Commercial Payments Bill [HL]

Lord Leong Excerpts

2nd reading
Tuesday 9th June 2026 Lords Chamber

Moved by

[Lord Leong]

That the Bill be now read a second time.

Northern Ireland and Scottish legislative consent sought.

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

My Lords, at the outset I acknowledge the work of the previous Conservative Government in establishing the Office of the Small Business Commissioner under the Enterprise Act 2016, and in introducing the Reporting on Payment Practices and Performance Regulations, which require large businesses and LLPs to publish payment data twice yearly. Those reforms were important and necessary steps forward.

As most noble Lords know, I am a former business owner, so I know that many businesses across the United Kingdom have benefited from those measures without having to endure lengthy and costly litigation simply to recover money that was already owed to them. But despite those reforms, the culture of persistent late payment remains deeply entrenched in too many parts of our economy. Late payment is not merely an inconvenience; it is a scourge on British business. It costs the UK economy an estimated £11 billion every year. Small business owners spend more than 86 hours each year chasing overdue invoices. Every day, approximately 38 businesses in the United Kingdom close because they run out of cash while waiting to be paid.

Behind every one of those statistics is a founder who took a risk, mortgaged a home, invested savings, employed staff, and worked tirelessly to build a business—only to discover that despite fulfilling their side of the contract, they could not survive because payment did not arrive on time. That is neither fair nor sustainable, and this Government are determined to act.

In July 2025, the Government launched a public consultation to gather views from businesses, trade bodies, representative organisations and stakeholders across the country on how best to tackle poor payment practices and improve payment times. The response was overwhelming. Businesses large and small, across all sectors and regions, made it clear that reform was urgently needed. The measures before your Lordships’ House today are the result of that engagement.

The Bill builds on the foundations laid by previous reforms and delivers on this Government’s manifesto commitment to tackle persistent late payments once and for all. Its purpose is straightforward: to ensure that when goods are supplied or services are delivered, businesses, particularly small and medium-sized enterprises, can be confident they will be paid fairly and on time.

SMEs are not peripheral to our economy; they are the very backbone of it. There are approximately 5.5 million SMEs operating across the United Kingdom. They employ around 60% of the private sector workforce and account for around half of all private sector turnover. Yet too often, they operate in a commercial environment where delayed payment has become normalised and smaller suppliers effectively act as involuntary lenders to larger organisations with greater bargaining power. The Bill seeks to restore balance, fairness and accountability to those commercial relationships.

Part 1 of the Bill introduces a maximum payment term of 60 days in commercial contracts, subject to limited exemptions, and renders contractual terms in breach of those rules void. We have listened carefully to businesses and stakeholders to ensure that these measures are proportionate and workable. Therefore, the Bill includes provisions enabling exemptions for large-to-large business contracts and for circumstances where the purchaser is the smaller party. We also intend to consult on secondary legislation that would exempt contracts relating to imports and exports from maximum payment terms.

This is not an attack on legitimate commercial freedom; it is a measured and proportionate intervention to address situations where freedom of contract exists more in theory than in practice because of unequal bargaining powers. Businesses cannot pay wages, suppliers, VAT, rent or national insurance with invoices that remain unpaid for 90, 120 or even 180 days. Prompt payment should be the norm in a modern economy, not the exception. The Bill also strengthens the existing statutory right to interest on late payment of commercial debts.

At present, many suppliers are reluctant to enforce those rights because they fear damaging valuable commercial relationships. Consequently, the law often exists only on paper. The Bill will remove the ability for contracts to substitute weaker remedies in place of a statutory interest at 8% above the Bank of England base rate. That will create a stronger deterrent against late payments and reinforce the principle that delaying payments should carry consequences. The Bill further allows suppliers to recover a fixed sum where disputes are raised late or without sufficient information in an attempt to delay payment. Too many businesses have encountered situations where objections are raised at the eleventh hour, not because there is a genuine dispute but because delaying payment benefits the purchaser’s cash flow. That practice is unfair, damaging and totally unacceptable.

Legislation is meaningful only if it can be enforced effectively. That is why the Bill will significantly strengthen the powers of the Small Business Commissioner. The commissioner will be empowered to resolve contractual payment disputes through a confidential adjudication scheme operating outside the court process, enabling small businesses to recover money owed to them quickly and efficiently. The commissioner will also gain powers to investigate persistent poor payment practices by larger businesses, to compel participation in investigations, to issue recommendations, to give publication and enforcement directions, and, in the most serious cases, to impose financial penalties. The Bill will allow regulations to be made to empower the commissioner to enforce compliance with payment reporting obligations when businesses fail to publish accurate payment data. Taken together, these reforms will transform the Small Business Commissioner from a passive observer into an active champion of fair payment practices across the United Kingdom economy.

The Bill also addresses one of the most controversial and damaging practices in the construction sector: cash retentions. Retention payments represent labour and materials already delivered and installed on site. Yet subcontractors and smaller firms frequently wait months, sometimes years, for money that is rightfully theirs. In some cases, they never recover it because of insolvency higher up the supply chain. The Construction Leadership Council estimates that approximately £223 million in retention payments is lost annually due to insolvency, while around £4 billion to £6 billion in retentions is held across the industry at any given time. That is an extraordinary amount of capital being withheld from productive businesses. Therefore, the Bill bans retention clauses in construction contracts and introduces a fixed sum payable for any unauthorised deduction from a retention payment.

A two-year transition period will apply before the ban comes fully into force, allowing industry and clients time to adapt and enabling alternative surety products to develop in the market. This is an important reform that will improve cash flow, strengthen resilience and reduce insolvency risks throughout the construction supply chain.

There is a broader economic case for this legislation. Growth does not come solely from major infrastructure projects or multinational investment; growth also comes from healthy cash flow in ordinary businesses across every town, city and region of our country. When small businesses are paid on time, they invest with greater confidence, recruit more staff, train apprentices, innovate and grow. Improving payment culture is therefore not simply a contractual issue; it is a growth strategy, a productivity strategy and, fundamentally, a fairness strategy. The Bill strikes the right balance between respecting commercial freedom and intervening where persistent unfairness harms businesses, jobs and economic growth. It is pro-enterprise, pro-growth and pro-fairness.

Poor payment practices destroy businesses, jobs and livelihoods. Too many business owners work day and night, often without paying themselves—as I, for one, know—reinvesting every penny into their businesses, only to find that they run out of cash because larger organisations fail to pay them on time. The Government are on the side of those businesses. We will not accept a business culture where smaller firms bear disproportionate financial risk simply because they lack bargaining power.

