Lord Leong

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That the Bill be now read a second time.

Northern Ireland and Scottish legislative consent sought.

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

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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.

Lord Hunt of Wirral (Con)

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My Lords, I declare my interests as set out in the register, in particular as a partner and practising solicitor at DAC Beachcroft. It is a pleasure to follow the Minister, who not only read from a brief but spoke from his heart. He has a record that anyone should be proud of in building businesses in the past.

The Minister was also very generous in the praise that he extended to the previous Conservative Government. We on these Benches have consistently championed the rights of small businesses. In government, we created a specific duty for contracting authorities to consider small-sized and medium-sized enterprises in competing for contracts. During the pandemic, we directed an additional £69 billion towards support for businesses.

That belief in small business has followed us into Opposition, often in defiance of the Government’s broader approach to industrial policy, so it is welcome to see Ministers taking a step in our direction. For that reason, I say from the outset that we do not oppose the Bill. Tackling poor payment practices will be beneficial not only to small businesses but to the wider economy as a whole.

As the Minister pointed out, an estimated 38 businesses close every day as a result of late payments, costing the country some £11 billion annually. We therefore recognise the need for reforms such as mandatory payment terms and statutory interest payments, both of which should improve cash flow and provide smaller firms with greater certainty.

However, I recognise that there is a small risk that some businesses may be negatively affected by the changes to the late payment rules. Although that is undoubtedly not the Government’s intention, the decision to exempt transactions between large businesses risks creating an incentive for bigger firms to bypass smaller suppliers altogether. I would therefore be grateful if, when the Minister comes to sum up the debate—like him, I look forward to noble Lords’ contributions to this debate from all sides of the House—he could address whether the Government have considered this possibility and what safeguards could be created to guard against such an outcome.

Similarly, in a number of countries where mandatory late payment terms have been introduced, they have in practice tended to become accepted payment dates rather than genuine deadlines. Instead of encouraging prompt settlement, they have occasionally encouraged businesses to delay payment until the final permissible day. I hope that the Minister will address this concern in his reply; I look forward, as he does, to engaging constructively on these matters in Committee.

I also ask the Minister for some clarity on the 60-day payment term. There is often a discrepancy between when a business does a payment run and when the bank actually makes the payment. There are instances where unforeseen delays cause the payment to overrun the 60-day window, after which statutory interest is automatically applied. Can the Minister confirm whether the 60-day deadline ends when the payment is made or when it is received by the supplier? Does the legislation account for delays due to payment runs or payment system delays? Perhaps these points need more clarity in the Bill’s drafting.

We similarly support the abolition of retention sums in construction contracts. We recognise that retention payments are often far smaller than the actual cost of defects, and that they have increasingly become less a form of genuine insurance and more a mechanism for unilaterally transferring risk on to smaller contractors while preserving working capital for larger firms. That does little to improve either quality or productivity in the construction sector.

Despite this, we recognise that, on occasion, retention payments have served as a legitimate, if limited, form of protection against defective work. In the construction industry, where the cost of errors tends to range between 5% and 25% of project value, the importance of ensuring that adequate protection against shortfalls is available is self-evident. Given that the retention option is being removed from construction contracts, can the Minister please explain how the Government intend to ensure that defects in construction projects will still be rectified by those responsible?

I turn for a moment to the changes proposed to the Office of the Small Business Commissioner. Bringing upwards claims into its remit is welcome, as are the new powers to enforce compliance and to distribute fines for non-compliance. The success of these reforms will depend ultimately on resources. Greater powers and greater responsibilities must be accompanied by adequate funding. The former without the latter risks creating backlogs and inefficiency, and ultimately discrediting the important work that the commissioner’s office exists to carry out. I therefore hope that the Minister can assure the House that sufficient resources will accompany these expanded duties.

I also wish to address some broader points concerning the Government’s overall business policy. This Bill is undoubtedly a step in the right direction, but I would describe it as a small step only, because it must be seen in the broader direction of the Government’s overall legislative programme. This is a Bill that rightly seeks to support small businesses in competing fairly with larger firms. It seeks to improve cash flow and to engineer greater and fairer symmetry within the market. These are worthwhile and sensible objectives. It is a great pity that those very principles should be in such obvious contrast with almost every other area of government policy.

Small businesses will welcome this Bill, but it will do little to relieve the broader pressures under which they must currently operate. Industrial electricity costs in the UK remain among the highest in the OECD, driven by a combination of high green levies and continued reliance on intermittent energy generation. The consequence is that large sections of our manufacturing and construction sectors are becoming increasingly uncompetitive and, in some cases, simply unprofitable. At the same time, the minimum wage has continued to rise significantly beyond the rate of inflation, discouraging investment in youth employment and training opportunities. For sectors such as construction, which already endures one of the highest turnover rates in the United Kingdom, this is particularly damaging. Businesses cannot continually absorb rising labour costs while simultaneously facing higher energy prices, increased taxation and ever-growing administrative and regulatory burdens.

I must return to the Employment Rights Act. The Government’s own figures suggest that it will impose over £1 billion in additional administrative costs on businesses. Many of us suspect that this figure may prove to be a significant underestimate. Those costs will inevitably fall most disproportionately on small and micro businesses, which lack the legal resources that are available to larger corporations. When the qualifying period for unfair dismissal is reduced to six months, many small businesses simply will not possess the capacity to manage, or even adequately assess, the additional risks involved in hiring.

Six months was a late and welcome compromise, but it will still make employers think twice and twice again before hiring people. At a time when economic growth remains weak and business confidence fragile, that is deeply concerning. Given the stated intent of this Bill—to help smaller businesses survive—I hope that, over the coming weeks, the Minister will be receptive to measures exempting some of the most vulnerable businesses from further measures within the Employment Rights Act that stand to be triggered by secondary legislation.

While we welcome this attempt to improve market practices and enhance protections for small businesses, without cheaper energy, affordable labour and proportionate employment regulation the effect of these reforms will inevitably be limited. We therefore hope that this Bill marks not merely an isolated intervention but the beginning of a broader change in the Government’s outlook towards the wealth creators in our society, without whom no progress is possible. This legislation is founded on sound principles. I only hope that the same principles will come to guide future policy more generally across the full field of industrial and economic strategy.

Lord Thomas of Cwmgiedd (CB)

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I too welcome the powerful, lucid and passionate way in which the noble Lord the Minister introduced, based on his own experience, the need for this Bill and the principal purposes behind it. It is also a great pleasure to follow the noble Lord, Lord Hunt, and his exposition of some of the problems that he has encountered from his long experience as a senior and distinguished lawyer, because at the heart of so many legal disputes is the desire to delay payment.

I want to raise a point that has not been raised, which comes from much more recent experience, primarily in this House. The notes to the King’s Speech say:

“The measures apply only to UK-to-UK business transactions and do not affect global supply chains or international trade”.


The Late Payment of Commercial Debts (Interest) Act 1998, which this Act seeks to amend, applied to all business-to-business contracts governed by English law—or, I should hastily add, laws of other parts of the United Kingdom, provided that there was a connection in the contract with the United Kingdom. My understanding is that it is intended that effect will be given to what is said in the King’s Speech under regulations made under new Section 2E, which is to be inserted by Clause 3 of this Bill, and that it is intended thereby to exclude all non-UK business-to-business contracts and thus achieve the result of excluding international trade from the scope of the Bill.

The point I wish to raise is to question whether that is a sensible and desirable policy, given the changes in technology, recent legislation, and the current emphasis on the need to strengthen the participation of SMEs in exporting and importing. I hope that His Majesty’s Government would wish to take a position to promote a modern policy in tune with their ambition to be leaders in the digital age: I would hope we would not be seen as laggards. I therefore suggest that we might need to look at and should consider an amendment to the Bill to remove the exclusion from the regulatory powers of the Bill of international trade—imports and exports—or at least to provide a sunset for that provision.

Now, can I explain the experience that has led me to this view and declare my interest through it? My experience is derived from my chairmanship of the Special Public Bill Committee on the Bill that became the Electronic Trade Documents Act. Since that time, I have taken an interest in trying to encourage the head start that the Act gave the United Kingdom in revolutionising documentation and payments in international trade, in particular financing trade and the speed of payment, that being particularly important. One of the avenues through which I have tried to do this is by assisting in the implementation of the Act as chairman of the advisory volunteer board of the International Centre for Digital Trade and Innovation.

The Electronic Trades Document Act was a Law Commission Bill, the purpose of which was to legislate in the United Kingdom to bring about a legal regime absolutely consistent with the UNCITRAL Model Law on Electronic Transferable Records 2017, but in a way that retained the historic flexibility of English law and was consistent with the law of Scotland. It is a very short Act: it is seven clauses over three operative pages. It is a pleasure to see that two members of that committee will follow me in speaking in this debate: the noble Lords, Lord Lansley and Lord Holmes of Richmond.

The regime under the model law replaces the centuries-old traditional way in which we traded. Paper bills of lading, paper bills of exchange and paper certificates have been used for trade since the 13th century. It is a long tradition, and it takes a long time for people to get used to losing long traditions, but we must get used to this, and the Bill is an important opportunity to see how we can bring about a new system.

The new system replaces the old one with electronic documents, making the process entirely electronic. It provides better and easier access to finance. It ensures vastly speedier payment. It provides greater security than traditional paper-based documents and reduces the cost. If one wants to see a snapshot of the way in which the system works and the advantage that it brings, it is set out in a short and easily digestible recent report of the Teesside University Digital Trade Testbed on a project undertaken with the Centre for Digital Trade and Innovation, the ICC, and His Britannic Majesty’s embassy and other stakeholders in Japan.

The regime to which the Act made the UK a party is already in force in many leading countries with which we trade—the United States, Japan, France, Germany, Singapore and much of the Gulf. Its implementation is before legislatures in many other countries, including India, Australia, Canada, Mexico, Spain, China and Turkey.

