Firms face Labour penalties for delayed supplier payments

Keir Starmer has urged businesses that habitually delay payments to suppliers to settle their debts promptly, as the government plans to introduce fines for repeat offenders.

In what has been described as the most significant effort in years to tackle overdue payments, business secretary Jonathan Reynolds will announce on Thursday that the changes aim to reduce an economic burden now exceeding £11bn annually.

Government figures show that up to 38 businesses close each day, partly due to late payments, affecting tradespeople, retailers, entrepreneurs, and family-owned firms.

Under the new measures, the small business commissioner will gain the authority to issue fines—potentially worth millions—and conduct inspections, verify complaints, and set deadlines to resolve payment disputes. The commissioner’s office, established in 2016, previously lacked such enforcement powers.

The initiative is part of a broader effort to assist small businesses, with Reynolds also confirming £4bn in startup loans for 69,000 companies, designed to encourage new entrepreneurs.

Prime Minister Keir Starmer and chancellor Rachel Reeves support the move, emphasizing economic recovery after two consecutive months of decline and concerns over potential tax increases. Official data shows the economy shrank by 0.1% in May, following a 0.3% drop in April.

Starmer stated that supporting small and medium-sized businesses is crucial, as they employ 60% of the workforce and contribute £2.8tn in revenue.

“From tradespeople to independent professionals, too many are wasting time chasing payments instead of focusing on their work and expanding their businesses. This harms productivity and stifles growth. The message is clear: delays must end,” he said.

Reynolds is expected to confirm that legislation will set a maximum payment term of 60 days initially, later reducing to 45, ensuring timely transactions.

Last September, ministers committed to consulting businesses on addressing late payments, following unsuccessful attempts by previous governments to strengthen payment regulations.

The updated laws will require large companies to disclose their payment practices to subcontractors, while audit committees will oversee compliance. Firms that delay payments could face mandatory interest charges.

Small business minister Gareth Thomas said: “Many businesses struggle with cash flow when starting or expanding. These measures will provide crucial support.”

The reforms aim to hold corporations accountable and offer relief to smaller enterprises facing financial strain.