I am grateful for the constructive engagement and support received from noble Lords across the House through the all-Peers briefing sessions and discussions with Front Benches. I look forward to working collaboratively with noble Lords during the passage of the Bill. I particularly look forward to hearing the wisdom, expertise and practical experience that your Lordships’ House will bring to this important debate.

The Bill will help to ensure that the United Kingdom remains one of the best places in the world to start, build and grow a business. It will strengthen confidence, improve cash flow, protect jobs and create a fairer commercial environment for millions of businesses across our country. Businesses that do the work deserve to be paid on time. That is the simple and fair principle at the heart of the Bill. I beg to move.

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[Lord Leong (Lab)]

My Lords, I thank all noble Lords—especially the noble Baroness, Lady Kramer, who stepped in for the noble Lord, Lord Fox—for an informed, thoughtful and constructive debate and for their kind words about my opening speech. The quality of today’s debate has demonstrated not only the breadth of expertise in your Lordships’ House, but the seriousness with which Members regard the persistent problem of late and unfair payment practices across our country. I will try to respond to as many noble Lords’ questions as possible within my allocated time. If I am unable to address every point raised today, especially some of the technical and more detailed questions, I will ask my officials to review Hansard carefully, write to noble Lords accordingly and place copies of those responses in the Library of the House.

First, there was broad agreement throughout today’s debate on one fundamental principle: businesses that do the work should be paid on time, and that includes social enterprises, as indicated by my noble friend Lady Thornton. The noble Lord, Lord Lansley, again showed the knowledge he brings to the House. He asked whether there should be additional responsibilities on auditors of large companies to sample payments and report on them. The noble Lord, Lord Risby, asked whether some form of register could check on the payment practices of these large companies. As noble Lords know, credit rating agencies exist, and many of them are well known for their credit reports on big companies, although it might be necessary to pay for their services. I will take this idea back to the department and share it with colleagues to see whether it is possible. Obviously, there is the question of how much such a register would cost; nevertheless, I will bring this idea to the attention of my officials.

While the Bill does not impose new duties on auditors, I hope I can reassure noble Lords by saying that in 2025 the Government introduced legislation to require large companies to report on their payment practices in their directors’ reports. Noble Lords will appreciate that there were also some changes to the definition of some of these businesses, and the impact assessment has found in favour that some companies have been moved from medium-sized to small, which basically reduces their reporting requirements as well. That is a good sign. We have to be mindful of the point that the noble Lord, Lord Sharpe, made about the definition of SMEs. I for one have had many conversations with him about that, and it is something that we have to bear in mind. For the purposes of the Bill, we have to define it as it stands, and I will refer to it in another part of my winding up. I confirm that we intend to introduce secondary legislation requiring boards of audit committees of underperforming large companies to explain poor payment performance and outline improvement plans.

Various noble Lords have asked about the number of days and whether it should be 45, 60 or even 30. From our consultation, 60 days seems to strike a fair balance between helping small businesses get paid in a timely manner and recognising that in many sectors 30 or 45 days may have been a step too far at this stage. Take the publishing sector, for example: some smaller publishers would need more than 30 or even 60 days to pay some of the larger publishers, and they have a special arrangement for that. That is provided for within the limited exemptions in the Bill where the purchaser is a much smaller organisation than the larger one.

We will continue our work to encourage businesses to pay even faster. For that matter, there is no reason why businesses cannot pay within 60 days—or 30 or 45—if they offer a discount, which many businesses do. Those practices are currently in place and, as many noble Lords have mentioned, a matter for private commercial negotiation between companies. The maximum is 60 days, but there is no reason why businesses cannot pay faster. Obviously, we will work closely with the Small Business Commissioner, who operates the fair payment code.

The noble and learned Lord, Lord Thomas, asked whether the Bill could apply to foreign or overseas companies. The noble Lord, Lord Risby, also asked a question about that, particularly where UK firms are owed money by companies based abroad. I confirm that the Bill applies to commercial contracts that fall within the scope of UK law, including where a qualifying business is operating in the UK or where the contract is governed by UK law. Subject to consultation, we intend to introduce an exemption from the 60-day maximum payment term for contracts for imports and exports. That is to ensure that UK-based companies trading overseas with non-UK-based companies are not disadvantaged by having to offer much stricter terms. Noble Lords will know that the whole process of import and export requires time after goods arrive in the country for customs clearance and so on, so additional time will be required for some of these payments to be made. Measures in the Bill such as maximum payment terms, statutory interest on late payments and stronger rights to redress will therefore apply where the contractual relationship is within scope.

I turn to the questions from the noble Lord, Lord Leigh. First, on how the Government intend to define the size of a business, I mentioned that earlier in relation to the point from the noble Lord, Lord Sharpe, about the different definitions. For the purposes of the Bill and the exemptions to the maximum payment terms, we intend to define business sizes through secondary legislation following further targeted consultation. For the purposes of the Small Business Commissioner’s new functions, the definition of a small business is included in Section 2(1) of the Enterprise Act 2016.

The Bill provides a revised definition of larger businesses at paragraph 12 of Schedule 4 to the Bill. A small business is a business that has a headcount of fewer than 50 staff, whose registered office or principal place of business is in the UK and that is not a statutory authority. On businesses not using the adjudication scheme due to a conflict with these suppliers, while some small businesses may be reluctant to take action forward against a larger business, that does not mean we should not help businesses that are prepared to take it.

The Small Business Commissioner handled over 700 late payment cases last year, recovering over £1.5 million of late payments for small businesses. This is an alternative dispute resolution scheme designed to support businesses to resolve their disputes in a fair and impartial way. It is a very cost-effective way, rather than going through a costly and lengthy legal process.

On the definition of persistence, I assure the noble Lord that a larger business that persistently engages in poor payment practices is one that engages in poor practices on a sufficient number of occasions for it to represent a pattern of behaviour; it is persistent and regular bad practice. In deciding whether to carry out an investigation, the commissioner will have to consider the extent and impact of suspected poor payment practices, the resources needed to carry out that investigation and whether it is proportionate to do so.

On the point about draft regulations, I assure the noble Lord that there is a statutory duty to consult regarding the regulations, which the Government intend to commence as soon as possible after Royal Assent. The Government will also need to secure the consent of all devolved Governments where relevant, as mentioned by the noble Lord, Lord Bourne. Parliament will have the opportunity to scrutinise the draft legislation and actively approve it before it becomes law.

I turn to the various points mentioned by my noble friend Lord Mendelsohn. I thank him for his engagement with me so far, and I look forward to meeting him next week to discuss his thoughts on the Bill. In our engagement with small businesses on the issue of late payment, the question of cleared funds, where money gets cleared in the bank account, has not been cited as a primary concern. Consequently, we have deliberately avoided prescribing cleared funds in statute as that would introduce rigidity, risk disputes over banking processes beyond a payer’s control and constrain innovation in payment systems and practices. We have to practise what we preach. For comparison, my department, the Department for Business and Trade, currently pays 95% of its invoices within five days and 99% within 30 days, and that is a pretty good record.