As the UK was one of the first to get going, we have an undoubted leadership. It was indeed a pleasure, as I am sure members of the committee will recall, when the French came over to see how we would be implementing the Bill. Huge work is being done by the Centre for Digital Trade and Innovation and others to promote the use of digital documentation, but the UK needs more support in this. It was being done by the then Department for Digital, Culture, Media and Sport, but it now needs support from the new department.

It is important to realise that dealing with this matter in the Bill would bring huge advantages. First, it would encourage SMEs to engage more in import and export, as payment terms would be the same as for domestic trade. One does not want to see a differentiation. Secondly, it would encourage the move to electronic trade documents in the UK, with the great advantage that it brings. Thirdly, it would promote the leadership that we already have in electronic trade documents. Fourthly, it would bring His Majesty’s Government visibly behind the move to electronic trade documents. Fifthly, it would tie in with the move to e-invoicing that HM Treasury is insisting on. This is to be compulsory under the VAT regime. Sixthly, it would help achieve part of the Government’s trade strategy where it is stated, in reference to the use of digital documentation:

“The London School of Economics estimates that global adoption of digital trading systems could boost the UK’s GDP by up to 0.9%—and that even partial adoption could significantly impact the UK economy”.


I am extremely grateful to the Minister for his engagement on this point. I look forward to further discussions, before and in Committee, on how we can bring trade into the Bill, or at least prevent it excluding trade. That is so important not only to the way that we should be encouraging import and export business but to our leadership in the electronic age. I therefore look forward to hearing the views of other noble Lords on this subject and to engaging further in bringing the modern age into the Bill, in comparison to the scourges that the two preceding speeches addressed.

Baroness Alexander of Cleveden (Lab)

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My Lords, I begin with my register of interests. I chair the Joint Industry Board of the electrotechnical sector, which brings together employers and unions operating in the electrotechnical, engineering services and built environment sectors. Our employer members are a critical part of the construction supply chain, and many have felt the burden of late payments and retentions. I therefore begin by congratulating the Government on the Bill.

Noble Lords will be familiar with Ronald Reagan’s lampooning remark:

“I’m from the government and I’m here to help”,


and will know that new regulation often engenders business scepticism. However, when it comes to tackling late payments, there is broad consensus that it is past time to update the well-intentioned but, in practice, ineffective legislation put in place at the end of the last century by the previous Labour Government. SMEs have been calling for further government action for more than a decade. This Bill will now deal with outdated and ineffective legislation.

To echo my noble friend the Minister, a shocking quarter of all firms are impacted by late payments. The Bill will bring relief to 1.5 million small businesses every year. Shockingly, late payments currently lead to more than 14,000 businesses closing each year, and the total cost of late payments is estimated to be a whopping £11 billion each year. The Bill, as the noble Lord, Lord Hunt, graciously acknowledged from the Benches opposite, is a valuable economic pro-growth measure.

When the Bill reaches the statute book, it will advance the Government’s ambition for Britain to be one of the best places to start a new business, and Britain will then have the most effective late-payments regime in the G7. Knowing that payments will be made on time means that British businesses can rely on, or indeed bank on—for that is the right word—better cash flow, thereby releasing income for investment in capital and people. By delivering enforceable penalties, the Bill can change our payments culture.

I mentioned that 1.5 million small businesses are impacted each year by late payments. Some 900,000 of them are in the construction industry, so, as the Minister has made clear, the Bill will also tackle retentions in the construction industry. Retentions are justified, as the noble Lord, Lord Hunt, made clear, as security against defects, and high-quality, on-time performance matters, but retentions, as the noble Lord recognised, are not a neutral accounting mechanism. In practice, they starve supply-chain small businesses of cash. They remove cash from companies that are often working on very thin margins. The practical impact of retentions is to remove liquidity from businesses that need that cash to pay staff, apprentices, suppliers, and tax and financing costs. Retentions expose small businesses to insolvency risk and impose a costly recovery burden that is often disproportionate to the sums at stake.

These retentions are not a marginal issue. In the impact statement and in evidence to the other place, retentions were estimated at up to £8 billion a year. Some 50% of construction supply chain contractors experience partial or full non-repayment of retentions, and the construction industry experiences the highest number of insolvencies of any sector in the UK economy. This Bill, as the Minister acknowledged, goes to the heart of building a resilient construction supply chain. It will stop dominant players using market power through contractual complexity, payments delay and retention practices to fund their own working capital at the expense of smaller firms.

The Bill, if properly implemented, can tackle these issues once and for all. No longer will money earned by small companies become free working capital for larger firms. The Bill can deliver not simply legal change but a significant productivity boost. However, as noble Lords have noted in all the opening speeches so far, the devil is in the detail. So, in my remaining time, I shall ask the Minister about issues to which I hope we can return during the subsequent stages: my queries relate to enforceability, avoidance and remedies.

First, on enforceability, as the Minister is aware, while the Small Business Commissioner has been an excellent advance, construction disputes are outwith the commissioner’s powers due to the separate existing statutory construction adjudication arrangements. However, this existing construction adjudication regime is largely inaccessible for lower-value claims, so I invite the Government to consider measures to ensure that the enforcement ban that they are proposing will also be available to small construction supply chain companies. Is this the moment to consider whether the Small Business Commissioner should also have some jurisdiction in construction, or could the commissioner have a supporting role in construction payments behaviour even if the formal adjudication regime remains under the construction Act?

I turn to the second issue, which is avoidance. If the Bill is to fulfil its promise, it must prevent disguised or backdoor retentions. So does the Minister agree that the definition of “retention” in the Bill should be widely interpreted by the courts to ensure that contractors do not try to reimpose retentions by another name? In that service, will the Government commit to monitoring avoidance behaviours, including where main contractors seek alternative forms of security, which could be more expensive, more complex or simply unavailable to small companies? I encourage the Government’s commitment to use the secondary legislation powers in the Bill expeditiously when new backdoor retention practices emerge.

Thirdly, and finally, I come to remedies. The construction industry’s payment regime is already highly complex. It involves five dates and two notices. As the Minister has acknowledged, the Bill proposes to layer on top of that a further two-year transition arrangement. I encourage the Government to consider simplifying these transitional arrangements to ensure that small businesses can follow the changes without having to pay for specialist lawyers.

The Bill is a significant development in the Government’s plans for supporting growth. It will improve Britain’s payment culture and support all small and medium-sized enterprises. It will improve supply chain resilience, reduce insolvency pressures and support a more productive economy. I commend it to the Chamber.

Lord Lansley (Con)

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My Lords, I am pleased to follow the noble Baroness, Lady Alexander of Cleveden, who made some important points about enforceability and escaping avoidance of the provisions. I will come on in a few moments to talk about some of the other issues raised by the proposed ban on retention payments.

I am also pleased to follow my noble and learned friend—for these purposes—Lord Thomas of Cwmgiedd, with whom I served on that Special Public Bill Committee on the Electronic Trade Documents Act. From what I heard, I entirely agree with him on the importance of us trying to see the progress that we are making, under English law, in securing the electronic dispatch of documents being reinforced through the mechanisms that we are bringing into force in relation to payment terms.

I draw attention to my entry in the register of interests. I am a director of a small business and chair of the Cambridgeshire Development Forum, although I should again emphasise that I do not speak on behalf of any of the members of that forum. My views are entirely my own.

As my noble friend on the Front Bench may have done, we have worked on this issue from time to time over quite a long period, not just in the parliamentary sense. I was once upon a time the deputy director general of the British Chambers of Commerce and remember, back in the late 1980s, talking at length to David Trippier, who was then the Small Firms Minister, about the introduction of the code of practice on payment of bills on time. It is fair to say that where we are now, all those years later, has demonstrated that while it has always been desirable for us not to proceed by way of legislation and making payment terms mandatory and interfering in contractual terms between businesses, in practice we were never effectively able to overcome the obstacle that many small businesses would not challenge the payment terms of large companies to which they were suppliers. We have to be prepared to step in.

That is indeed, as other noble Lords have said, where the Small Business Commissioner is a very important addition to our armament. The work of the Small Business Commissioner and her team is really central to ensuring that small and medium enterprises can be protected, because they are not themselves having to raise complaints against their larger customers. I hope that we thoroughly support greater powers for the Small Business Commissioner.

Is there a means by which the interventions that the Small Business Commissioner can undertake might be prompted and supported occasionally by working with the large audit firms? We know that payment terms tend to be longer in larger businesses and, when the audit firms are examining larger businesses, it would be possible for them to sample their payment terms and report to the Small Business Commissioner so that the commissioner’s team could, where necessary, investigate particular large firms without necessarily having to do so off the back of a complaint by a particular supplier.

I have one other principal point about payment terms. The Government have chosen the 60-day approach, not the option to move over time—after, say, five years or so—to the 45-day approach. I have been trying to work this out in my head and thinking about it simply in practical terms. If one is, as a company, in receipt of an invoice in the first part of the month, it should be paid at the end of the month. Quite often companies have end-of-the-month payment runs and often rest on that as an excuse for delay. But if it is in the first part of the month, it should be paid by the end of the month and if it were to move to the following month, it would exceed 45 days. If, however, one receives an invoice in the latter part of the month and it passes over the end of the month in the payment run, it would go to the end of the following month and therefore would probably just about fall within 45 days. Thinking about it in practical terms, it always seemed to me that 45 days ought to be the logical maximum payment term, and I am not quite sure I understand where 60 days comes from in relation to the practicalities of when one receives an invoice. I hope we might think carefully about whether moving to 45 days might be better in the long run.

I have one point—an important one from my point of view—on retention payments. I have never been persuaded and am still trying to be persuaded. I think I would be more persuaded if I felt confident, as my noble friend on the Front Bench was saying, that we had other mechanisms for dealing with snags and defects.

