Construction Sector: Cash Retentions

Debate between Lord Aberdare and Baroness Jones of Whitchurch

Tuesday 10th September 2024 Lords Chamber

[Lord Aberdare]

To ask His Majesty’s Government what plans they have to end the practice of cash retentions in the construction sector.

[The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Baroness Jones of Whitchurch) (Lab)]

My Lords, I pay tribute to the work of the noble Lord in championing this issue so successfully over the years. The Government are committed to amending the Reporting on Payment Practices and Performance Regulations 2017 to require firms to report on their policies and provide key metrics in relation to retentions. We intend to introduce legislation for this in 2024. We will consider whether further action on retentions is needed to deliver our manifesto commitment to tackle late payment.

[Lord Aberdare (CB)]

My Lords, I am grateful to the Minister for that response. Cash retentions—withholding payments due to subcontractors for work done, often for an unreasonable period of time, or indeed for ever—have a highly damaging impact on the ability of small construction firms to invest, expand or even survive, and create pressure to cut corners on quality and safety. The Grenfell report is a shocking reminder of where that can lead.

There is a long-standing goal of ending retentions by 2025—I welcome what the Minister has said about the implementation of the reporting requirement—and widespread industry recognition that legislation is needed to achieve this. What plans do the Government have to introduce such legislation, thereby freeing thousands of construction SMEs to play their full part in delivering the Government’s housebuilding goals?

[Baroness Jones of Whitchurch (Lab)]

My Lords, we are prioritising bringing forward the statutory instrument to amend the Reporting on Payment Practices and Performance Regulations this year, with the aim of it coming into force in 2025. This will require large firms to report twice per financial year on their policies in relation to retentions, including standard terms for holding retentions and metrics in relation to payment performance for retentions. We believe that this information will be most useful to small firms in the supply chain, and this legislation was developed in conjunction with firms in the industry and their representative organisations.

--- Later in debate ---

[Lord Aberdare (CB)]

My Lords, the Minister mentioned taking the views of industry. The Government have been taking the views of industry since the completion of their consultation in 2020. The reason that they have not come to a conclusion is that there is no consensus with the industry. I greatly miss the contributions of Lord Stunell, who described seeking a consensus on this issue as being like asking lions and lambs to sit down together and agree on a menu for tea. There is no consensus between the larger and smaller firms, which is why the only solution seems to many in the industry to be legislation. Reporting is all very well, but it will not solve the problem on its own.

[Baroness Jones of Whitchurch (Lab)]

My Lords, we have been working to resolve the problems associated with cash retentions through the Construction Leadership Council. As the noble Lord said, there are a wide range of views across the sector about the use and problems associated with retentions and how they might be addressed. Many in the industry are in favour of reform and are now calling for a legislative ban, in the way that the noble Lord described, but any policy solution must be sustainable and work for the whole of industry and its clients, addressing both the surety and fair payment issues that are thrown up.