will continue to reflect best practice in promoting fair access to its services. For those reasons, we believe these matters are better addressed through implementation, guidance and engagement so the schemes remain practical, proportionate, up to date and responsive.

Amendments 58, 97 and 98 would introduce additional statutory structures and requirements. The combined effect of these proposals would be to place significant new reporting and compliance burdens on businesses, including in areas where data may not be readily available or verifiable, particularly across different supply chains. We must be careful not to impose unnecessary burdens on businesses, especially those already demonstrating good payment practices, when our focus should be on tackling poor performance. We are already introducing new powers in the Bill to enable the Small Business Commissioner to investigate businesses with poor payment practices.

I agree that transparency and data are important. Payment practice reporting data is already published and accessible on GOV.UK. Organisations already use that data to analyse payment performance. The commissioner is also looking at how improved data analytics and AI tools can support its work. On ESG, I agree that payment practices are an important aspect of responsible business behaviour. The Small Business Commissioner is already working to promote cultural change through initiatives such as the Fair Payment Code. However, ESG frameworks are already well developed and continue to evolve, often on an internationally aligned basis. Mandating a specific framework in legislation risks duplication and inflexibility that is best allowed to develop dynamically.

Specifically on Amendment 58, although I understand the intention to prevent payment being withheld because of informal or extra-contractual ESG requirements, the Bill already ensures that payment obligations are clear. This amendment risks causing confusion and making the payment provisions of the Bill less clear.

I thank the noble Lords, Lord Hunt and Lord Sharpe, for raising through Amendments 86 and 87 the interaction between payment practices and the Employment Rights Act. I will resist the temptation to reopen debates that the House has already had in detail on that legislation, including on impact assessments, which have been debated at length. The purpose of the Bill is clear: it is about tackling late payments and addressing the harm they cause to small businesses’ cash flow, resilience and growth. The Small Business Commissioner plays a focused role within that agenda by supporting small firms, resolving payment disputes, and driving improvements in payment practices through adjudication, investigation and enforcement. These amendments would expand that role into reviewing wider employment policy, risking diluting the commissioner’s focus and effectiveness. For those reasons, although I understand the intention of the amendments, I do not consider them necessary or appropriate to this Bill.

On Amendment 81, tabled by the noble Baroness, Lady Kramer, I recognise the importance of the issue she raises. The Bill already provides a framework under which the Small Business Commissioner can receive and act on information from small businesses and third parties, including whistleblowers. Individuals can provide evidence to support the commissioner’s investigations and wider functions. Crucially, the Bill includes strong confidentiality protections. These prohibit the commissioner from disclosing information where doing so could potentially identify the individual who has provided that information, except in limited circumstances, such as where consent is given. In that context, establishing a dedicated office of the whistleblower risks duplicating protections that already exist without clearly addressing a gap in the current framework.

It is important to consider the broader whistleblowing framework that is already in place. Protections for individuals making disclosures in the public interest are set out in the Employment Rights Act 1996. The Government have recently updated that order and are actively considering whether it would be appropriate to include the Small Business Commissioner as a prescribed person. I hope that gives some consolation to the noble Baroness. This is a more proportionate and coherent route to strengthening their protections.

The amendments in this group are well intentioned and I share their ambitions, but the Bill already provides a strong and proportionate framework. Our approach is to deliver improvements in a way that is flexible, targeted and proportionate, avoiding unnecessary burdens on businesses rather than prescribing detailed mechanisms in the Bill. For those reasons, I ask the noble Lord to withdraw his amendment.

[Lord Leigh of Hurley (Con)]

I beg leave to withdraw the amendment.

Amendment 58 withdrawn.

Amendment 59 not moved.

Amendments 60 and 61

Moved by

[Lord Leong]

60: Clause 18, page 23, line 6, leave out from “Wales,” to end of line 7 and insert “as if it were payable under an order of the county court;”
Member’s explanatory statement
This amendment, along with my other amendment to clause 18, ensures consistency in how an adjudication decision can be enforced across the three jurisdictions.

