Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024

Lord Aberdare Excerpts

Monday 13th January 2025 Grand Committee

[Lord Aberdare (CB)]

My Lords, I am delighted that this second set of amendments to these important reporting requirements—I am trying to prevent my teeth from chattering in the cold—focuses on the damaging issue of cash retentions in the construction sector, which was not covered by the first set of amendments that we debated on 26 February last year. Could the Minister, whom I welcome to her post, confirm that that first set of amendments has now come into effect from 1 January this year? I am delighted that the new amendments will take effect from St David’s Day, 1 March. I also welcome the fact that the reporting will take place via an online service so that the information will be available to suppliers on the website as soon as business is publishing.

As we have heard from the Minister, resolving issues such as late payment and cash retentions is vital for smaller construction firms, particularly as the Government are seeking to build 150,000 homes a year while insolvencies among construction businesses continue to be higher than in most or all other sectors. The failure of major players such as ISG can have a devastating impact on small businesses in their supply chains.

The Government’s commitment to support SMEs, including through the reporting measures such as those that we are considering today, as well as the new Fair Payment Code and the promise of a small business strategy to be published this year, is much needed and very welcome. The regulations will provide transparent data about the practice of retentions and the level of late payment for this aspect of construction contracts. Having consistent comparative data concerning retentions will represent significant progress towards increasing the accountability of larger construction companies that subcontract work to smaller firms in the sector. Those subcontractors will be able to gain an understanding of the payment practices of larger companies to help them decide whether or not to do business with them.

I will not comment on the detail of the requirements which the Minister has outlined but I welcome the requirement for a named director to confirm approval of the figures reported, so that it is clear where the responsibility lies. However, that raises the question of the enforcement of these regulations. Will the Minister say something about how robust the data provided will be, given that the requirement is for self-reporting, and whether there will be any process for fact checking the data reported? What mechanisms might be put in place to ensure that the reporting requirements are met and what penalties might there be for not reporting as required or misreporting? Most importantly, can she say anything about what plans there may be in her department to end the damage caused by retentions altogether, either by banning them outright or by ensuring that funds withheld are ring-fenced in a way that protects small firms from never receiving the sums owed to them at all—or receiving a reduced amount or late amounts?

These regulations are a welcome step forward but I hope to hear more from the Minister about what further steps the Government will take to tackle the obstacles preventing small construction firms from contributing as fully as they could and should to the Government’s construction and house-building goals, and especially whether, how and when they might finally take action to bring to an end the pernicious practice of retentions.

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to speak from the Back Benches and welcome the Minister to her seat. I was also once a Business Minister and, in my second coming, a Cabinet Office Minister, and I was very much involved in trying to get rid of the curse of late payment. That included the changes to the Procurement Act requiring public sector suppliers to pay their own suppliers on time. That was meant to complement the timely payment by government procurers, which was one of the few positive legacies of Covid. The Government are pretty good at paying on time, although you have to keep departments up to scratch. I am disappointed only that the Government chose to delay the implementation of the Procurement Act and to downplay in the draft guidance note the role of small business, which noble Lords will know that I championed from the Back Benches and later when, surprisingly, I returned to the Front Bench as a Minister.

I rise today to support the noble Lord, Lord Aberdare, on cash retentions—an issue that he has campaigned on for many years. I associate myself with his good questions on transparency, enforcement and, perhaps more importantly, the Government’s intentions on the broader issue of cash retentions. That has been an abiding problem in the sector for many years. I remember that I promised a review, but I left government too soon to be able to carry through the consequentials. I hope the Minister will take his comments seriously.