Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome Colin Jack, director of the Department for the Economy's business and employment regulation division, and Michael Bradford, from the Department's employment relations, work-life balance and EU exit branch.

Mr Colin Jack (Department for the Economy): Thank you, Chair, for the opportunity to brief the Committee on the Commercial Payments Bill, which is currently being considered at Westminster, and on which we expect our Minister to bring forward a legislative consent motion (LCM) to the Assembly in the coming months.

Late payment adversely impacts on the cash flow of small businesses. It can hinder their capacity for innovation, training and investment, thus preventing growth and productivity and, ultimately, increasing the risk of closure. In addition, large amounts of staff time are spent chasing late payments, and, while that might be an administrative inconvenience for larger companies, it can be unsustainable for small businesses. That is particularly felt by small businesses that are made to wait for money for work that has already been done and resources that have already been spent, while having to allocate further resources to try to recoup what they are owed.

The Department for Business, Innovation, Science and Trade (DBIST) has identified that late payments cost the UK economy around £11 billion a year, with roughly 14,000 businesses closing each year as a result of late payments. Some 28% of businesses are affected by late payments each year, with 15% of those that have been surveyed noting that they have avoided doing business with specific customers based on their payment behaviour. There is a requirement under legislation dating from 2017 for large businesses to publish information about their payment performance.

Legislation to tackle the problem of late payments here was first introduced in the Late Payment of Commercial Debts (Interest) Act 1998. EU legislation on the issue came with a late payment directive in 2000, which was replaced in 2011 by directive 2011/7/EU. Late payment is now covered by a common framework among the four Administrations in England, Scotland, Wales and Northern Ireland, based on the principles of that directive, which was published on 19 March 2026 after agreement between Westminster and the devolved Governments. The common framework seeks to enable the functioning of the UK internal market and to maintain a level playing field across the existing body of late payment legislation, providing consistency and a uniform approach. The existing body of legislation enables businesses to levy interest on payments owed by public authorities after 30 days and by purchasers that are not public authorities after 60 days, as well as a fixed amount of compensation between £40 and £100, depending on the size of the debt.

Another organisation that works in this area is the Office of the Small Business Commissioner (OSBC), which was established under the Enterprise Act 2016 with a focus on the issue of late payments. The Small Business Commissioner launched the fair payment code on 3 December 2024 to replace the previous prompt payment code. Its primary aim is to promote prompt and fair payment practices across businesses of all sizes. The code introduces a tiered award system to recognise companies that meet specific payment standards. The launch of the code sought to promote improvements in payment culture, particularly for smaller suppliers, by incentivising faster payments and reducing disputes over invoices. However, the Westminster Government felt that it was important to go further and launched a consultation on 31 July 2025 on the prospective strengthening of legislation in this area.

They published their policy response on 24 March this year, setting out the intention to introduce new legislation to provide the Small Business Commissioner with additional powers to investigate larger businesses suspected of persistently engaging in poor payment practices; to adjudicate in contractual payment disputes between small and larger businesses outside of the court process and make binding interim decisions; to take enforcement action, including the ability to impose financial penalties against qualifying companies that fail to comply with their statutory reporting obligations on payment practices; and to potentially impose significant fines on large companies that persistently pay their suppliers late or fail to comply with late payment legislation. There is also an ability for the Small Business Commissioner to recover the costs of adjudications and investigations.

In addition, the Westminster Government and the Small Business Commissioner and, indeed, our Department intend to continue to drive cultural change and encourage best practice among businesses, as has already been seen through the uptake of the fair payment code. There are a number of wider late payment measures in the Westminster Bill that introduce a requirement for boards or audit committees of any persistently late paying large company to publish commentary on why their payment performance is poor and the actions that they are taking to correct it; impose maximum payment terms of 30 days for public authorities and 60 days for others, with strictly limited exemptions, to ensure that smaller businesses are paid promptly; introduce a statutory time limit for purchasers to raise disputes, with businesses that do not raise disputes within the time limit having to pay compensation to their supplier; and make the existing statutory right to late payment interest at 8% above the Bank of England base rate a mandatory contractual right that cannot be excluded or varied. The Bill will also implement measures that address retention payments under construction contracts, which, in effect, will introduce a phased ban on the practice of deducting and withholding retention payments under the terms of construction contracts. DBIST has also set out the intention to ensure that the Small Business Commissioner is resourced sufficiently to discharge its new powers in addition to being given the ability to recover the costs of adjudications and investigations.