On the point about verification, the Bill includes restrictions and makes clear that these must be proportionate and not used to delay payment unnecessarily. Taken together with stronger transparency and enforcement, these measures materially improve suppliers’ position while preserving the flexibility needed for the framework to operate effectively across a modern and evolving economy.

The noble Lord, Lord Sharpe, asked about resources for the Small Business Commissioner. The SBC is required to publish an annual report and audited accounts, which will include details of staffing and resources as well as activity undertaken. The SBC will continue to provide information on its resources. The Government can confirm that the SBC will be provided with the additional resources needed to carry out its new functions.

I turn to the question from the noble Lord, Lord Bourne—several other noble Lords also asked about this—on the time needed to pay and when payment is due. We want businesses to be clear when the payment period begins and ends, helping to provide clarity for businesses about when they get paid. The events listed in new Section 2B(1) are applicable in all contracts related to the supply of goods and services, and form part of the existing statutory framework in relation to late payment. Requiring businesses to use one of the four triggers will help to provide clarity and consistency for businesses about when they will get paid.

In relation to devolution, I can confirm that my officials have had extremely positive conversations with officials within the devolved Governments and the newly elected Governments in Wales and Scotland. The Bill sets out the consent mechanism where powers impact on devolved powers. This respects the devolved settlements and I am confident that the devolved Governments will be able to recommend and grant legislative consent Motions to this Bill.

I turn now to the various points from my noble friend Lady Alexander and thank her for her contributions. With relation to the commissioner having jurisdiction over construction, the Small Business Commissioner will have the power to provide advice, information and training to all businesses, regardless of their sector. This will build on its work within the fair payment code, which includes 212 construction company awardees. The proposed adjudication powers for the Small Business Commissioner will not apply to construction contracts due to the existing statutory dispute resolution mechanisms under the Housing Grants, Construction and Regeneration Act 1996. However, if a construction business enters into a non-construction contract, the commissioner’s adjudication powers would apply.

On the definition of retention, which I think probably all noble Lords have mentioned, we believe that the definition is robust and comprehensive and are confident that it will capture all behaviours amounting to a retention practice. We have also provided the Secretary of State with the power to amend the definition in Clause 16. The power is intended to be used where there is evidence that the ban is being circumvented creatively, defeating the intention of Parliament.

On commitment to monitoring avoidance behaviours, the Government will work with the Construction Leadership Council and construction clients to develop practical approaches to minimising defects, as well as working with the financial services sector to identify ways of developing a surety product it can bring to market for the construction sector, including for small businesses through the supply chain.

Finally, on simplifying the transition arrangements, we recognise that abolishing retentions represents a significant change for the industry and its clients. Therefore, a transition period is required for industry to prepare and for the market in alternative surety products to develop. The requirements in the transition period also seek to address poor payment practices for retentions in the lead-up to the ban. The Government will also support industry implementation through guidance and stakeholder engagement, ensuring that the transition is clear and manageable, particularly for smaller businesses.

The noble Lord, Lord Hunt, and other noble Lords mentioned retention and asked how we can ensure that defects are addressed. Despite the existence of retention for over 100 years, it is clear from our consultations that this is not an effective means of preventing defects or even remediating significant problems. The Government are committed to working with industry and surety providers to improve quality and eliminate defects.

The noble Lord, Lord Hunt, also asked about funding for the Small Business Commissioner, aligning with the noble Lord, Lord Sharpe. The Small Business Commissioner is grant funded by the Department for Business and Trade and will be provided with the additional resources needed to carry out its additional functions. The commissioner will also have the power to recover the costs of investigations, enforcement and adjudication.

The measures in this Bill to deal with late payment are proportionate and will address persistent poor payment behaviour. However, they are not so punitive as to disincentivise doing business with small businesses. A 60-day payment term, for example, is perfectly reasonable and achievable. Looking at some debtors’ books and creditors’ ledgers, I would not say that 60 days is normal, but it can be bearable.

The noble Lords, Lord Holmes and Lord Risby, asked about public authorities’ payment terms of 30 days and 60 days. Public authorities are already required to pay within 30 days under the Procurement Act 2023. It is right that the Government lead by example— I mentioned the example set by the Department for Business and Trade—and maintain that high standard. In the private sector, the Bill addresses a wider range of commercial relationships, and a 60-day maximum strikes the right balance.

The noble Lord, Lord Holmes, asked about fining global companies. I think this is an opportunity to thank him for his contribution, especially his knowledge on AI and digital products and all that, which I will obviously share with my officials. The Bill applies to commercial contracts that have a sufficient connection to the UK and for government by UK law. The commissioner will have powers to address poor payment behaviour of those carrying on business in the UK.

I am running out of time. I will have to write to the noble Baroness, Lady Bennett, because she asked about a couple of technical points. I will ensure that she gets a letter from the officials—likewise the noble Baroness, Lady Kramer, on the question of a whistleblower and the FCC.

Throughout today’s debate, noble Lords from across the House have brought valuable expertise and experience. As this Bill progresses through Committee and subsequent stages, I look forward to constructive discussions with noble Lords across the House to ensure that the legislation achieves its objective in a proportionate and effective manner. Late payment destroys cash flow, it destroys confidence, and too often it destroys businesses altogether. This Government are determined to change that. Once again, I thank all noble Lords for their contributions in today’s debate, and I commend this Bill to the House.

Bill read a second time.

Moved by

[Lord Leong]

That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order: Clauses 1 to 9, Schedule 1, Clauses 10 to 17, Schedule 2, Clauses 18 and 19, Schedule 3, Clauses 20 to 25, Schedule 4, Clauses 26 to 32, Title.

Motion agreed.

Commercial Payments Bill [HL]

Lord Leong Excerpts

Committee stage
Tuesday 21st July 2026 Lords Chamber

[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.

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[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.

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[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.

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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.

[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.

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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.

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[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.

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[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.

[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.

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[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.

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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.

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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).

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[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.

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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.

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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.

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[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.

[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.

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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.

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[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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[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.

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[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.

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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.

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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.

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[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.

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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.

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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.

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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).

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[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.

Commercial Payments Bill [HL]

Lord Leong Excerpts

Report stage
Tuesday 15th September 2026 Lords Chamber

[Lord Fox (LD)]

My Lords, I feel a great wave of consensus flowing over me. I will speak to Amendment 8 in my name. As we discussed before the Recess, much of the consultation process proposed a 45-day limit, yet the Bill offers no easy route from the 60 days it proposes to a shorter timeframe. My amendment would require the Secretary of State, within five years, either to lay draft legislation reducing the maximum payment period for private purchasers from 60 to 45 days, or to explain to Parliament why not.