61: Clause 18, page 23, line 11, leave out from “Northern Ireland,” to end of line 12 and insert “as if it were payable under an order of a county court.”
Member’s explanatory statement
This amendment, along with my other amendment to clause 18, ensures consistency in how an adjudication decision can be enforced across the three jurisdictions.

Amendments 60 and 61 agreed.

Amendments 62 to 72 not moved.

Clause 18, as amended, agreed.

Amendment 73

Moved by

[Lord Holmes of Richmond]

73: After Clause 18, insert the following new Clause—
“Digital access to SBC adjudication schemeAfter section 2G of the Enterprise Act 2016 (inserted by section 18), insert—“2H Digital access to SBC adjudication scheme(1) The Commissioner must, within 12 months of the day on which this section comes into force, provide a digital service to assist small businesses in accessing the SBC adjudication scheme.(2) The digital service provided under subsection (1) must include—(a) a plain-language eligibility checker enabling a small business to determine whether a relevant payment dispute may be referred to the scheme,(b) a statutory interest calculator enabling a small business to calculate the interest owed under the Commercial Payments and Interest on Late Payment Act 1998, and(c) guided assistance in completing a referral to the scheme, using natural language processing or equivalent technology where appropriate.(3 The Commissioner must ensure that the digital service—(a) meets the accessibility requirements set out in the Public Sector Bodies (Websites and Mobile Applications) Accessibility Regulations 2018 (S.I. 2018/952), and(b) is available in accessible formats including voice interface.(4) The Commissioner must maintain non-digital alternatives to each element of the service provided under subsection (1), to ensure that small businesses that are unable to use digital services are not disadvantaged in accessing the scheme.”” Member’s explanatory statement
This amendment requires the Commissioner to provide a plain-language digital pathway into the SBC adjudication scheme, including an eligibility checker, interest calculator, and guided referral process.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to open this group of amendments. It is time to talk technology. Before going into the specifics of the amendments, I will set out the overarching reasons for this group.

As we have heard, the SBC does extremely good work, but the resources that she currently has available are chronically insufficient for the task that is being asked of her. The Minister said in a previous response that discussions are already happening around staffing and resource. That is good, and we wait to see the outcome, but what is critical in those discussions is the question of the right mix of staffing and technologies. Even if the resource is put in, without the right mix of technologies and staffing the SBC will not have any chance whatever of optimising her task when it comes to what the Bill requires of her.

Another reason for these amendments is the Government’s current posture when it comes to artificial intelligence. This may be up for change, and I certainly hope it is; the announcement of an AI Minister to be in Cabinet can be only a positive thing. Currently, however, the Government’s stance on AI is not to bring forward cross-sector AI legislation. This is not a party-political point; the previous Government took the same position. What is said is that the Government will take a domain-specific approach when it comes to artificial intelligence. So here we are: we have a domain. It seems right, appropriate and beneficial to bring forward AI amendments specific to commercial payments.

Amendment 73 would introduce a digital access pathway into the services of the SBC. It should be seen with amendments in the previous group. It is critically important to have digital access, but this must be seen with accessibility of the digital tools themselves while providing non-digital alternatives. Equally, a digital access pathway would enable the commissioner to better perform her tasks, and would enable greater efficiency and effectiveness for small businesses to get involved with the processes as and when they need to do so.

20:45

On AI, it is critical that the commissioner has AI resources at her disposal, but in that we need to look at algorithmic accountability and all the concepts around transparency, bias and an ethical approach. If we could suggest a principles-based, outcomes-focused and input-understood approach to AI, that would put the commissioner in the right space, and algorithmic accountability is certainly a key part of that.

Perhaps the most important amendment in this group when it comes to the service of the commissioner is that around an AI-assisted payment monitoring tool. That could go much broader than any staffing cohort could possibly achieve, and it would make use of all the data that is currently out there, which could be put alongside the payments data that the commissioner herself has. Not only would it drive greater efficiency but it would enable the commissioner to get into areas that would otherwise be unavailable to her and her staff, no matter how big that staffing team was.