The Commercial Payments Bill was introduced in the House of Lords on 19 May and is still going through that House. DBIST informed us of its devolution analysis that most of the planned clauses are on transferred matters and will require a legislative consent motion to ensure that businesses here are not left behind as the legislative enhancements are made. The measures about retention payments under construction contracts will not apply in Northern Ireland due to their complexity. The Department of Finance is considering the introduction of separate legislation for those measures. The legislation intended to be covered by the LCM is not regarded as being contentious. The improvements that it seeks to implement are supported by business. The Small Business Commissioner, DBIST and our Department organised an event at the beginning of this year to engage with business organisations. The proposals were supported at that event and in responses to the formal consultation.

The Commercial Payments Bill seeks to enhance and strengthen a framework of transparency, accountability and best practice, promoting good payment behaviour and championing small businesses in particular. Our Minister welcomes the measures that the Bill seeks to introduce to tackle late payments, improve payment practices and facilitate a more productive economy.

The Chairperson (Mr Brett): Thank you as always, Colin. So, the Minister supports this.

Mr Jack: Yes.

The Chairperson (Mr Brett): OK. When will she say publicly that she supports it?

Mr Jack: With the Department for Business, Innovation, Science and Trade and the Department of Finance, we are working through the technicalities of how the bits of the legislation that are within DOF's responsibility will apply. That will put us in a position to lay an LCM before the Assembly —

The Chairperson (Mr Brett): When?

Mr Jack: — subject to agreement by the Executive. That will be within the next couple of months.

The Chairperson (Mr Brett): OK.

Mr Nesbitt: Good morning. As I understand it, the delay in the LCM's being laid is down to the fact that the Department in London did not share the final draft of the Bill until the day on which it was introduced in the House of Lords. Is that correct?

Mr Michael Bradford (Department for the Economy): Near enough, yes.

Mr Nesbitt: What is your relationship with DBIST like? What is the information flow like?

Mr Jack: The relationship is generally fairly good. At official level, we share information about the policy area. The Administrations agree that legislation on late payments is a good idea, and there is an established relationship with the Small Business Commissioner. It is a problem area for businesses but is not one on which there is a lot of contention on policy or in the relationship between Departments.

Mr Nesbitt: Why was DBIST so late in providing you with the draft?

Mr Jack: We would need to ask it.

Mr Bradford: It provided us with drafts in the run-up to the Bill's introduction but was still making small amendments until the week before that. It tends to work at pace in a way in which we cannot, so it is content to operate that approach.

Mr Nesbitt: Cannot or do not?

Mr Bradford: Pardon me?

Mr Nesbitt: You cannot or you do not?

Mr Jack: Compared with us, DBIST has a lot of resources to devote to the issue, which forms a small part of the remit of a relatively small team in DFE.

Mr Nesbitt: How active is the Small Business Commissioner here?

Mr Jack: The Small Business Commissioner is reasonably active. In my time of having responsibility for the issue, there have been two commissioners. The current commissioner came over in January for the engagement event that was linked with the DBIST consultation. The previous Small Business Commissioner, who was originally from Northern Ireland, came over on a number of occasions and certainly engaged with us as officials.

Mr Nesbitt: Has the Committee ever had an evidence session with the commissioner?

The Chairperson (Mr Brett): I have never heard of him or her.

Mr Nesbitt: It might be worth inviting them.