In that context, if not today then in further discussion, we might look at whether the Government are now in a position to activate fully the new homes ombudsman scheme, under the auspices of the new homes quality board. I am very much persuaded of the value of this. Many major contractors are signed up to that scheme, and we are pretty close to the point where it could essentially be made nationwide and mandatory. That might well give people the assurance they are looking for about desnagging for residential dwellings, which is an abiding problem that many buying new homes have to put up with.

As far as retentions are concerned, I have received a brief from the National Housing Federation. We were talking about social housing last week and I noted, with some concern, that it shared the concern that I have. Let me quote the National Housing Federation, which of course represents housing associations and registered providers, generally speaking, of social housing. It said that retention clauses are one of the strongest practical mechanisms housing associations have that enable them to hold developers to account on good quality standards, strong aftercare services and agreed delivery timelines for Section 106 homes. Noble Lords will recall that the Section 106 obligation on developers is the single largest mechanism by which we provide affordable and social housing.

The National Housing Federation went on to say that a ban on retention clauses will increase the risk for housing associations buying Section 106 homes. We know that housing associations buying Section 106 contracts is a particular problem; they have lacked the cash resources to do this because they are so busy trying to remedy aspects of their housing stock and meeting building safety requirements.

I ask the Minister to reflect carefully on whether we can deal with the problems raised by the National Housing Federation. It looks for an exemption for registered providers, which is not a small exemption. It would be a substantial one, but I want to be sure that we do not do something that would inadvertently further inhibit us in providing social housing. As we all know, at the same time as we are supporting the business community, we absolutely need to increase the supply of social housing. With those reservations for the moment, and with questions about the ban on retention payments, I say how much, generally speaking, I welcome the Bill that the Government have brought forward. I hope that the House will give it its fulsome support.

Baroness Thornton (Lab)

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My Lords, I am very pleased to welcome the Commercial Payments Bill and to take part in this Second Reading. I congratulate my noble friend the Minister on his absolutely outstanding introduction to it. I intend to make two points about why the Bill is so important to our business community, particularly those seeking to establish and grow enterprises of all kinds: small businesses and social enterprises.

But first, I want to say that I support this legislation for personal reasons. At a very early age, I was aware of the importance of invoices being paid in good time. My dad, Peter Thornton, was a master plumber who set up a plumbing and building business in Bradford when I was a child. It was a successful business that grew to employ a few dozen employees and provide apprenticeships for plumbers, electricians and brickies. He remained proud of that for the whole of his life. Even at 10 years old, I was aware that there were moments in the early days when customers delaying payment caused anxiety and belt-tightening times at home. Sad to say, some of this was the local authority dragging its bureaucratic feet and not paying bills in a timely fashion.

Many years later, having worked on a freelance basis and self-employed, I set up my own small business with a business partner. We were a micro-business— I think we employed 10 people at the most—and a very happy company. But again, my business partner and I had moments of anxiety caused by clients delaying payment of invoices and dragging their feet, particularly large companies that did not recognise the effect that an extra 30 or 60 days, or delays that were arbitrarily imposed, had on our company and its cash flow.

My second reason for supporting this Bill is that I am the founding chair of Social Enterprise UK, of which I am now patron. I am currently vice-chair of the Social, Cooperative and Community Economy All-Party Group, and a senior associate of E3M, an organisation that supports social enterprises contracting to deliver public services. Social businesses are businesses. Many are small and face the same challenges as all SMEs. They seek to make surpluses, like any business. The thing that distinguishes them, of course, is what they use those surpluses for: to fulfil their social purpose. Equally, they depend on the timely payment of invoices and suffer in the same way that many noble Lords, including my noble friend the Minister, have spoken of from delayed payments and non-payment. There is an unfairness in that, sometimes with disastrous consequences.

A recent consultation by Social Enterprise UK about procurement, asked: to what extent do you agree or disagree that requiring contracting authorities to exclude suppliers from bidding on major contracts if they cannot demonstrate prompt payment of invoices to their supply chains within an average of 60 days would help improve payment by suppliers to the public sector? Of course, there was agreement about this. One of the comments—I am glad I am following the noble Lord, Lord Lansley, saying this—was:

“A 60-day requirement should be the minimum, but we would like to see it set to at least 30 days. This reflects what the Fair Payment Code recommends for SMEs, and would also reduce barriers for social enterprises, where healthy cash flow is crucial and late payments are often a barrier to entry. We would also suggest altering the wording of this recommendation to a ‘maximum of 30 days’ rather than an ‘average of 60 days’, to reflect the importance of prompt payment of invoices”.


This is why I am pleased to follow the noble Lord, Lord Lansley, who at least suggested 45 days, and I think thousands of SMEs would agree with that quotation.

I seek assurance from my noble friend the Minister that this legislation will apply as much to social enterprises, co-operatives and community businesses as all other businesses. On that note, I welcome this Bill and I wish it speedy progress through the House.

Lord Docherty of Milngavie (Non-Afl)

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My Lords, I too thank the Minister for the passion and eloquence with which he introduced this Bill. It is a pleasure to follow my noble friend Lady Thornton and other noble Lords.

When I began my career in banking, I had to work out cash flows and balance sheet ratios for businesses manually. To anyone under the age of 40, that is pretty neanderthal—and it seemed it at the time. But I remember being told early in my training that debt never killed a company; it was always a lack of cash. You might say that a banker would say that, and there is of course a relationship between debt and cash, but it was a simple lesson because it is true. So I welcome the thrust of this Bill and the provisions within it.

The latest British Chambers of Commerce survey shows that three-quarters of all businesses report late payments and one-quarter of all businesses report that late payments are having a direct impact on their operations or ability to grow. So the proposal in this Bill to set a cap on payments at 60 days can only be welcomed. It will of course be important for business to clarify the scope of any exemptions, as the Minister has said, and we will have to be mindful of how enforcement might impact on commercial relationships, especially between small suppliers and much larger customers. I also welcome the provisions in the Bill to strengthen the role of the Small Business Commissioner beyond guidance to more effective enforcement of prompt payment practices. Increased transparency backed by enforcement powers can only be welcomed.

It was the provision in the Bill to abolish retention payments in construction contracts that I found especially interesting. Here, I must declare my interests. I am a director of Hellens Residential—a for-profit registered social landlord that is part of a larger property group—and I am a shareholder in a small regional housebuilder based in the north-east of England.

The construction business model is not an enviable one. As my noble friend Lady Alexander said, it is a low-margin business. Last year, margins in the largest 100 construction firms were just 2.4%, up from 1.9% the previous year. You are paid in arrears, have a negative cash flow, and therefore have to have ready access to working capital. Your clients are sometimes debt-funded and illiquid in nature themselves. When building anything from scratch, you can take on all the risk of what is under the ground, which is the riskiest part of construction. Construction inflation over the last five years has been almost 40%, with inflation in key materials such as steel, timber and concrete hitting 60% over the same period. In short, it is not an easy sector of the economy in which to make money.

I am reminded of Warren Buffett’s remark that when a chief executive with a great reputation joins a company in a sector with a poor reputation, it is the sector’s reputation that will prevail. Construction in the UK represents about 4% of the economy and employs just under 1.5 million people. It is one of the diminishing number of areas of the economy where school leavers can learn a trade that can provide them with an adequate standard of living and, if they wish, career progression. Yet, as has been mentioned, despite accounting for just 4% of GDP, construction accounts for nearly 17% of all insolvencies in England, and current levels of insolvency are around 20% higher than pre-pandemic levels. Any changes to the business model must be considered carefully, but anything that improves cash flow in construction companies, as a number of noble Lords have said, should be welcomed in principle.

Retention payments—money held back by the customer until work is completed—are typically around 3% of large contracts and up to 5% for smaller contracts, so the sum held back is usually larger than the profit margin in the business. Half the sum, however, is paid when practical completion has been certified by an architect or a QS. That means the job is finished, so half the retention is paid over at that point. However, the other half of the retention payment is held by the customer until the defect period ends. That is the period during which the contractor has to return and fix any faults; it is typically 12 to 24 months. Often defects can take time to emerge—for example, with building work completed in spring, it might not become apparent until winter that there is a problem—but, in essence, around 2.5% of the contract sum is retained during the defect period.

If a window falls out, a heating system fails or an elevator malfunctions, the contractor is called back to rectify the fault at their own cost. This means that they have to pull people off another contract, which delays that contract, and get them to site, which could be miles away. Frankly, it is very inconvenient for them, and it can be quite expensive. They will turn up, sometimes reluctantly, and for smaller developments it is often the fact that the customer retains half of the retention payment that incentivises them to show up at all. If you have ever tried to get a plumber back to your house three months after you thought they fixed your boiler, you will get the picture. Although the industry is known for its disputes and resorting to contract arbitration, in practice companies usually try to take a commercial view on disputes. The fact that some money is retained incentivises a pragmatic approach to resolving disputes.

I have one question for the Minister, and it relates to behaviours. The noble Lords, Lord Hunt and Lord Lansley, touched on this. How, in the absence of retention payments, will a contractor be incentivised to return to a site and correct defects at their own expense, short of a customer resorting to legal or other contract enforcement action? I think the Minister said that the transition period will give time for alternative mechanisms to be given. I very much look forward to hearing more from the Minister, if not today, in the Bill’s later stages. That notwithstanding, I very much support the principles of these changes. I am pleased to note that both the British Chambers of Commerce and the Federation of Small Businesses broadly welcome the Bill. The provisions in the Bill are practical and sensible and show a real commitment from this Government to support UK business, and I welcome them.

Lord Leigh of Hurley (Con)

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My Lords, I welcome the Bill and refer your Lordships to my business interests, which are largely in the SME sector, as set out in the register.