I have talked throughout today about the amount of data that the commissioner currently has, and the extraordinary amount of data that she will have as a consequence of the provisions in the Bill. So it seems right to have an open payment data register—with the right principles set around it, obviously: the principles of privacy, anonymity and so forth. That data source would provide a rich base, not just for researchers but for anyone to see what is happening from whichever angle they want to take in the payments landscape. It needs to be made available and put into a framework. It would have research benefits, as I say, but that would drive economic benefits. It could potentially bring forward fintech tools and products as a consequence of that, all adding economic benefit as a consequence of data that otherwise would have its primary use but then would just largely sit there, not being of any benefit to anyone.

The final amendment I shall mention is that around cyber and post-quantum cryptography. Very much like the amendment by the noble and learned Lord, Lord Thomas, it may be that this is not the time for the commissioner or indeed broader business to consider PQC and have to adopt approaches and postures right now on the passage of the Bill. However, we should put a potential date in there so that at least the commissioner, broader government and all businesses consider what is happening in terms of the approaching Q day, when existing cryptography will be insufficient for the might of quantum that it will face. It seems reasonable, sensible, and the right level of forward look to have a consideration of cyber and indeed PQC in our discussions at this stage of the Bill.

Taken together, these amendments would bring the right level of technology: purpose focused—not technology for technology’s sake, not a silver bullet in search of something where it could potentially be of some use, but clearly focused technologies—for the benefit of the commissioner, and through that, the benefits not least to small and micro-businesses. I look forward to the debate, and I beg to move.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I have one or two brief observations in support of the amendments, particularly Amendments 73 and 78 tabled by the noble Lord, Lord Holmes. First, it is critical that people are given an easy understanding of digital access to the system, but that is said in the context of the more important Amendment 78. I may have been slightly tendentious in what I said about getting lawyers out of the system, but we are likely to see much more being done in the system by artificial intelligence. At the moment, there is not a lot of public confidence in decisions on adjudication, on what are likely to be relatively simple things, being done by machine. However, that is coming. Worldwide—and I really mean worldwide—the courts are very concerned to look at the use of AI in being able to make decisions on a lot of areas.

But it is no use going down that route if there is not the public confidence, and that is why I think Amendment 78 is very important. Unless you are prepared to explain to the public what you are doing and how this is reliable, you will not get there. But I have absolutely no doubt that we are going that way. From looking at what is happening, a little bit in this country but much more elsewhere, we are into the route of AI being used to put arguments to the adjudicator, to respond to them and to distil the arguments into decision-making. It may be that this will produce the return to 1846—that is, the County Courts Act, which was meant to do what this Bill is trying to do now.

[Lord Fox (LD)]

My Lords, these amendments are very much of the style that I had expected, knowing that the noble Lord, Lord Holmes, was involved in the Bill, and he certainly made his arguments. To some extent I think there is a mixed thing here, with some of it mandating tools that the SBC could or should use. I do not think we need primary legislation to mandate that at all. I think the point that the noble and learned Lord made on Amendment 78 was slightly different from the one that the noble Lord, Lord Holmes, made. I may have misunderstood. But it is very important to know where AI is being used for decision-making and resolution. I think that was the point that the noble and learned Lord was making, and there I have complete agreement.

The use of distributed ledger is probably a very good idea. Do we need primary legislation to make or advise the SBC to use it? I am not sure. There is a mixed bag here, but the important element is that technology will change how the commissioner will approach her job and she needs to be financially and technically resourced in order to be able to address those changes and, I hope, to be one step ahead of them.

[Lord Hunt of Wirral (Con)]

We are all very grateful to my noble friend Lord Holmes of Richmond, not only for his amendments in this group but for his wise words. I also commend the noble and learned Lord, Lord Thomas of Cwmgiedd, and the noble Lord, Lord Fox, on their points.

Amendment 73 would require the Small Business Commissioner

“to provide a plain-language digital pathway into the SBC adjudication scheme, including an eligibility checker, interest calculator, and guided referral process”.

I believe there is a lot of common sense behind this amendment, and I suppose I declare an interest having been UK chair of the English-Speaking Union and global chair for a number of years. Placing a statutory duty on the commissioner to provide a digital service would ensure that small businesses could more easily get the essential and relevant information about the scheme. The inclusion of a plain language eligibility checker would mean that small businesses could determine whether they are entitled to refer a relevant payment dispute to the scheme. This would not only benefit the taxpayer, as time and expense will not have to be expended sifting through ineligible applications, but would also benefit small businesses that may otherwise have to spend money on legal fees and advice.