The Minister’s reaction and response to this issue have been typical of the very strong consensus that we have been able to build. I echo the words of the noble Lord, Lord Sharpe, that both the Minister and his team have been extremely helpful in this. That is why I am delighted to note that government Amendment 15 and the various consequentials lock in very much what I was looking for, including—as the noble Lord, Lord Sharpe, mentioned—the need for consultation within five years, with a view to shortening the payment period. This government amendment is an excellent response to my Amendment 8, thereby making my amendment unneeded.

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

My Lords, prior to introducing the government amendments, I wish to express my personal thanks for the positive engagement across the House, and particularly to the noble Lords, Lord Hunt and Lord Sharpe, on the Opposition Front Bench, and the noble Lord, Lord Fox, and the Liberal Democrats for their very thoughtful scrutiny of the Bill.

The Bill builds upon the important reforms that were enacted by the previous Conservative Government. The provisions in the Bill have been drafted following extensive consultation with businesses, with more than 850 responses to our consultation, which was undertaken between 31 July and 23 October 2025. We have brought forward a Bill that reflects that consultation.

Our decision to impose stricter maximum payment terms of 60 days received support from 66% of consultation respondents. This is a significant strengthening of current law. No longer will large businesses be able to impose payment terms of over 60 days upon their suppliers. The question remains whether 60 days should be the end of that journey. We have heard loud and clear from smaller businesses that the Government should consider reducing maximum payment terms to 45 days or even 30 days. I have listened carefully to all noble Lords across the House encouraging us to go further on this. I am pleased to say that the Government have tabled amendments to provide a power that may be used in future to reduce the maximum payment terms.

These amendments allow the Government to consult on whether payment periods should be reduced, ensuring that any future decisions are informed by evidence and experience of how the new measures are operating in practice. Furthermore, the Government will not use this power to reduce maximum payment terms for at least five years. I hope noble Lords will agree that this is a sensible change and a balanced approach, maintaining the payment periods consulted on and included in the Bill, providing stability and certainty while businesses adapt to the new reality of 60-day maximum payment terms, and ensuring that there is a clear route to go further in future if the evidence supports it.

I turn to the amendments tabled by other noble Lords. In response to Amendment 2, increasing the maximum payment term for public authorities beyond 30 days would undermine the Procurement Act 2023 and delay payment to suppliers. In response to Amendment 4, increasing the maximum period for non-public authority purchasers beyond 60 days would delay payments to suppliers and move away from the position consulted upon with strong levels of support.

Regarding Amendments 3 and 6, national ownership does not by itself determine the applicable payment regime. Under the Bill, a nationalised body that meets the definition of a “public authority” will be subject to a 30-day maximum payment period. A nationalised body that does not meet that definition will be subject to the 60-day maximum payment period that applies to other purchasers. I recognise the intention and ambition of the noble Lord, Lord Fox, in Amendment 8 to reduce maximum payment terms.

On Amendment 19, the Bill takes important steps by introducing clarity and consistency around payment terms, building on the reforms introduced by the previous Conservative Administration. We are not aware of public holidays being raised as a concern by any businesses or stakeholders during last year’s extensive public consultation.

Amendment 1 is already covered by the Bill. We are setting out clearly the trigger points that can be agreed to start the clock on payment and the implied term if payment is not explicitly made.

Regarding Amendment 5, the Government believe that the Bill is clear. For the purposes of whether a payment has been made on time and when interest on late payment will start, payment will be considered made at the point that funds have been received by the supplier. On both Amendments 1 and 5, the Small Business Commissioner will provide advice and information on compliance with legal obligations on these points. On Amendment 10, I outlined in Committee how the removal of this exemption would place UK businesses at a competitive disadvantage.

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[Lord Hunt of Wirral (Con)]

My Lords, this amendment touches on very much the same point as my noble friend Lord Holmes of Richmond’s Amendment 6 in the first group. The principle that payments should be considered as such only when received by the supplier underpins several of the amendments that we on this side of the House have brought back from Committee. As such, His Majesty’s loyal Opposition support this amendment, as we did in Committee. I do not think that a payment should fall under a different regime from direct payments simply because it is made online and happens to travel through an intermediary. Similarly, ensuring the prompt forwarding of payments by intermediaries is an integral part of promoting good payment practices. This amendment aims to do that, and I warmly commend the speech of the noble Lord, Lord Fox. I join him in hoping that the Minister can confirm that these issues have been considered and addressed.

[Lord Leong (Lab)]

My Lords, I am grateful to the noble Lord, Lord Fox, for Amendment 7 and thank him for it. I recognise that it was tabled in a constructive spirit, and I thank him once again for the engagement we have had on this matter, both in person and by correspondence. The Government share his aims of ensuring that suppliers are paid promptly, payment processes are clear and purchasers cannot use contractual mechanisms to delay payment unjustly. I entirely agree that, when a small business sells through a platform or marketplace, the money due to that business should not be held unnecessarily.

I want to be absolutely clear that the use of intermediaries does not affect a supplier’s right to be paid within 60 days. Chapter 1 of Part 1 ensures that, for business-to-business contracts for the supply of goods or services, the maximum payment time is 60 days. If payment is more than 60 days overdue, the purchaser is in breach of contract and liable to pay interest. The use of an intermediary does not alter this position.

I reassure all noble Lords that persistent attempts to circumvent the maximum payment terms through intermediaries constitute poor payment practice. Under Clause 19, this constitutes grounds for the Small Business Commissioner to investigate and potentially levy a financial penalty on larger businesses that persistently engage in this practice. Under Clause 18, the commissioner will also be able to adjudicate payment disputes where a larger business owes money to a small business, including where the debt arises from the use of an intermediary.

The Bill addresses late business-to-business payments. It is not intended to regulate broader business relationships such as those between retailers using agents to sell goods to consumers or between a platform or marketplace and others when the platform or marketplace is holding, processing or transmitting funds between them. Those are subject to separate regulation. The contracts through which the majority of small businesses trade on online marketplaces are either business-to-consumer or consumer-to-consumer contracts and are subject to consumer legislation. These contracts were outside the scope of our impact assessment and our public consultation.

As tabled, the amendment would therefore not address the issue raised by the noble Lord, Lord Fox. Tackling the issue of late payments outside a business-to-business context would move the Bill into a completely different area of regulation and would require the establishment of a new statutory regime for online marketplaces and payment intermediaries. This would cut across existing legislation, rather than maintaining the Bill’s core focus on commercial payment practices between suppliers and purchasers.