I thank the noble Lord, Lord Leong, for his very gracious remarks about the contribution the Conservatives have made to the Bill—the continuing line. I ought to fess up: I am not sure that the Conservatives have always led the way in this. I remember going to a speech that my noble friend Lord Heseltine, not in his place, gave. It was literally 30 years ago, but it was such a powerful speech that I can remember it. It was at the Institute of Directors, largely with small businesses there, and he was describing his business career. He explained that when he started off, he had a ledger in which he listed all the bills payable. The first column was “Bills 30 days” and the second column was “Bills over 60 days”. The third column was “Bills 120 days”. The fourth column was “Bills where solicitor’s letter has been received” and the fifth column was “Winding-up order has been received”. He said to the Institute of Directors, “Gentlemen and ladies, my advice to you, to be a success in business, is only pay the bills in the fifth column”. Not a great precedent, but a true story.

This is an important Bill and I believe it will be supported on a cross-party basis. It is something close to my heart, not least, as with the noble Baroness, Lady Thornton, because of my family history. Like many people in this House, I come from an entrepreneurial family. Both my grandfathers were originally in the furniture business, which led to my mother, after a successful career as an actress, deciding also to go into the furniture business. She discovered that in the East End of London in the 1970s and 1980s, there were a large number of craftsmen who made reproduction furniture. They worked under the railway bridges, some of them manufacturing reproduction furniture with wood, some doing the brass, some doing the lining and some doing the glass, but they were not combined, any of these businesses. She started taking furniture from one craftsman to another, and then took it all the way from the East End to the West End to sell it. None of those manufacturers could imagine “going up west” to sell their products, so she took the furniture there and sold it to the large department stores.

Now, it was a big learning curve for her: she had a great eye for business and a certain business acumen, but she did not have much business experience and she was busy juggling a family life. It turned out that the first meeting with the buyer in this upmarket West End department store was during the school holidays, and she was obliged to take my younger brother. The meeting went well and an order was about to be placed, when the experienced buyer said to my mother, “Now, Mrs Leigh, what are your terms?”, and she had no idea what that meant. Fortunately, my younger brother, aged 12, was in the room and he piped up, “2.5%, 30 days; 5%, seven days”. “Fair enough”, said the buyer, and the order was placed.

In those days, it was absolutely normal for a discount to be given for payments made in anything like a reasonable time. Needless to say, the buyer took the 50% discount and paid 60 days later. Sadly, there was not much that could be done about it. In fact, most businesses, as has been said, did not have the resources to cope with that sort of thing, particularly in the days of very high interest rates, so late payments is in my family folklore. Clearly, businesses need to have this situation remedied, but I cannot help feeling, as perhaps others do, that it is a shame that a common-sense issue such as this needs some 60 pages of legislation to be regularised, with some quite turgid and difficult clauses, and the heavy hand of government has to come in, for reasons everyone does understand, but it is regrettable that this is necessary.

There is a huge amount to discuss in this Bill. Later I will come on to some matters that are not in it but might be. I will focus on one area: the role of the aforementioned Small Business Commissioner, which comes from the Enterprise Act 2016—I see one or two familiar veterans on the other side of the House who worked on it. I note that the Government are using the definition of SMEs from the Procurement Act 2023. There are quite a lot of other definitions around; there is one in the Companies Act and we have the term “less complex entities” used by standard setters elsewhere. Perhaps the Government could start off by trying to find one definition for SME companies.

As my noble friend Lord Lansley pointed out, the concern is that most small businesses will frankly not have the time or energy to use an adjudication system in the way the Government anticipate. They will not want to enter it because they will not want to get into conflict with their customer. In a perfect market, the customer can choose which supplier they prefer, and no supplier wants to be deemed to be part of the “awkward squad”. I do not understand how this will work in practice and will be interested to hear the Minister’s thoughts. It seems to me that, by the time anyone has brought a specific complaint about late payments to the Small Business Commissioner, it will have been settled long since. All we are talking about here is timing, not whether the debt is actually due. Will the SBC have a 24-hour service seven days a week? I am keen to know more.

Some of this might be covered in the regulations, not yet published, which Clause 18 anticipates. Once again, the Government are tantalising us with what might come at a later date. I very much hope we will see drafts of these regulations as the Bill progresses through your Lordships’ House, because in this instance, as ever, the devil is in the detail. It is entirely possible that the proposal for adjudication may be redundant unless a quick and effective mechanism is put in place.

Particularly interesting to me is Chapter 2 of Part 2, which will allow investigation into payment practices—not specific instances but whole practices. It is not quite clear from the Bill exactly what would trigger an investigation and who can do so. The Bill says that a large business can be investigated where it

“‘persistently’ engages in poor payment practices”,

but we need to know what “persistently” means. The wording in the Bill and the Explanatory Notes, which I have read, is not clear. Worryingly, it will allow the Small Business Commissioner not to progress matters if it does not feel that it has the necessary resources. That cannot be satisfactory, because it is less likely to have the necessary resources in respect of a very large business. Why should it get off simply because the SBC feels it does not have the necessary resources? I look forward to debating this and other areas as the Bill progresses.

As I mentioned, I want to raise something that is not in the Bill but might be, which is particularly relevant to the relationship between SMEs and their large customers. There is a growing and worrying trend of large companies forcing their suppliers to comply with certain conditions which they feel are obligatory but on which small suppliers might take a different perspective. This applies already in areas such as modern slavery requirements, but it is now being applied by those who have signed up to the UN sustainable development goals. We are half way to the 2030 deadline for hitting these goals but on track to meet only 12% of the targets, so panic might be setting in.

The 17 UN goals are a worldwide initiative of generally apple-pie good things such as ending poverty, protecting the planet and, to use their words, ensuring that all people enjoy “peace and prosperity”—I am not quite sure that every SME can achieve that, but those are the aims of the UN Global Compact. The problem is that CEOs of large companies have clearly been persuaded to sign up—maybe over a long lunch at Davos or by their PR agents—and are now forcing their SME suppliers not just to comply with these goals but to evidence that they are doing so. They are forcing them to attend webinars, go to seminars and set out specific goals that they then have to explain to their customers that they have achieved.

I have talked to SME businesses that regard this as wholly inappropriate and are struggling to be able to do business with larger companies that force them to undertake this sort of work. They just do not have the resources, but they are frightened to speak up because they do not want to lose the business. They are responsible people who carry out their business in their own way and take care to undertake business responsibly, so why should they have to go through all these hurdles just to supply a product or service to a larger company? Artificial barriers are thus eventually being created and are detrimental to SME businesses.

I am sure the Minister is aware that large companies are forcing their suppliers to comply with these UN Global Compact requirements; people are being forced into training and taking on other costs that are unnecessary. Will he consider requiring such companies to disclose where they are forcing their suppliers to enter into these compacts? I accept that we do not want to make large companies do more work in their annual reports—the average FTSE 100 company annual report already has 97,000 words—but, none the less, a line has to be drawn against this behaviour.

In closing, I particularly thank the Institute of Chartered Accountants in England and Wales, of which I am a member, as well as Make UK and the British Chambers of Commerce, for their assistance to me to date. I very much look forward to working with the Minister, who I am sure will bring his extensive business expertise to this debate.

Lord Holmes of Richmond (Con)

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My Lords, what a pleasure to follow my noble friend Lord Leigh of Hurley and to hear some of his family history. I always suspected that he was a big fan of sofa government.

I declare my interests as set out in the register as adviser variously to the Crown Estate, Endava plc and Simmons & Simmons LLP. I give more than warm congratulations to the Minister for the way in which he not only clearly and precisely set out the provisions of this Bill but did it with such experience and expertise. In all my dealings on previous Bills, I have always found the Minister passionate, constructive, practical and a pleasure to deal with. That will certainly be the case for the negotiations that we have coming up on this Bill.

It is a good Bill and I welcome it. To mash up my biblical references, it is full of good intentions but we all know what good intentions have the potential to pave and, as has already been noted, the devil is in the detail. I will go to some of that detail in the first instance. Why is it that if you are a small or micro entity you have a maximum payment term of 60 days, whereas if you are a public authority you have 30 days? I am a big supporter of public authorities. The roles and responsibilities they have are extraordinary, and the difference they make to people’s lives on a daily basis is to be absolutely applauded. My old man worked for a local authority; it is in the blood. But they are in a very different circumstance from micro entities when it comes to late payments. These are not ideal, but they are less likely to break a public authority in the same way as we see in those 14,000 businesses year on year. These are 14,000 tragic stories for all those individuals involved and in how that ripples out through their families and communities.

Secondly, I ask the Minister: when it comes to the penalties, why does the Bill specify 1% of UK revenues? As has already been noted by the noble and learned Lord, Lord Thomas of Cwmgiedd, in his excellent and powerful speech, we need not only to consider the international context from a trading perspective but to understand the modern environment in which we are working. Do we not need to see something consistent with approaches that have been taken in other pieces of legislation, such as the Online Safety Act, which looks to global turnover in this respect?

The Bill is positive, with many good intentions, which I welcome, but it could be made so much more powerful and impactful if it had the golden thread of inclusion and innovation running right through it. So many of the Bill’s intentions would massively benefit from AI, data analytics and inclusion by design. Take, for example, structured payment event data. AI could perform such a profound service to the intention of the Bill in this respect. Take also the Small Business Commissioner’s enforcement action. That will result in a rich disputes intelligence database, ripe for data analytics to be applied to it.

It is worth considering a number of “no’s” currently in the Bill, which, through amendment, we need to convert to “yeses”. First, there is no digital layer or auto-enforcement provisions. The tasks and responsibilities being given to the SBC very much will the end, but without providing the means in terms of resource, funding and technologies, to set out just three. When one considers the caseload—the amount of data the SBC will have to engage with—this is completely impossible without sophisticated AI, digital case selection tools and so on. What is the Government’s intention in this respect, and, without going into the detail, would it not be better to see some more of this at the principles layer of the Bill?

A second “no” is that there is none of the data architecture required to optimise the solutions sought in the Bill. The current structure involves self- referral in bringing matters to the attention of the SBC, which will inevitably result in a reactive rather than proactive, and potentially predictive, posture on the SBC’s part. What is the Government’s intention in this respect, looking at how, with an effective data architecture framework, we could enable the use of vital data from other parts of the state in the late payment process?