Amendment 78 would establish

“an algorithmic accountability framework for any AI or automated tool used by the Commissioner. It requires transparency, regular bias audits, human oversight, and a right of explanation for businesses selected for investigation”.

There is clear reasoning behind this amendment. If a business is put under investigation, it should be entitled, upon request, to understand the factors that led to the initial decision to investigate. Not only will this provide transparency and act as a safeguard against particular businesses being targeted, it will mean that businesses are able to reflect on their existing practices and amend them as necessary.

I turn to what my noble friend described as one of the most important amendments, Amendment 92, as well as Amendment 94. Amendment 92 would require the Secretary of State

“to commission an AI-assisted payment monitoring tool for the Small Business Commissioner”.

Amendment 94 would require the Secretary of State

“to establish an open, machine-readable register of payment practice reports”.

Both these amendments rest on the principles that technology and data, when used in a constructive way, can yield more effective and efficient outcomes. An AI-assisted payment monitoring tool could be used by the Small Business Commissioner to cross-reference data that companies are required to publish with other government databases to identify businesses whose reported payment performance is incompatible with other available financial and legal data. Such a tool would provide the commissioner with more accurate and robust data, which could be considered before the launching of a potential investigation.

Similarly, an open payment data register would enable analysis by sector, business size and payment performance over time. If this register were publicly accessible and machine readable, third parties would also have the ability to deploy their own large language models to gain insights into the sector, as well as potential businesses that must be referred for investigation. Crucially, by making the register public, large businesses may be further incentivised to ensure that they are complying with existing payment practices and regulations. I look forward to the Minister’s response on these matters.

Amendment 95 would require

“a pilot of distributed ledger technology for construction retention records during the transition period”,

while Amendment 96 would require

“post-quantum cryptographic standards for all digital infrastructure supporting the Commissioner’s functions”.

These are technical amendments which require careful consideration.

In the absence of a clear cyber strategy, which the Government have promised would be released—they have promised it again and again—it remains unclear how the digital infrastructure supporting the commissioner’s functions remains shielded from cyber threats. I hope that the Minister will be able to inform us all of when such a strategy will be published.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords for their contributions on this group of amendments. I thank in particular the noble Lord, Lord Holmes, for bringing them forward. I want to be clear: the Government agree that these are matters of importance. It is essential that the commissioner’s work is accessible to all users and that appropriate safeguards are in place where technology, including digital tools or AI, is used in delivering services.

The Small Business Commissioner already operates within well-established cross-government frameworks for accessibility, cyber security and data protection. For example, the commissioner’s website is already fully compliant with the web content accessibility guidelines—WCAG 2.2 level AA—ensuring that its services and publications are accessible to the widest possible audience. The commissioner is subject to strict legal obligations in relation to data protection and cyber security. These frameworks have robust safeguards around confidentiality, access controls and the secure handling of sensitive information.

21:00

Against that backdrop, the Bill is rightly focused on establishing the core statutory framework for tackling late payment, rather than prescribing detailed technical requirements that rarely feature in primary legislation. The intention is for the detailed design of the adjudication scheme, investigations regime and wider commissioner functions to be developed through secondary legislation and implementation. This will follow consultation with stakeholders to ensure that systems are practical, proportionate and effective in real-world use—I note the point from the noble Lord, Lord Hunt, about plain English. This approach allows us to engage with businesses and experts on issues such as accessibility, the use of technology and appropriate safeguards, and to ensure that the regime keeps pace with technological developments over time.

On Amendments 92 and 94, the Small Business Commissioner is already exploring how AI and improved data tools can be integrated into its case management system, and how a broader range of data can be used to inform investigations. However, placing into primary legislation a statutory obligation to develop a specific tool would risk being overly prescriptive. Technology in this space is evolving rapidly. We need to retain flexibility to adopt the most appropriate tools over time. For these reasons, we believe this is best delivered operationally rather than being mandated through legislative.