The amendment would also interfere with existing commercial models that operate in the interests of the relevant parties and serve legitimate purpose. For example, where most intermediaries operate a system in which payments are pooled in a small business account and are drawn down by the small business on a regular basis, the amendment would mean that each individual sale, however small, would have to be remitted directly to the small business, significantly increasing transaction numbers and costs and reducing the flexibility of the operating model. Another example is payment providers holding funds for more than seven days to allow for fraud checks or other compliance requirements. The amendment would increase small businesses’ exposure to fraud and undermine the regulatory and legal framework governing payment providers.

However, I understand and share the noble Lord’s concerns about withholding funds from small businesses. I am therefore happy to ask the Small Business Commissioner to review this issue with a view to developing guidance for small businesses so that they understand how the Bill applies to trading activity on online marketplaces. This can build on the guidance that the commissioner produced last year to help small businesses understand why their accounts may be frozen or funds withheld and how they can take action to avoid this. This included a 10-point pledge to online marketplaces and payment providers which was signed and promoted by several major companies. As the Minister for Small Business, I commit to examining how the Government can further support small businesses in addressing this issue faced by those who use online platforms, including engaging with other government departments and regulators where they have responsibility.

For those reasons, and given the commitments that I have made, I respectfully ask the noble Lord, Lord Fox, to withdraw Amendment 7.

[Lord Fox (LD)]

I thank the noble Lord, Lord Hunt, for his support for this amendment. One point of consternation or otherwise is that I would suggest that the supplier-marketplace relationship is a B2B relationship, not a B2C one. I am not sure where the argument that I am somehow pushing this to a different sort of relationship came from, but I will set that to one side and mull on it later.

I thank the Minister for the latter part of his speech and his undertakings to focus the SBC on this issue and to ensure that his department looks at ways of making sure that small businesses understand their rights. That is really the point. The way in which the first part of his speech was set out made it clear that there are all sorts of rights for small businesses in this, but I am not sure that small businesses are necessarily aware of those rights or how they can go about exercising them and being sure that it is not a time-consuming, overwhelming process. It would be useful to hear from the Minister—and perhaps the Small Business Commissioner, as time goes by—how small businesses will be engaged to make sure that they are fighting on an even footing with the marketplaces, many of which are, let us face it, absolutely huge and very difficult organisations to take on. It can be difficult even to find the right person to speak to in them to start with.

I thank the Minister for the work that he will do in future, and I beg leave to withdraw Amendment 7.

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[Lord Fox (LD)]

My Lords, the noble Lords, Lord Hunt and Lord Sharpe, were right to raise the issue of definitions in Committee. Rather than simply echo them, I decided to add something to the debate through Amendment 35, which sets out something of the Tower of Babel that exists around definitions. Subsection (2) of the new clause proposed in Amendment 35 gives examples of the many phrases and words that are used in a variety of different contexts. Proposed new subsection (3) identifies seven Acts—not the six that the noble Lord, Lord Sharpe, came up with; we managed to find another one—where these phrases are prevalent but not necessarily synonymous. Proposed new subsection (4) really sets out what we are looking for the Minister to do, which is work out to what extent the definitions in proposed new subsection (2) differ from those in subsection (3).

There is a compliance cost to businesses in these differing definitions, because they have to make different decisions for different legislative frameworks. The extent to which this gives rise to uncertainty and undermines the law, and the effect it will have on the functions of the Small Business Commissioner, are just some of the things that should be taken on board by the Government to bring a state of order to what has been an organic process of legislation following legislation and definition following definition. To help the Minister’s new constituency of small businesses in particular, now is the time to bring these things under control and bring definitions into order.

[Lord Leong (Lab)]

My Lords, I thank the noble Lords for Amendments 11, 12, 13, 14, 35 and 46. I recognise the concerns raised by the noble Lords, Lord Sharpe and Lord Fox, in Committee regarding the number of existing definitions of company sizes on the statute book and their desire for clear and consistent definitions to avoid confusion for businesses. I would like to reassure noble Lords that our intention is to use the company size thresholds set out in the Companies Act 2006 and the Enterprise Act 2016 as the basis for defining company size in the Bill.

However, it is important that we consult with businesses and industry experts to ensure that these definitions are appropriate for the purposes of this Bill. That consultation may indicate that, for the purposes of the Bill, company-size definitions should be revised or simplified. Any modifications to existing definitions will be made only when necessary.

For example, we may choose to simplify definitions to make it easier for businesses to use exemptions, while still using existing definitions as the basis. We may find through consultation that different parts of the legislation require different definitions to ensure precision and effectiveness. For example, we might be required to simplify the size definitions for the purposes of the Small Business Commissioner’s powers, so that they are based solely on headcount. We should not constrain ourselves by introducing rigid definitions now, as this could make the powers and protections afforded by the Bill more difficult for businesses to understand and administer than is necessary.

I also do not consider it necessary to delay the Bill’s commencement pending a further statutory review of definitions used across a range of legislation. The Government are already committed to consulting on any regulations made under these powers and to taking into account relevant existing definitions when developing them. The delegated power in Section 2E will be subject to consultation and parliamentary approval under the affirmative procedure, giving your Lordships’ House the opportunity to vote on the regulations before they are introduced.

In conclusion, the definition of business sizes will be set out in secondary legislation. These regulations will be informed by consultation to ensure that they are appropriate. The Government intend to use the existing definitions as the basis for this Bill and will keep definitions as simple and effective as possible.

I also commit that, before making any regulations in this area, the Government will have regard to the definitions in the Companies Act 2006, the Small Business, Enterprise and Employment Act 2015 and the Enterprise Act 2016. I also commit to meeting up with the noble Lord, Lord Sharpe, to look into these definitions going forward. For these reasons, I respectfully ask that Amendment 11 be withdrawn and that noble Lords do not move the remaining amendments in the group.

[Lord Sharpe of Epsom (Con)]

My Lords, again I am grateful to the Minister for his very comprehensive response. I am also grateful to the noble Lord, Lord Fox, for explaining his Amendment 35 and for digging out yet another example of an Act that governs the definitions of small business. Might I suggest to the Minister that, during this consultation, they include a question on how the nature of small business has evolved in the last 10 years? Obviously, there has been a spectacular explosion in e-commerce and other things, which will have a material impact on the types of definition we are talking about.

As I outlined in my opening speech, the current landscape of definition is unnecessarily convoluted—expensively so, as the noble Lord, Lord Fox, pointed out. However, I recognise that this Bill is not necessarily the best vehicle for driving through that reform. I appreciate the Minister’s response on this issue. I will absolutely take him up on his offer of further talks on how we might improve a bit of a messy picture. I think I also heard him say that he is quite keen to find another legislative vehicle where we can address this in the future—if I am making that up, I am sure that he will correct the record.