So much of this is about small and medium-sized enterprises and the asymmetry they often experience. The Bill should be focused on SMEs, because, as the Minister rightly identified, they are the backbone of the UK economy and are often described as such by government; but so much more needs to be delivered in order to support that spine. It is easy to talk about, but it is much more difficult to put in place all the measures required to support them. The Bill has the potential to do that, yet it contains none of the digital tools that would enable SMEs to engage with this new process. In order to track progress, to understand their rights, to calculate what is owed to them and to understand the pathway to the enforcement and investigation process, SMEs—which are often the furthest away from digital inclusion, enablement and empowerment —will be in a similar position without greater government action to support, enable and empower them.

The Bill contains nothing on equality. Late payments are not a neutral concept; they fall disproportionately on SMEs and, often, on minority owners, older owners, disabled person owners and community-based businesses. What is the Minister’s view on the analysis we would like to see in the Bill of where late payments currently fall and their impact from an equalities perspective?

Similarly, there is nothing in the Bill on ESG, yet the supply chain is vital to this. Late payments all too often occur at what is described as the lower or bottom end of the supply chain. What provisions does the Bill contain to support the Government’s ambition for supply chain transparency and positivity? Currently, because of the way late payments impact, there is no sense of how that is measured from that critical ESG perspective.

There are some excellent provisions in the Bill, and with amendment they can be excellent plus. We need to empower and enable small and medium-sized enterprises to do what they do best: run and grow brilliant businesses and provide great goods and services right across the United Kingdom. Through amendments, we can make the Bill better economically and environmentally for everybody. With amendments, we can make the Bill well worthy of prompt payment.

Baroness Bennett of Manor Castle (GP)

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My Lords, we have an economy that is heavily dominated by giant—usually multinational—companies. There is nothing inevitable about that: it is a result of political and policy decisions made over decades by multiple Governments. It can and must be different. The Green Party sees the Bill as a modest step in the right direction of levelling the playing field between very large, powerful companies and those who are often their suppliers and who are inevitably in a supplicatory position towards them.

Like many other speakers in this debate, I bring family stories. I am a builder’s daughter; my father was a manager for a subcontractor in Australia. I learnt early on, as soon as I was old enough to understand, that one reason my father was angry or stressed was that he was often concerned about his firm going broke because it was not getting paid or the payment was being delayed. Sometimes, that payment would arrive eventually; other times, it would never arrive. That does damage to a great many small and medium enterprises.

An illustrative case study is that of Carillion, which went down in 2008, taking with it many SMEs. This shows the link between the two problems of late payment and financial collapse. I draw on the excellent—as always—Library briefing to quote the economist Orcun Kaya, who notes that, unlike the 30-day terms that some offer,

“Carillion imposed payment terms of up to 120 days on its smaller suppliers and contractors”.

That meant that there was three months’ work—with debts incurred—for which people were not paid. We can clearly see that when a company starts to delay payments and stretch out its terms, it is often a sign of financial stress within the company. It should be regarded as a red flag. I cannot see anything in the Bill on that. I wonder whether there is any way to use the Bill to introduce a red flag system. There is word of mouth in various industries—people start to talk to each other and explain the problem—but word of mouth is not a legal or formal framework.

This case study also needs to be used to raise a broader point: we have huge structural problems in many sectors of the UK economy, which the Bill on its own tackles only at small scale. There is the disaster of the outsourcing of public services to the lowest possible bid, and the disaster of business approaches and business culture. In that respect I cross-reference today’s debate with yesterday’s Second Reading of the Financial Services and Markets Bill. The parliamentary inquiry into the collapse of Carillion said that it was

“a story of recklessness, hubris and greed. Its business model was a relentless dash for cash”.

Three directors were later fined by the FCA for financial misreporting. These issues are all interlinked and all relate to the nature of our business culture, which holds back so many SMEs in our society.

We often refer to the construction sector, and that is one of the issues that I will come back to the Minister on. Thinking about the great state of disarray in the construction sector, one awful symptom I have to raise is that the latest report on mental health in the sector from the CIOB—formerly the Institute of Builders—shows that male construction workers are three times more likely to die by suicide compared with those in other industries, and that 28% of respondents have experienced suicidal thoughts at least once over the past year.

We must acknowledge that we have a real problem in the structure of the industry. Late payments are part of this story, but they are only a small part. There are also the issues of subcontracting and fake subcontracting, where, in effect, individual workers are forced to become their own small business. They, of course, can encounter all the problems that the Bill attempts to cover. But how will a quite low-paid worker forced to firm their own business be able to hold late payments against a giant construction firm? That will help us to frame the shape of the Bill. On that point, I draw on a very useful and detailed briefing from the ECA and Actuate UK, seeking clarity on the Small Business Commissioner’s role in terms of construction. Perhaps the Minister could address that in wrapping up or, if he prefers, he could write to me about that.

Another quite technical point—I am again drawing on the briefing—is the issue of retention in new Section 113A. Retention is of course what the Bill seeks to prevent happening, and it mentions related agreements. Perhaps there is the thought that the judiciary will interpret attempts to recreate retention clauses by calling them something else and will interpret the ban very widely in terminology. It is important to address how we will make sure that retention bans are not just called something else but are still in effect retention bans.

The briefing also raises important issues about the transition period and last-day retention. There will potentially be a cliff edge at the end of year three, where all transition-retained sums could become due simultaneously, and that could create a state of real chaos. Again, that might be something the Minister will want to write about. The briefing raises some very serious issues.

Also on the detail of the Bill, there is the penalty for unlawful retention. That will potentially be very useful as a penalty, but it will become a reality only if SMEs can afford to enforce it. I do not see in the Bill any resources provided to help SMEs with enforcement, so what will happen with that?

We have had discussions about 60 days, 45 days or 30 days. It is important to note and demonstrate what might be possible. In the UK defence sector, the Ministry of Defence direct contracts specify that 90% of undisputed SME invoices must be paid within five working days. It is interesting to note that when we think about what is actually possible.

It is also useful to think about comparative terms here. Presumably, this does not cover the supermarket, food and farming sectors. We have the Groceries Code Adjudicator there. How does the Bill interact with the Groceries Code Adjudicator? What is the interaction?

Finally, I turn to an issue that has already been raised by the noble Lord, Lord Lansley. Like him, I draw on the briefing from the National Housing Federation, which delivers a cry of concern from the heart about the Section 106 provision. We are talking a lot about inequality of arms and an inequality of power between suppliers and purchasers; here, we have to note that a major construction company versus a housing association in some ways turns that balance of power around. If there is a problem with, say, a block of flats that has been constructed and purchased for social housing, housing associations may not have the capacity to carry out repairs themselves. They may also find it extraordinarily difficult to bring legal action against a major developer. This is an issue that the Minister is going to have to address as the Bill progresses, if not today, because the National Housing Federation has identified an issue. I do not know what the solution is, but we certainly need to address it.

Baroness Dacres of Lewisham (Lab)

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My Lords, I welcome the opportunity to speak in support of the Commercial Payments Bill. It has been extremely interesting to hear the various points made by noble Lords, in particular the noble Baroness, Lady Alexander of Cleveden, and the noble Lord, Lord Holmes of Richmond. I thank my noble friend the Minister for his detailed and passionate introduction to this Second Reading.

The Bill deals with an issue that causes real frustration and damage to many small and medium-sized businesses across the country. Quite simply, too many businesses are not being paid on time for work that they have already completed. For large companies, delayed payments may sometimes be seen as an administrative issue or a cash-flow decision, but, for smaller businesses, late payment can mean sleepless nights, financial stress and serious uncertainty about the future. Many small firms are spending too much time chasing invoices instead of serving customers, training apprentices, creating jobs and expanding their businesses.

The scale of the problem is significant. Around 44% of invoices from SMEs are paid late, with late payments estimated to cost the UK economy £11 billion each year. Around 14,000 businesses close annually because of late payments. This should concern us all. Small businesses are central to both our economy and our communities. They employ local people and support our high streets, and they often provide opportunities for people starting out in work or setting up businesses of their own.

This legislation is a welcome step towards tackling a problem that has existed for far too long. I particularly welcome Clause 18, which strengthens the powers of the Small Business Commissioner to help resolve payment disputes between smaller and larger businesses. Many small businesses simply do not have the time, money or legal support that is needed to challenge unfair payment practices. Giving the commissioner stronger powers to investigate poor behaviour, resolve disputes and take enforcement action is an important step forward. The Bill gives the Small Business Commissioner powers not only to resolve disputes but to investigate persistent poor payment practices and take action against repeat offenders.

Clear maximum payment terms are particularly welcome. It cannot be right that some businesses wait months to be paid while themselves still being expected to pay wages, suppliers, rent and tax bills on time. The Bill rightly tackles the issue of late payment interest. If a business pays late, there should be consequences. Removing loopholes that allow companies to avoid statutory interest is therefore welcome.

These problems are especially serious in the construction sector, as we have heard from many noble Lords. Many construction subcontractors and specialist firms are small businesses operating on very tight margins. They may already have paid for labour and materials long before receiving payment themselves.

I have read the helpful briefing from Actuate UK, the engineering services alliance, which represents more than 60,000 firms, together with the Electrical Contractors’ Association, which represents businesses working across the electrical and engineering sectors. Their briefing highlights how retention can remove vital cash from small businesses for months and sometimes years. The briefing warns that these practices can leave smaller firms exposed if larger contractors collapse.

Clauses 11 to 17 represent an important step towards improving fairness in construction contracts. The collapse of Carillion showed the serious consequences that unfair payment practices can have across a supply chain. I support the Government’s intention to improve fairness in this area, including through the proposed ban on retention. As the Bill progresses, I hope that the Government will continue to listen carefully to concerns around enforcement and implementation.