On transparency and reporting, I again agree with the objective. However, we already have an established reporting regime where publicly available and accessible payment performance data can be downloaded and analysed. The key challenge is not the absence of data but how it is used and enforced. These amendments would introduce additional statutory structures and requirements that risk duplicating what already exists, while adding complexity. We must be careful not to impose unnecessary burdens on businesses—especially those that already demonstrate good payment practices—when our focus should be on tackling poor performance. We are already introducing new powers through the Bill to enable the Small Business Commissioner to investigate businesses with poor payment practices.

I recognise the positive intention behind Amendment 95, and I agree that greater adoption of, and improved oversight over, digital payments within the construction supply chain are both sound and worthwhile objectives. However, piloting such a system across construction contracts during the transition period would impose significant costs and complexity on those firms involved, especially on small businesses that are unfamiliar with this technology. Moreover, the proposal would extend the remit of the Small Business Commissioner into areas already governed by the statutory construction adjudication regime. This risks creating duplication and potential conflict with the construction Act framework—the mechanisms through which we foresee claims for retention debts being pursued.

It is also important to note that additional transparency on retention practices is already being delivered through the Reporting on Payment Practices and Performance (Amendment) Regulations 2025, which require large companies within scope to publish information on their use of retention clauses in construction contracts. This will be strengthened further by the proposals in Clause 24 for the Small Business Commissioner to be given powers to impose fines where there are breaches in reporting requirements. The Government are already working closely with industry to explore digital payment solutions and have committed to broader work to improve quality, reduce defects and expand access to alternative forms of security. This includes identifying technologies that can support improved productivity and performance across the life cycle of construction projects. With that said, I respectfully ask the noble Lord to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who took part in this debate. In answer to the noble Lord, Lord Fox, not just on the specifics of Amendment 78, I am always 100% in agreement with the noble and learned Lord, Lord Thomas of Cwmgiedd. That is a good place to be. Despite the noble and learned Lord’s slight downer today on lawyers, I am happy to think that it is good to be alongside an ex-Lord Chief Justice. So I very much agree and would make the same point on Amendment 78.

I thank the Minister for his response. There are some principles that we can return to on Report but, for now, I beg leave to withdraw the amendment.

Amendment 73 withdrawn.

Clause 19: Investigations into payment practices

Amendments 74 and 75 not moved.

Amendments 76 and 77

Moved by

[Lord Leong]

76: Clause 19, page 32, line 20, leave out from “business” to “where” in line 21
Member’s explanatory statement
The words omitted by this amendment appear instead in words inserted by my other amendment to clause 19 so this amendment makes no substantive change.

77: Clause 19, page 32, line 23, at end insert—
“(2A) In subsection (2), the reference to the costs of an investigation includes the costs of—(a) any steps taken following the investigation under section 2J,(b) monitoring a direction given under that section,(c) imposing a financial penalty for breach of an enforcement direction, and(d) publishing a report on the outcome of the investigation under section 2M,and includes administration costs and the costs of obtaining legal advice in connection with the investigation (including in connection with any of the matters mentioned in paragraphs (a) to (d)).”Member’s explanatory statement
This amendment clarifies the costs that the Small Business Commissioner may be permitted to recover in connection with investigations that the Commissioner may carry out under new powers in the Bill.

Amendments 76 and 77 agreed.

Clause 19, as amended, agreed.

Amendments 78 to 81 not moved.

Schedule 3: Investigations into payment practices: financial penalties

Amendment 82

Moved by

[Lord Leong]

82: Schedule 3, page 52, line 12, at end insert—
“(3) Before making regulations under sub-paragraph (1), the Secretary of State must consult the Commissioner and such other persons as the Secretary of State considers appropriate.”Member’s explanatory statement
This amendment requires the Secretary of State to consult the Small Business Commissioner and such other persons as the Secretary of State considers appropriate before making regulations about financial penalties which the Commissioner may impose in connection with investigations that the Commissioner may carry out under new powers in the Bill.

Amendment 82 agreed.

Schedule 3, as amended, agreed.

Clauses 20 and 21 agreed.

Amendments 83 to 87 not moved.