I beg leave to withdraw my amendment.

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Moved by

[Lord Leong]

15: After Clause 3, insert the following new Clause—
“Powers to shorten payment termsAfter section 2E of the CPILPA 1998 (inserted by section 3), insert—“2F Powers to shorten payment terms(1) The Secretary of State may by regulations substitute the number of days for the time being specified in sections 2B(2)(a) and 2D(3)(a).(2) Regulations under subsection (1)— (a) may not specify a number of days higher than 30;(b) must specify the same number of days in sections 2B(2)(a) and 2D(3)(a).(3) The Secretary of State may by regulations substitute the number of days for the time being specified in sections 2B(2)(b) and 2D(3)(b).(4) Regulations under subsection (3)—(a) may not specify a number of days higher than 60;(b) must specify the same number of days in sections 2B(2)(b) and 2D(3)(b).(5) The Secretary of State may by regulations substitute the number of days for the time being specified in section 2B(5), but the regulations may not specify a number of days higher than 30.(6) The Secretary of State may by regulations substitute the number of days for the time being specified in section 2C(3), but the regulations may not specify a number of days higher than 30.(7) The Secretary of State must, within the required period, consult such persons as the Secretary of State considers appropriate about whether to make regulations under subsections (1), (3), (5) and (6) and the number of days that might be specified in such regulations.(8) In subsection (7) “the required period” means the period of five years beginning with the day on which sections 2B and 2D come into force (or, if they come into force on different days, the later of those days).””Member’s explanatory statement
This new clause enables the Secretary of State to make regulations to shorten the payment periods set out in various provisions of the Bill.

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Moved by

[Lord Leong]

16: Clause 4, page 9, line 4, leave out “2E” and insert “2F”
Member’s explanatory statement
This amendment is consequential on my proposed new clause.

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[Lord Hunt of Wirral (Con)]

My Lords, Amendments 20, 21 and 33 in my name and those of my noble friends Lord Sharpe of Epsom and Lord Leigh of Hurley have been brought back from Committee to address our concerns about special administration regimes and payment practices.

I begin by acknowledging that the Minister did reassure us that the terms of this Bill will apply to companies that are required to continue supplying SARs following their being placed into administration, as Amendment 20 probes. Similarly, I acknowledge that the report on the interaction between insolvency moratoria and payment practices that Amendment 33 seeks to mandate may be unnecessary given this fact. We have, however, retabled these amendments as they lend themselves to my arguments surrounding Amendment 21. When this amendment was discussed in Committee, the Minister stated that it 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”.—[Official Report, 21/7/26; col. 1070.]

We do not agree with this argument. The very acceptance of Amendment 20 that suppliers to SARs will fall under this Bill implies a recognition that there is something unique about this set of businesses. Indeed, the entire reason we are having this debate is that Section 233 of the Insolvency Act 1986 makes it illegal to withhold supplies to an SAR on the condition of the payment of arrears. It would not be preferential treatment to offer to them what the Bill offers to every other business—the ability to recoup funds owed but not paid. That would place those firms on an equal footing with other creditors, given that they currently have less ability to ensure payment of arrears.

Amendment 21 is proportional in that a cap could be set by the Secretary of State and the payment could not be of sums subject to genuine disputes. This Bill is designed to ensure fair and timely payment practices. This amendment seeks to ensure just that for a set of firms that currently have no means of recouping owed sums. I look forward to the Minister’s response and, in the meantime, I beg to move.

[Lord Leong (Lab)]

My Lords, I thank the noble Lords, Lord Hunt of Wirral and Lord Sharpe of Epsom, and the noble Lord, Lord Leigh of Hurley, who is not in his place today, for Amendments 20, 21 and 23. I am really grateful to both noble Lords for our recent meeting covering these points, and I hope that the follow-up information which my officials provided has been helpful. I am also grateful to the Insolvency Service for its expertise in supporting our position.

The Bill does not seek to alter the existing statutory framework on insolvency. Regarding Amendment 20, I would first like to clarify the position of suppliers providing goods or services after a company enters a special administration regime. Clause 1 inserts new Section 2B into the Commercial Payments and Interest on Late Payment Act 1998, applying maximum payment terms to relevant payments under contracts within the scope of the legislation. The Bill does not exclude supplies made to companies in special administration. There is an important distinction between pre-appointment and post-appointment debts. Post-appointment supplies remain subject to the Bill where they are otherwise within scope. Payment obligations and statutory interest may continue to apply or accrue. Recovery and enforcement remain subject to any relevant insolvency moratorium and the wider insolvency rules.

By contrast, debts relating to supplies made before the appointment are in a different position. They remain pre-insolvency claims and are dealt with under the established insolvency framework. The Bill is not intended retrospectively to alter their status or priority.

The Government do not consider that entry into a special administration regime should of itself result in a purchaser being treated as a public authority for payment term purposes. Companies in special administration remain commercial entities operating within statutory rules. Special administrators are independent court-appointed officeholders, with statutory duties to manage the businesses within those rules. Applying public authority payment requirements solely because a company has entered special administration could have operational repercussions—for example, by exacerbating cash-flow pressures. Nor do we consider that the Bill should determine whether liabilities are to be treated as expenses of a special administration. Amendment 20 would make qualifying post-appointment sums, including statutory interest, expenses of the special administration. Amendment 21 would similarly elevate certified pre-appointment sums. These would be substantive changes to the treatment and priority of liabilities, potentially affecting other creditors. Such questions are matters for the insolvency framework.

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[Lord Fox (LD)]

My Lords, there are no amendments in my name in this group, but I will speak very briefly on Amendment 24, which, as we heard, seeks to remove the ban on retention, with the very worthy aim of helping ensure that resident-owned or resident-run blocks of homes can police work done on the grounds of safety. On the face of it, that sounds like a worthy idea. I am concerned that it opens a can of worms, and my instinct is that there has to be a better way of ensuring that the work is done properly. Perhaps it is the noble Lord’s idea of escrow, which I believe could, if mutually agreed, be possible.

There is a danger of watering down the retention ban if we were to accept the noble Lord’s ideas. The definition of “safety defect remediation work” could be broad, or it could be very narrow. I have had briefings from a number of different organisations which have been contradictory to each other, so I am passing the buck to the Minister to explain how he is going to solve the very worthy issue that the noble Lord, Lord Sharpe, has identified, which is resident-run or resident-owned properties, while not prising open the lid of the can of worms.

[Lord Leong (Lab)]

My Lords, first, I thank the noble Lords, Lord Sharpe and Lord Hunt, for the amendments in this group.

