Government to Ban Retentions and Reform Payment Law

NFRC welcomes a landmark government announcement that will prohibit the use of retentions in construction contracts and deliver sweeping reforms to payment legislation.

The government has announced plans to ban retentions in construction contracts and overhaul the rules around payment, the biggest shake-up to UK payment law in more than 25 years.

What's changing?

The government intends to introduce new laws covering two main areas:

Payment retentions will be banned. Larger firms will no longer be able to withhold a portion of your money under construction contracts. The practice that has tied up contractors' cash for decades is set to be prohibited.

Broader payment rules will get tougher. Alongside the retention ban, the government plans to introduce other changes to the wider economy, including:

A maximum 60-day payment term, with very limited exceptions
A statutory deadline for raising invoice disputes — miss the window, and the party disputing will owe you compensation
Mandatory interest on late payments, set at 8% above the Bank of England base rate
A requirement for large, persistently late-paying companies to explain publicly why their payment performance is poor and what they're doing to fix it

These changes are intended to apply across the UK. Because late payments is a devolved matter, the government will work with Scotland, Wales and Northern Ireland to align the rules.

What this means for you

NFRC estimates that £300 million of roofing and cladding subcontractors' cash was held in retention at any one time back in 2021. In 2023, 86% of NFRC members reported problems recovering retentions on local authority contracts. As recently as 2025, 80% of Members said retentions were still hurting their business.

That stops here.

When will it happen?

Not overnight. The measures require both primary and secondary legislation, so it will be some time before the laws are in place. The timeline also depends on Parliament's schedule. Expect at least a year, and possibly over two.

But the direction is clear, and it isn't changing. NFRC will work with members and the government throughout this period to make sure the incoming legislation is written precisely and effectively, and will keep advocating for members who are being exploited under the current rules in the meantime.

James Talman, NFRC Group CEO, said:

"This outcome is one our industry has been campaigning for years to achieve. For too long, specialist contractors have been forced to operate under a system that allowed larger firms to withhold their money, delay payment, and use their cash as free working capital. Today, the Government has shown that it has listened, and we could not be more pleased."

"Our members are passionate about this issue, not just because it affects their bottom line, but because it affects their people, their livelihoods, and their ability to grow and deliver for the UK."

Thank you to everyone who helped get us here

This result is the product of nearly a decade of campaigning by NFRC, its members, industry partners, and civil servants. NFRC would like to thank the Department for Business and Trade for running a thorough and genuine consultation process, as well as the many trade bodies and individuals who contributed. Special thanks to Steve Bratt and the CLC taskforce, whose work on this issue made a concerted difference.

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