Clauses 22 and 23 agreed.

Clause 24: Enforcement of duty to publish report on payment practices and performance

Amendments 88 to 91 not moved.

Clause 24 agreed.

Amendment 92 not moved.

Clause 25 agreed.

Amendments 93 to 100 not moved.

Schedule 4: Further amendments: Small Business Commissioner

Amendment 101 not moved.

Schedule 4 agreed.

Clauses 26 and 27 agreed.

Clause 28: Power to make consequential provision

Amendment 102

Moved by

[Lord Leong]

102: Clause 28, page 40, line 11, after “State” insert “or the Chancellor of the Duchy of Lancaster”
Member’s explanatory statement
This amendment enables the Chancellor of the Duchy of Lancaster to make regulations consequential on the Bill (as well as the Secretary of State).

Amendment 102 agreed.

Clause 28, as amended, agreed.

Clauses 29 and 30 agreed.

Clause 31: Commencement and transitional and saving provision

Amendment 103

Moved by

[Lord Hunt of Wirral]

103: Clause 31, page 41, line 34, at end insert—
“(2A) Section 4 comes into force on the day after the last day of the period of 12 months beginning with the day on which this Act is passed.”Member’s explanatory statement
This amendment seeks to provide a one year transitional period before statutory interest payments come into force, so as to allow businesses to implement the underpinning technology and deal with the incoming regulation.

[Lord Hunt of Wirral (Con)]

My Lords, Amendment 103 would delay commencement of the statutory interest provisions by one year to allow businesses time to prepare. As we are on the final group of the day, I will seek to keep my remarks brief.

My noble friend Lord Holmes of Richmond made the point with Amendment 24 that statutory interest should be calculated and remitted promptly, within five days, which is a sentiment that we agree with, but that amendment also highlights that businesses will need to take on new administrative burdens to carry out this new duty. Obviously, we want to encourage people to pay on time, but businesses who have previously had payment terms of 90 or 120 days will need time to adapt. That is why Amendment 103, in the names also of my noble friends Lord Sharpe of Epsom and Lord Holmes of Richmond, would delay the commencement of statutory interest by a year. It acknowledges that underpinning technology will likely be necessary, especially for large multinationals with immensely complex payment systems. I hope that the Minister will be able to agree. I beg to move.

[Lord Leong (Lab)]

First, I thank the noble Lords, Lord Hunt and Lord Sharpe, for this amendment and the noble Lord, Lord Hunt, for his contribution. The Bill will strengthen an existing right that suppliers who are paid interest late enjoy, through Clauses 5 and 6. These clauses will simplify the law on when statutory interest runs and remove the ability for contracts to use an alternative remedy to statutory interest. Clause 4, which this amendment relates to, preserves the effect of Section 1 of the existing Commercial Payments and Interest on Late Payment Act 1998 and implies statutory interest into all contracts to which the Act applies. The amendment brought forward by the noble Lord to require Clause 4 to be commenced within 12 months would not delay the right to statutory interest, as it is already in legislation. I can reassure him that we have considered the impact that strengthening of interest rights will have, as set out in Clauses 5 and 6, and that there will be sufficient time for businesses to adapt their processes before these provisions are commenced. I hope I have reassured the noble Lord and that he will withdraw his amendment.

[Lord Hunt of Wirral (Con)]

My Lords, perhaps I may take this opportunity of thanking the Minister for the way he has approached the Bill. He has certainly given us all an opportunity to scrutinise it line by line, but he has also made a number of offers, which we have accepted, of further meetings, which we hope will take place as soon as possible—perhaps giving a little time for a short recess. I commend his approach, which is an example to all his colleagues, and I thank him for his reply on this amendment. The Bill has to be able to balance encouraging good payment practice alongside regulatory burdens. Statutory interest achieves the former yet has the potential to increase the latter. I hope that when we come to Report, the Minister will be able to bring forward a solution that addresses this issue, but until then, I beg leave to withdraw my amendment.

Amendment 103 withdrawn.

Clause 31 agreed.

Clause 32 agreed.

House resumed.

Bill reported with amendments.

House adjourned at 9.16 pm.