I will take Amendment 22 first. I reassure the noble Lords that the Bill does not prevent parties in any sector, including construction firms, making use of payment arrangements through a bank or an escrow provider to facilitate the transfer of funds. The important distinction is between a third party facilitating payment of money that is due and a third party holding back that money as security for the supplier’s performance. The former remains permitted, the latter could amount to a retention and would therefore fall within the prohibition. Therefore, Amendment 22 is unnecessary.

The Government’s view, shared by many in the industry, is that construction should move away from cash retentions and towards modern, more secure and equitable forms of surety. We know that there are alternative forms of surety, including performance and retention bonds, already available in the UK which can mitigate risks for clients and firms. There are also alternatives used in other countries, such as warranty bonds, which are very common in Europe and are available in the UK. We will be working with surety providers to ensure that a range of alternatives is available when the ban comes into force.

In relation to Amendment 23, I reassure noble Lords that the Bill does not prescribe when stages or milestones must occur or prevent parties from agreeing interim valuations and payments. It regulates the period within which an amount must be paid once that payment becomes due. Genuine staged and interim payment arrangements will therefore remain entirely permissible. However, describing a withholding of money for work already completed and where payment is due as a staged payment would not prevent it falling within the prohibition on retention if, in substance, the money was being retained as security for the performance of contractual obligations.

The right for firms to be paid in staged payments on projects lasting more than 45 days is already enshrined in Section 107(2) of the Housing Grants, Construction and Regeneration Act 1996. The Bill does not amend, qualify or undermine that right. Therefore, this amendment is unnecessary. In implementing the provisions of the Bill, the Government will engage directly and closely with construction industry clients, specialist providers and representatives of smaller firms to provide guidance that legitimate payment arrangements can continue while preventing contractual devices being used to recreate cash retentions under another name.

On Amendment 24, we recognise the understandable intention that resident-led and resident-owned companies should have assurance that building work is completed properly and of high quality, and that defects are remedied without additional costs falling on leaseholders. We do not believe that retentions ensure this. To agree to this amendment would create a broad exemption for construction contracts entered into by resident management and right-to-manage companies. That would leave firms working on those buildings exposed to the risks associated with cash retentions. It could also create uncertainty where different ownership and management structures exist within the same building or development.

In addition, the process required by the Building Safety Act 2022 for delivering work on high-risk building places an emphasis on safety and quality. It includes numerous gateways, information requirements and independent reviews of the building. If clients and firms in their supply chain are meeting the requirements of the Act, there should be no need to deduct retentions. As Dame Judith Hackitt has noted, retentions are ineffective and undermine the effectiveness of the supply chain, which is why alternatives are required. For this legislation to be effective, it must incentivise the industry and its clients to end the practice of cash retentions and to adopt alternative forms of surety, together with improved quality management.

Finally, I address the request made by a number of noble Lords in Committee for further information about the work to develop alternatives to retention. The Construction Leadership Council has now appointed a new industry lead for this area, and we will be increasing our engagement with stakeholders across the industry in relation to alternative forms of surety and quality improvement from September. This will give us plenty of time to address those issues in advance of the introduction of the proposed ban.

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[Lord Hunt of Wirral (Con)]

My Lords, we are all very grateful to the noble Lord, Lord Fox, for moving his amendment. Before I speak to this group, I once again thank the Minister for his engagement. We entered this part of the Bill with some apprehensions, not least regarding the funding of the Small Business Commissioner’s office. It is perhaps too soon to say that all those concerns have been quelled, but I appreciate the time that the Minister, the Small Business Commissioner herself and her team have taken to try to address the questions that we have all put forward.

I begin by addressing the amendments to which I and my noble friend Lord Sharpe of Epsom have added our names, namely those in the name of my noble friend Lord Leigh of Hurley. Amendments 28 and 29 aim to bring some transparency to the Office of the Small Business Commissioner by requiring written reasons for declining to adjudicate a dispute, and by requiring the definition of a sufficient number of occasions to trigger an investigation into payment practices.

On the latter point, I accept the Government’s reasoning that a numerical definition does not sufficiently account for the scale of different poor payment practices. However, I hope that the Minister can therefore confirm that there will be some framework on which these decisions to investigate will be based.

I hope that the Minister will be able to outline the Government’s position on the former point—written reasons for declining to adjudicate a dispute. I understand that discretion and disclosure are considerations, so perhaps a middle ground that requires the informing of decisions to decline, without necessarily including the reasons for doing so, would be acceptable.

My concerns remain about putting a time limit on resolving disputes, as Amendment 27 would do. Although disputes should of course be addressed in a timely manner, the fact is that different disputes will require different resources and be of vastly different scales. An arbitrary time period risks rushing the commissioner’s office or forcing it to prioritise, or perhaps even to accept trade-offs. We do not believe that the benefits of a 60-day limit off-set those risks.

Finally, I am grateful to the Minister for providing us with a briefing beforehand on some of the previous funding of the Small Business Commissioner’s office and the Government’s plans for the future. We are satisfied that these have been modelled on the best predictions possible. I am sure your Lordships’ House would be grateful if the Minister could outline some of that data when he comes to reply to this debate—certainly at the Dispatch Box at some stage. I finish by asking whether there is a way to scrutinise the commissioner’s funding in the future. As I have said, we are satisfied with the predictions, but they are still only predictions. I am sure that there will be an internal review process into the effectiveness of these reforms, but this House deserves the opportunity to have some input into that process, so I look forward to hearing the Minister’s response.

[Lord Leong (Lab)]

My Lords, once again, I thank the noble Lord, Lord Fox, for Amendments 27 and 34, and the noble Lord, Lord Leigh, who is not in this place, and the noble Lords, Lord Hunt and Lord Sharpe, for Amendments 28 and 29. First, I recognise the constructive spirit in which these amendments have been tabled and the shared objective of ensuring that the Small Business Commissioner’s new functions are timely, transparent and effective.

I agree that payment disputes should be resolved as quickly and efficiently as possible. In line with the construction adjudication scheme, we are considering whether a 28-day limit for the adjudicator to reach a decision, extendable where necessary, would be appropriate. I believe that noble Lords would agree that this time is sensible and reasonable. We will consult on this to ensure the final approach is informed by evidence and stakeholder views. Time limits will be set out in regulations subject to Parliament’s approval. This approach will give businesses confidence that payment disputes will be resolved quickly and efficiently, while maintaining flexibility to refine time limits in the light of feedback and operational experience.