One point I would make is that these protections will work only if smaller firms can realistically use them. Many SMEs simply cannot afford lengthy legal disputes or complex adjudication processes. Without practical enforcement, some smaller firms may still feel unable to challenge poor payment practices. Can my noble friend the Minister say more about how the Government intend to ensure that these new protections are genuinely accessible in practice?

There is a wider issue around business culture. Paying suppliers on time should not be seen as optional good practice; it should be part of being a reasonable business. When smaller firms are paid fairly and promptly, they are better able to invest, hire staff, support apprentices and contribute to local economic growth. That matters not only for individual businesses but for the resilience of local economies and supply chains more broadly.

As the Bill moves through this House, I hope that there will be careful consideration of how to prevent companies simply finding new ways around these rules and loopholes through different contractual arrangements or payment structures. The Bill sends a clear message: small businesses should not be expected to carry unfair financial risk while waiting to be paid for work that they have already completed. Fair and timely payments are not just about good business practice; they are about confidence and building a stronger, more resilient economy. I support the Bill.

Lord Risby (Con)

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My Lords, during my entire life as a parliamentarian, the health and enduring viability of the small business sector has been at times a matter of concern, with Governments of all stripes to some extent failing or falling short of being able to deal effectively with the one key necessity for the success of these businesses: cash flow. I declare an interest in that I was for many years the deputy chairman of the Small Business Bureau.

I warmly welcome the opportunity that this Bill offers and the manner in which the Minister explained it. It shines a light on the key element here: late payments. In many parts of the country, we see evidence of the consequences of this, including a visible deterioration in the range of commercial activity on our high streets. We have even seen the growth of charity shops, however admirable their causes, go into reverse, despite lower business rates for them because of the more recent national insurance hikes and high electricity prices.

What is true is that the British Business Bank and the Office of the Small Business Commissioner provide reassurance and support, yet far too many businesses close every day, with all the consequences for employment; hence the welcome increases in the authority and empowerment of the Small Business Commissioner, including naming and shaming and the enforcement of fines.

At the heart of this is businesses having confidence; I know this as one who started a business. Confidence is fundamental for start-ups. Of course, further risk assessments always arise when expansion is contemplated and the velocity of payments becomes even more crucial. Is the Minister satisfied that those with small businesses are, or will be, able to go online and check out the payment policies of larger supplier organisations?

Information is the key. Is the Minister content that, where possible, the average time to pay is clearly indicated? Nothing would be more valuable than being able to start a new search with ease by simply entering the business name of a supplier. It is one thing to have a payment performance report, but how can it best be used and, importantly, ensure the monitoring of evidence? It would be good for smaller businesses to feel comfortable about accessing a league table indicating the time to pay. This would incentivise suppliers to be the best. Supermarkets already supply this information. If the best suppliers are clearly known, they will attract business and fulfil this role. This would enhance the integrity of the supply chain.

Then it comes to enforcement. Is the Minister satisfied that the office of small business, with enhanced powers, has the capacity to be effective in representing SMEs’ interests? For example, how many individuals will be attached to this role in the future, which is so vital given its expanded duties?

A number of local authorities do, admirably, pay rapidly, so I turn to the 60-day ruling. If there is the possibility—and I hope not—that this will cause a drift upwards, elongating payment times rather than the reverse, then this would be regrettable. I would welcome clarification about public authorities paying in 30 days, but why cannot private companies do the same? This is a question that I have been asked to put forward this afternoon.

We want to attract more foreign businesses to boost our GDP, highlighting the importance of getting not only the right legislation but a clear message that this country is open for business. For 10 years, like others I was one of the Prime Minister’s trade envoys. Access to information about business opportunities in this country has hugely increased over this period. I pay tribute to our embassies abroad in this pursuit. Nevertheless, our export and import relationships are not at the sophisticated and all-embracing level that we find so frequently in other countries, where export activity is promoted through SMEs by these countries and through encouraging their activity abroad, supporting and creating an environment for our small businesses to thrive. They are, after all, the seed corn of the economy. This would be very welcome to all of us in your Lordships’ House, but there is certainly more work to be done.

Baroness Goudie (Lab)

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My Lords, I welcome this Bill. I welcome that there is great support for it across the House and that we can get it through and help everybody else to make Britain a much better and more welcoming place.

I am pleased to speak in support of this Bill. It addresses a practical problem that has very serious consequences. For small businesses, timely and reliable cash flow predicts many serious matters: whether wages can be paid, whether rent can be met, whether investment into a company can be made and, at the end of the day, whether a viable company can survive.

The economy of the United Kingdom is built on small and medium-sized enterprises. At the start of 2025, SMEs made up 99.9% of the 5.7 million private sector businesses and accounted for 60% of employment and 51% of turnover. Therefore, a conversation focusing on supporting SMEs is really a conversation that is focused on improving the quality of our economy as a whole. Additionally, we know that, when we talk about SMEs, we are also talking about the jobs, families and local high streets that are attached to every single enterprise.

This Bill goes to the heart of our economy by improving business conditions for these vital companies. Approximately 44% of invoices from SMEs are paid late. Those very late payments are estimated to cost the UK economy almost £11 billion each year, forcing 14,000 businesses to close annually because of late payment. Every single closure represents a person who has taken a risk and who has often employed others and created work for their community.

I particularly welcome the Government’s recognition that payment culture matters. A small business should not have to act as an unofficial bank for the larger customer, and nor should entrepreneurs spend precious time chasing money that is already owed to them when that time could be spent growing their business, training staff, improving services or winning new contracts.

Much has already been said in this House about construction. I welcome the Bill’s attention to that issue. However, I wish to focus on small businesses and women’s role in the SME sector. For women who are building businesses, working as sole traders, employing local people and supporting their families, reliable payment is central to confidence, independence and growth. Women-led businesses can face particular barriers in accessing finance. The Government are trying to make this easier by talking to the banks, but we need more support networks and investment. When payment is delayed through no fault of their own, these barriers become harder still. A late invoice can mean postponed childcare, delayed wages, additional borrowing or the loss of confidence to take on the next contract. If we want more women to start and scale businesses, fair and prompt payment must be part of that ambition.

I welcome the Bill’s provisions to strengthen maximum payment terms, to make interest on late payments more effective and to give the Small Business Commissioner stronger powers. I hope that, as the Bill progresses and once it is implemented, Ministers will keep under close review whether the overall timetable for acceptance, verification and payment is sufficiently ambitious for the smallest firms. It is really important that we have some clause allowing us to look at this after a year or so. In practice, a period approaching 90 days can still feel very long for a small supplier managing a tight cash flow.

I hope that the strengthened Small Business Commissioner will be visible, accessible and trusted by the smallest firms—including sole traders and women-led businesses that may not have legal teams or finance departments behind them. This is a welcome Bill. It is pro-business, pro-growth and pro-fairness. Most importantly, it seeks to change not only the rules but the culture. I look forward to supporting the Government in that endeavour and to ensuring that small businesses, entrepreneurs and women-led enterprises are at the heart of its success.

Lord Bourne of Aberystwyth (Con)

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My Lords, it is a great pleasure to participate in this debate and to follow the noble Baroness, Lady Goudie, who made some excellent points, as always, particularly on the backbone of the economy that is represented by small businesses and on the role of women. Those were very important points. I declare my interest as chair of a charity, International Students House. Like many other institutions, it is potentially impacted by late payments and is affected by the law on retention in construction contracts, as we acquire purpose-built residences for our students.

I thank the Minister for setting out the background to the legislation typically clearly and for the analysis of the provisions contained in it. He has considerable experience of business and of the problems caused by late payment. I also thank him for graciously acknowledging the role played by Conservative Governments.

Like other noble Lords, I am very much in favour of this legislation, which has received a general welcome from many relevant organisations such as the CBI, the Federation of Small Businesses, the Institute of Directors and the Institute of Chartered Accountants. Small businesses constitute the backbone of our economy, as has been said. The fact that some 14,000 businesses per year close because of late payments is a flashing light that has been ignored for too long. I welcome that the unscrupulous and unfair exercise of superior bargaining power by some large businesses is to be outlawed by this legislation.

This legislation seeks to combat the unfair and unscrupulous practice of delayed payment by rendering late payments—essentially those over 60 days for private businesses—illegal, and by imposing mandatory interest provisions where there is late payment of 8% above the Bank of England base rate. Previous legislation, no doubt well-intentioned, has been ineffective, as it has been easy to circumvent. It was pretty much optional—more of a signpost of desirable conduct than a requirement of that good conduct.

However, I have several questions for the Minister. The first relates to the 60-day period permitted before the legislation bites in the private sector. An extensive consultation was engaged, in which many people and small businesses participated. I wonder why the 60-day period was alighted on. Like many others, I wonder why a period of 30 or 45 days would not have been more appropriate, as raised by my noble friends Lord Lansley and Lord Risby, and the noble Baronesses, Lady Thornton and Lady Bennett of Manor Castle. Why 60 days? It seems to me that that is quite a long period. The point made by the noble Baroness, Lady Bennett, about the practice in the Ministry of Defence, is illustrative of the fact that we could bring it down considerably.

I have a question relating to retention practices. I recognise that retention practices can be used unfairly and harshly against small businesses, and often that is the case. The sort of scenario demonstrated by the Carillion collapse and the consequent damage done to so many small businesses is illustrative. However, does not an outright ban on retention after the transition period merely shift the danger? Purchasers will require performance bonds, cash escrows or some other security which would require an outlay of cash at the outset rather than a retention, which may may be more damaging to small businesses. I am not necessarily against the provision, but I am not convinced that it is the total answer. Retention can be useful and used by some businesses quite reasonably. It is abusive retention that we should be focusing on, and I would welcome the Minister’s thoughts on that. My concern is that there is a danger of shifting the problem for small businesses; I am unconvinced that every retention is wrong or abusive.