The Government recognise the importance of transparency, and I appreciate the sentiment behind Amendment 28. As a matter of principle, a small business should understand why the commissioner has declined to adjudicate a dispute. However, there may be occasions when disclosing the details of a referral to a larger business could harm commercial relationships or be otherwise inappropriate. As such, we believe such obligation should be subject to further consultation and addressed through regulations.

Regarding Amendment 29, I understand the desire for clarity on how the commissioner will assess repeated poor payment practice, but this is precisely the kind of judgment that should be informed by real experience and evidence and guided by statutory criteria that the commissioner must consider on a case-by-case basis. If we try to prescribe an arbitrary number for vastly different practices, we risk creating an inflexible model that fails in practice and undermines the commissioner’s ability to act.

On resourcing, I hear the concerns raised by noble Lords. I wholeheartedly agree that the provisions in this Bill will be effective only if properly enforced and that the resources available to the Small Business Commissioner are crucial to this aim. I reassure all noble Lords that the Office of the Small Business Commissioner is already being resourced for implementation, that I am the Minister responsible for the Small Business Commissioner and that I will ensure that it has the proper resources. I have recently facilitated a meeting between the commissioner and noble Lords to discuss preparation for the legislation coming into force. I can confirm that the commissioner’s budget has already received an initial 30% boost this financial year and that recruitment is under way for six new members of staff, bringing the existing team to 20. This has already allowed the office to begin building its capability ahead of the new enforcement powers in the Bill.

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[Lord Sharpe of Epsom (Con)]

My Lords, as we come to the end of Report, I once again place on record my thanks to noble Lords on all sides of the House for their engagement with the passage of this Bill. Up to this point, we have had a very chummy time with a lot of cosy consensus, so noble Lords will be very pleased to know that I intend to introduce a note of disagreement on this amendment.

I begin by stating that I do not disagree with the premise of Amendment 30, in the names of the noble Lord, Lord Fox, and the Minister. Companies should ensure that they have good payment practices and that these are reported, and should be incentivised where necessary. I equally understand the reasoning behind giving the Small Business Commissioner the powers to both oversee and enforce the reporting of payment practices and performances. The office will have a closer knowledge of small business payment practices than regular departmental officials, so it makes sense that it is given this responsibility. The issue is therefore not one of principle but one of proportion.

Two other arms of the Government have the power to fine businesses based on global turnover rather than domestic turnover. They are the Competition and Markets Authority and the Information Commissioner’s Office. These bodies deal with some of the most important and wide-reaching areas of our economy: the former with the upkeep of fair and competitive markets, the latter with the protection of the public’s private information.

Those issues are far greater in scale and gravity than what Clause 24 and the new Section 3A will give the SBC—the Small Business Commissioner—powers over. These powers are not even dealing with payment practices; they are dealing with the reporting of payment practices. Yet the office will be able to fine companies 1%, without even the discretion to fine less than 1%, of global turnover. To His Majesty’s loyal Opposition, this seems disproportionate, to say the very least. We do not believe that this is the right vehicle to address the subject of the profit shifting that the noble Lord Fox mentioned.

One of the key concerns that we have heard from stakeholders during the passage of this Bill is that, while they support maximum payment terms, there will be a transition period to implement the technology and payment systems. This is particularly the case with large multinational corporations. These companies have incredibly complex systems that organise payments across borders, time zones and legal frameworks. It is not outside the realm of possibility that a business such as Amazon, for example, has some teething problems and fails to accurately report payment practices and performance within the UK.

The result would be that the commissioner, based on a failure to report practices within the United Kingdom, would have the power to fine Amazon based on its global turnover. That would equate to more than £700 million for a potential technological error or delay. I do not think that power reflects the duty that we are dealing with.

Lastly, there is the question of incentives. The Office of the Small Business Commissioner justifiably prides itself on saving more money for small businesses than it costs the taxpayer. If value for money is the justification for the office’s existence, its incentive is to use its powers to raise money in order to continue its operation. I am not accusing the SBC of this; I am simply reflecting on the perverse incentives that occur when an arm of government relies on action to justify its continued existence. I do not think, given these natural incentives exist, that we should give any arm of the state the power to tax multinational businesses based on their global turnover for actions within the United Kingdom. We should especially reflect on this when we are not even discussing payment practices; we are discussing the reporting of payment practices.

Given that this amendment has the support of the majority of the House, we will not oppose it, but I would like to place on record my, and indeed His Majesty’s loyal Opposition’s, concern about this measure. It would go some way to allaying my worries if the Minister could outline how many times a fine has been given under the existing Section 3, but I am still concerned that this is a disproportionate step that places far too much power in the hands of an ultimately unaccountable body. I look forward to the Minister’s response.

[Lord Leong (Lab)]

My Lords, I thank the noble Lord, Lord Fox, for his amendment regarding turnover and financial penalties. These amendments raise an important question about how turnover should be calculated for financial penalties under the payment reporting regime following an investigation by the SBC. I thank the noble Lord for the constructive discussions that we have had on this issue.

The Government agree that this issue merits proper debate. We want penalties to be meaningful and capable of driving compliance while ensuring that the approach is proportionate, relevant and workable for businesses in scope. The Government support the aim of the amendment, at this stage, to open up the debate on the appropriate basis for calculating turnover. However, I want to be clear that the Government have not reached a final view on the most appropriate approach. The Government will want to engage with businesses, business representatives and other interested parties before determining how turnover should be calculated for these purposes, including—given that the Bill addresses UK payment practices—whether it should be limited to UK turnover or extended more widely.

Further detail on how turnover is calculated will be provided in secondary legislation. That secondary legislation will be informed by a process of consultation to determine how turnover should be calculated. Additionally, that secondary legislation, which will be debated in Parliament, will allow the final position to be properly tested. This approach will ensure that the regime retains the flexibility required to operate effectively and proportionately.

On that basis, I once again thank the noble Lord, Lord Fox, for raising this important issue and for engaging positively with the Government. The Government support Amendments 30 to 32 and 43 to 45, to which I have added my name. Before I sit down, I once again thank all noble Lords, especially those from the Opposition Benches—the noble Lords, Lord Sharpe of Epsom and Lord Hunt of Wirral, as well as the noble Lord, Lord Fox—for their thoughtful and constructive engagement throughout the passage of the Bill. It just shows that we can get things done if we work collaboratively.

Amendment 30 agreed

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Moved by

[Lord Leong]

36: Clause 28, page 40, line 19, after “Act” insert “or regulations made under this Act”
Member’s explanatory statement
This amendment ensures that if the powers proposed by my new clause were exercised to change a payment period, the necessary consequential changes could be made to other statutory provisions.

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Moved by

[Lord Leong]

37: Schedule 1, page 43, line 20, leave out “2F” and insert “2G”
Member’s explanatory statement
This amendment is consequential on my proposed new clause.