I welcome the extended role of the Small Business Commissioner and the power to find late payers—though the commissioner does not cover construction contracts, a point made by the noble Baroness, Lady Alexander. I too wonder whether it would not be better if we were to put construction contracts within the competence of the Small Business Commissioner. I would welcome the Minister’s thoughts on that point as well.

Finally, I have a point on the devolved nations. I appreciate that the law in this area is a reserved matter for the Westminster Parliament, but clearly the Bill is largely a UK Bill, and there are impacts for the devolved Administrations. With a change of Administration in Wales, I wonder what discussions have been ongoing and what engagement there has been. Some of the provisions certainly impact on the devolved Administrations —for example, Clause 26 expressly does—so I wonder what is happening in that regard.

On the whole, as has been clear during the debate, this legislation is, remarkably, uniting all sections and corners of the House and all parties. I am sure it will be given a fair wind and that any amendments we make will be to tighten it up and make it more effective. With that, I give it a very warm welcome and look forward to the Minister’s response.

Lord Mendelsohn (Lab)

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My Lords, I am grateful to take this opportunity to speak in the gap and to warmly welcome the Bill. I pay tribute to the Minister not just for his eloquence in introducing the Bill but for his experience and expertise, and the Bill certainly bears their imprint. He was gracious and correct to acknowledge the steps taken by the previous Government, but he should be proud of the extent and scope of what he has introduced to this House. It will undoubtedly be transformative, even if it may not be the end of the journey.

As someone who has drafted a previous Private Member’s Bill on this issue, I think the Bill is impressively drafted and there is a good impact assessment. I am sure that, with the issues that have been expertly raised during the course of this debate, we will have a good opportunity to see if we can improve or clarify some of the elements outstanding in the Bill during our discussions.

I will add a couple of points that I would be keen for the Minister to consider. Before that, I pay tribute to the fact that the Bill as drafted and the impact assessment are a recognition that this is not just about bad actors. The realities of the business environment are properly acknowledged, along with issues that concern businesses and the challenges they have with cash flow. It is good that it has been done in a proportionate and balanced way. I continue to be concerned that it is just about large businesses to small businesses, where there are indeed problems with supply chains, with large businesses not featuring in the bilateral relationship, but I hope that we are able to consider how that may be addressed.

Although I and many others have always thought 30 days to be the right standard—there can always be consideration of a phased approach—I bear the same concerns that others have that marking 60 days may reverse the massive progress that has taken place in reducing the overall number of days. While we are looking at timing, clarity is essential. The Bill does not currently include a clear statutory definition of when payment is legally deemed to have occurred. The point at which the clock starts must be equally clear and resistant to manipulation. I hope that it can be made clear that the proposed 60-day verification period should be incorporated within the 60-day maximum and not added on top of it, which would de facto create a 90-day limit.

On mandatory interest, I would welcome confirmation from the Minister that the large businesses will be required to apply interest automatically when settling a late invoice, rather than leaving the burden on suppliers to claim it—something which most would be unlikely to do.

It is time to consider late payments by public bodies and to merge those into the same regime. The last exercise that was done looked at FoI data. Public sector bodies identify the interest payments that they should be paying but none has ever been claimed. The last comprehensive exercise identified that £3 billion of interest payments should have been paid to small businesses. Some NHS trusts and local authorities pay over 80% of their SME suppliers late—over 30 days. It is time to consider joining up those regimes.

We must consider whether we are looking at predatory payment terms and other things in the right way. Most importantly, the journey that the Small Business Commissioner has gone through and where it has ended up in the Bill is encouraging. I urge the Minister to consider not just its resources but its scope, to make sure it retains the role, across all areas, to help advise the Government on further steps ahead. I welcome the Bill.

Baroness Kramer (LD)

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My Lords, I am stepping in today for the noble Lord, Lord Fox, who unfortunately cannot be here. I will do my best to channel him, but I know the House would have had more incisive comments, as this is not my field of expertise. I will take the opportunity to discuss an issue that very much concerns me; it will not surprise people that I will raise an in my comments whistleblowing.

Late payments have been one of the most persistent and damaging barriers facing small businesses, sole traders and the self-employed. We all know that it is not a new problem. Successive Governments have promised action, yet too many small firms still find themselves acting as unwilling lenders to much larger organisations, waiting months for money that they have already earned and that they are already owed.

We all know the consequences are not merely administrative; they are economic and they are human. Recent research commissioned by the Small Business Commissioner found that late payments cost the UK economy almost £11 billion every year, affect around 1.5 million businesses, and contribute to the closure of some 14,000 firms annually—what a waste—and around 38 businesses every single day. Businesses affected spend an average of 86 hours a year chasing overdue invoices rather than growing their companies, investing in new products or serving customers.

As Liberal Democrats, we have long argued that strong action is needed. Our 2024 general election manifesto committed us to strengthening prompt payment requirements and ensuring that large organisations could no longer evade responsibility. We therefore welcome the central provisions of the Bill.

The introduction of statutory maximum payment terms of 30 days for public bodies and 60 days for most private sector transactions is an important step forward, as is the decision to prevent parties from contracting out of statutory interest. Large purchasers have been able to use their bargaining power to impose terms on smaller suppliers that they have little practical ability to refuse. We therefore also strongly support the intention to give the Small Business Commissioner real enforcement powers and regard this as a significant part of the Bill.

The current commissioner has done valuable work, but moral persuasion alone has never been enough. There must be meaningful consequences for persistent offenders. The ability to investigate poor practices, adjudicate disputes and impose financial penalties represents a significant shift in the balance of power. It is encouraging that so many organisations representing small firms—the Federation of Small Businesses, Enterprise Nation, the Institute of Directors and the ICAEW—have welcomed the direction of travel in this legislation. We are also very pleased to see action being taken on retention payments in the construction sector. Specialist contractors and subcontractors have campaigned for years against a system that allows money to be legitimately earned but then withheld indefinitely and sometimes lost entirely when a contractor becomes insolvent. Ending this practice is both fair and overdue.

However, support for the principles of the Bill does not remove the need for scrutiny of its detail. We will examine the protection of complainants very carefully. The success of the new regime will depend heavily on whether small businesses feel able to come forward. Many suppliers rely on a small number of customers for a significant portion of their income; they may fear that making a complaint will damage future commercial relationships. It is a very real fear for many small companies. We therefore want assurances that robust safeguards will exist for complainants and that information can be provided to the commissioner without exposing vulnerable businesses to retaliation.

That brings me to a subject which, as many know, is close to my heart: whistleblowers. A key power for the SBC is the power to investigate where poor practice is suspected. I do not think that the SBC can rely solely on the information that it gets from complainants. To do that, it needs broader information, and that means that it needs a safe channel for whistleblowers.

A whistleblower is not the same as a complainant, and it is important not to confuse the two. A whistleblower who is an employee of a construction company, for example, may be key in providing necessary information about that company’s persistent poor practice over retention payments, say, but I checked and the SBC is not a prescribed person, so the employee providing that information does not even have the protection that, in many instances, would be available under the Public Interest Disclosure Act—confidentiality and the ability, if there is retaliation, to go to an employment tribunal. That does not exist and I would like the Minister to address that.

I always find the Public Interest Disclosure Act to be very limited in scope, as many know. A supplier that is not complaining about itself but that has come across key information—these people will be crucial to the effective work of the SBC—has no protection from retaliation at all. Since informal blacklisting could easily happen, because a large company would have friends all over the place, contacts and connections, there has to be some mechanism for suppliers that provide information on bad practice in the sector to be protected from retaliation. I would like to know from the Minister how that gap will be remedied.

We also question whether the Government have been sufficiently ambitious on payment timescales. That issue has been raised around the House today. There is significant support for a 45-day maximum payment period, and we will explore whether that should be the eventual goal.

The Bill rightly introduces limits on when payment disputes may be raised, but there is less clarity about how quickly those disputes must be resolved. There is a risk that an unscrupulous purchaser could simply raise a dispute and then allow the matter to drag on indefinitely, exerting commercial pressure on a smaller supplier to accept a reduced settlement. Are stronger safeguards needed or does the Minister think that they are already embedded in the Bill?

Much of the Bill’s effectiveness rests upon the capacity and independence of the Small Business Commissioner. Powers on paper are not the same as powers in practice. We want to understand how the commissioner will be resourced, how enforcement priorities will be determined, whether penalties will be sufficient to deter large multinational firms rather than simply being treated as the cost of doing business, and how Parliament will scrutinise the exercise of these important new functions.

Finally, we note that significant elements of the framework are left to future regulations. Delegated powers may be necessary in some circumstances, but Parliament should be cautious whenever fundamental aspects of a regulatory regime are deferred to secondary legislation. We will therefore examine closely whether the balance between primary legislation and ministerial discretion is the right one.

The Bill addresses a genuine and long-standing injustice in our economy. Small businesses should not be forced to bankroll large ones. They should not have to spend weeks chasing invoices instead of serving customers and creating jobs, and they should not face insolvency because another business has chosen to treat prompt payment as optional. We look forward to working constructively across the House to ensure that the final legislation delivers the robust protections that small businesses, contractors and the self-employed have waited to see for many years. Consequently, I support the Bill.

Lord Sharpe of Epsom (Con)

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My Lords, I refer to my small business interests, as set out in the register. I welcome the chance to speak on this Bill for the first time, and I thank all noble Lords who have contributed. Most of all, I thank the Minister for his introduction, his previous engagement and the genuine expertise that he brings to this subject.

I begin by reaffirming the support of these Benches for the broad provisions of the Bill. Industrial strategy must allow smaller businesses to both survive and compete with larger firms, so entrenching good payment practices, tackling asymmetry in the construction industry and increasing the powers of the Small Business Commissioner are all sensible aims.

A number of interesting questions have been raised on late payment terms, specifically around the 45-day and 60-day limits. Good questions addressing this issue were asked by my noble friends Lord Lansley and Lord Holmes, the noble Lord, Lord Mendelsohn, and the noble Baroness, Lady Thornton. But I would like to press on this: the new payment term must inevitably be balanced against the ability of businesses to arrange their finances and pay. To assist the House, could the Minister outline the trade-offs between the 45-day and 60-day payment limits, which have already been considered in the decisions taken in the Bill?

I note, for example, that the impact assessment suggests that 350,000 more small businesses might be caught by a change from 60 to 45 days. Can the Minister confirm that those numbers are roughly correct? Has the impact assessment or any assessment that the Minister has seen looked at precisely what the financial impact of that would be for those businesses? I can see merit in both sides of the argument, but it would help the House to understand the logic behind the conclusions that have been made.

I also understand the logic behind a timeframe for resolving disputes. Businesses that delay payments should not be able to raise a dispute within the timeframe and then delay payment indefinitely, as the noble Baroness, Lady Kramer, has just noted. The existence of this possibility undermines the principle behind the new deadline for raising disputes. That said, I am cautious about the impact of a deadline on resolving disputes. The value of payment disputes that will fall under Clause 7 will have a very large range, so enacting an arbitrary timeframe of, say, 14 days would disincentivise large disputes being brought forward and divert resources towards ensuring they get resolved within the deadline. There is a risk of creating a bottleneck around whichever the dispute deadline would be. However, I recognise the worry associated with an open-ended resolution timeline, so if the noble Baroness and the Minister believe that this worry can be reconciled with my reservations, I would be very happy to work with them as the Bill progresses.

I take this opportunity to repeat the concern my noble friend Lord Hunt of Wirral raised about the scrapping of retention payments, which we otherwise support. In their impact assessment, the Government stated that they would seek to remedy the removal of this insurance option by

“working with industry to find other ways of making sure construction suppliers provide a good service”.

That is surely the right approach. Purchasers must have available means to seek redress in the case of defects or defaults, a point ably argued by the noble Lord, Lord Docherty of Milngavie. This is particularly the case in the public sector, as public money must have adequate protection against underperforming workmanship. I hope the Minister can today update the House on the steps taken with the industry towards providing that assurance. As the noble Lord, Lord Mendelsohn, noted, other public bodies and various public authorities, in particular, local authorities, can be habitual late payers. Public bodies must set an example when they are the ones driving reform. Can the Minister outline how the Government intend to cut back on late public payments? Can he also set out a timeline for phasing out public retention payments, perhaps before the three-year transition period culminates? There are a number of questions around this subject that deserve answers.

I also look forward very much to the debates on the points raised by my noble friend Lord Lansley, which had considerable merit. The noble Baroness, Lady Alexander of Clevedon, also raised some very good points about retention payments re-emerging as something else, so I look forward to the Minister’s views on what might be done to prevent that state of affairs developing.

I would also like to pick up on a point made by my noble friend Lord Leigh of Hurley on the definitions of micro, small, medium and large businesses. The Bill uses the Procurement Act 2023, alongside giving the Secretary of State powers to make definitions, but my noble friend is right to point to the Companies Act 2006, alongside the use of less complex entities by standard setters, not to mention the Enterprise Act 2016 and the Small Business, Enterprise and Employment Act 2015, which all use variations of definitions that essentially describe the same thing.

I would be grateful if the Minister reassured the House that the regulation-making power in Clause 3(7) will not be used further to deviate from any of the existing definitions of businesses. Perhaps more optimistically, does the Bill not present a chance to standardise the definitions of different sized businesses? We should use this opportunity to think about how we fundamentally categorise businesses, especially as low-headcount, high-turnover tech and AI businesses are in the ascendant. Using a full-time employee equivalent, rather than a simple nominal headcount, alongside a standardised turnover and balance sheet total amount, would be a more proportional and accurate way of categorising most businesses, although I recognise that there is some tension with the point I just made about new tech and AI-type businesses. It is needlessly bureaucratic that so many definitions exist across so much legislation. This has been a long-running issue on all sides of the House, so I hope the Minister will agree to work with us to resolve it through the later stages.

I recognise the concerns surrounding the Small Business Commissioner. A perfectly free and competitive market would, of course, negate the need for a third party to arbitrate disputes, but in the absence of such a market, we support expanding the remit of the commissioner’s office to deal with these instances. Moving responsibilities away from the courts is the right choice, but, as has been stated, this must come with sufficient resources. Similarly, in the absence of such a perfect market, I understand the concern that suppliers that raise consistent disputes or enter into proceedings with an influential customer may face being blacklisted. So, for the Small Business Commissioner to work as intended, it must have the trust of the businesses it works for, and this means ensuring against negative repercussions from raising a dispute. I thank the noble Baroness, Lady Kramer, my noble friend Lord Leigh and others for raising these concerns, and I hope the Minister will be able to address them. I also look forward to hearing the Minister’s thoughts on enforcement and resources, as noted by, among others, my noble friends Lord Hunt and Lord Risby. For example, does the Minister have any idea how many staff work for the Office of the Small Business Commissioner, what resources they currently have and whether they will be increased in anticipation of this new legislation?

As the noble Baroness, Lady Kramer, noted, a more fundamental concern with this part of the Bill is the expansive Henry VIII powers it gives to the Secretary of State. New Section 2G, inserted by Clause 18, permits a wide array of unilateral actions, including the ability of the Secretary of State to restrict the disclosure of information and exclude specific disputes. I understand that the former could be used to protect smaller businesses, but it could also be used to protect the poor practices of larger firms, so I would welcome some clarity on this. Similarly, I wonder whether the Minister could specify in which circumstances the Secretary of State would consider excluding disputes. This has the potential to be very wide-ranging, so some specificity would be appreciated. Indeed, if the Minister is able to give that clarity today, can he say why the specific measures are not in the Bill?

My noble friend Lord Leigh’s points about the UN goals and large companies’ practice with regard to forcing their suppliers to address these complex rules were of merit and worthy of further discussion. I look forward to the Minister’s views on them.

Overall, we have some concerns, but this Bill marks an important step in the right direction for this Government’s industrial strategy. It is orientated towards helping small businesses survive and thrive, and I look forward to working with noble Lords on both sides of the House in the coming weeks.

Lord Leong (Lab)

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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.

Lord Leong

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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.

Lord Holmes of Richmond (Con)

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

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

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

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

Lord Fox (LD)

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

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

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

Lord Sharpe of Epsom (Con)

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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)

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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.

Lord Holmes of Richmond (Con)

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

Lord Holmes of Richmond (Con)

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

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

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

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

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

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

Lord Leigh of Hurley (Con)

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

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

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

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

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

Baroness Bowles of Berkhamsted (LD)

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

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

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

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

Lord Sharpe of Epsom (Con)

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

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

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

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

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

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

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

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

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

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

Lord Fox (LD)

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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)

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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)

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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)

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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.

Lord Leigh of Hurley (Con)

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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)

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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)

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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.

Lord Leong (Lab)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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I will do that.

Lord Sharpe of Epsom (Con)

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

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

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

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

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

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

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

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

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

Lord Holmes of Richmond (Con)

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

Lord Fox (LD)

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

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

Lord Leong (Lab)

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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.

Lord Sharpe of Epsom (Con)

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

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

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

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

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

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

Lord Thomas of Cwmgiedd (CB)

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

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

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

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

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

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

Lord Holmes of Richmond (Con)

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

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

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

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

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

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

Lord Fox (LD)

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

Lord Sharpe of Epsom (Con)

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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)

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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)

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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)

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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)

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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.

Lord Holmes of Richmond (Con)

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

Lord Sharpe of Epsom (Con)

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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)

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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)

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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.

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

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

Lord Fox (LD)

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

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

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

Lord Fox (LD)

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

This amendment would confirm on the face of the Bill

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

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

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

Lord Hunt of Wirral (Con)

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

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

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

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

Lord Leong (Lab)

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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)

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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)

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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)

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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)

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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)

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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.

Lord Lansley (Con)

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

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

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

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

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

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

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

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

Lord Sharpe of Epsom (Con)

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

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

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

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

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

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

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

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

Lord Fox (LD)

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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)

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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)

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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)

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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)

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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.

Lord Hunt of Wirral (Con)

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

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

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

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

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

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

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

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

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

Lord Fox (LD)

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

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

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

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

To facilitate this, the adjudicator must

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

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

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

Lord Holmes of Richmond (Con)

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

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

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

Lord Leigh of Hurley (Con)

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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)

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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.

Lord Fox (LD)

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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)

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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)

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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)

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

Lord Hunt of Wirral (Con)

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

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

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

Lord Fox (LD)

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Simple—have a flat tax.

Lord Hunt of Wirral (Con)

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Anyway, that is a debate for another occasion.

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

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

Lord Leigh of Hurley (Con)

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

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

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

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

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

Lord Holmes of Richmond (Con)

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

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

Baroness Kramer (LD)

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

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

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

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

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

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

Lord Thomas of Cwmgiedd (CB)

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

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

Lord Fox (LD)

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A lawyer steps up.

Lord Leong (Lab)

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Declare yourself.

Lord Hunt of Wirral (Con)

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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.

Lord Leong (Lab)

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

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

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

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

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

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

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

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

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

Lord Leigh of Hurley (Con)

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I beg leave to withdraw the amendment.

Lord Holmes of Richmond (Con)

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

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

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

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

Lord Thomas of Cwmgiedd (CB)

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

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

Lord Fox (LD)

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

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

Lord Hunt of Wirral (Con)

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

Amendment 73 would require the Small Business Commissioner

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

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

Amendment 78 would establish

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

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

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

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

Amendment 94 would require the Secretary of State

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

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

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

Amendment 95 would require

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

while Amendment 96 would require

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

These are technical amendments which require careful consideration.

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

Lord Leong (Lab)

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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.

Lord Holmes of Richmond (Con)

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

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

Lord Hunt of Wirral (Con)

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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)

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

Lord Hunt of Wirral (Con)

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