Mr Jack: We can certainly pass on to the commissioner, Emma Jones, the Committee's interest in meeting her.

Mr Bradford: I believe that the commissioner would welcome a meeting with the Committee. Throughout the process, the idea of bringing awareness to the existence of the Small Business Commissioner and the support that it can offer to businesses has been highlighted.

Mr Honeyford: This is an area in which I have an interest. I had a private Member's Bill on it moving along, until the UK Government introduced legislation, which was a far better way for it to be done than by me introducing a Bill. I thank the Federation of Small Businesses and particularly Neil, who was there at the time, for its help and support. I also met the Minister to talk that through at the time. This is a key issue for business in Northern Ireland. Are normal procedures being followed?

Mr Jack: Yes. DBIST notified us of its intention to bring forward the Bill. We are working on the detail of the legislative consent motion. As Michael mentioned, however, DBIST has been moving at pace. There were some issues with identifying which of the responsibilities fall to the Department of Finance and those relate to construction. Ideally, that might have been identified earlier, and the Department would have been lined up to take that forward more quickly than it has been.

Mr Honeyford: Will those delays leave our businesses in a worse position competitively? A lot of the big construction companies here compete across GB: that is their main market, along with the South and parts of Europe. Are we leaving our businesses in a worse position than their UK competitors?

Mr Jack: No, we should not be. Particularly in terms of —.

Mr Honeyford: I know that we should not be; I am asking whether we are.

Mr Jack: The legislation will apply in the case of any business that they do in GB.

Mr Honeyford: Will it apply there even though the company may be in Belfast or Lisburn?

Mr Jack: Yes. It is the jurisdiction in which the contract is based that will determine the liability for payments.

Mr Honeyford: Is there anything else in the Bill that should not be applied in Northern Ireland?

Mr Jack: Not in our view.

Mr Honeyford: Are we missing anything that should be applied in Northern Ireland?

Mr Jack: No. As I mentioned, the ban on retention payments in construction will not apply in Northern Ireland as a result of the Bill, but the Department of Finance is considering the introduction of legislation in Northern Ireland to do that.

Mr Honeyford: I know that you cannot answer this: I could consider loads of things, but whether or not we do something is a different matter.

Mr Jack: The indication that we have from officials is that it is their intention to follow up on that.

Mr Honeyford: What I am getting at is that 95% of businesses in Northern Ireland are small businesses and microbusinesses, so the context is not the same as in the rest of the UK. Will this protect our small businesses in the same way as businesses in the rest of the UK are being protected?

Mr Jack: That is certainly the intention.

Mr Bradford: The intention of the LCM is to encompass Northern Ireland in those provisions.

Mr Honeyford: OK. No problem. Thank you.

Mr Delargy: I have a quick question on that, Colin. You mentioned the cost of any investigatory time being recouped. That is something that I am interested in — it is a big issue. An outlier in a lot of the things that we do is that the public end up paying for bad practice in governance a lot of the time.

Will you detail the threshold? I am asking out of interest and to get knowledge on it. What is the threshold that needs to be met? You mentioned that the costs could be recouped, but I would like to get to the point where they are recouped regardless of the cost. People are paying for bad business, bad decisions and bad management. I would like to know the threshold and how many businesses will meet that threshold in reality.

Mr Jack: My understanding is that it will give the Small Business Commissioner the power to recoup those costs. My expectation is that the commissioner will develop the detail once the Bill has gone through at Westminster. Of the thresholds that exist, there is a threshold for the existing requirement for businesses to publish information about their payment performance. That requirement is on what are defined as "large businesses", which are those businesses that have 250-plus staff or a turnover of at least £36 million. The legislation applies to all businesses, however.

Mr Delargy: I am trying to work out whether it will be applied to all businesses. Have you had any conversations about that? As David mentioned, 93% of our businesses are SMEs. You would not want a situation in which, in effect, that point is null and void for businesses in the North because it applies to so few.

Mr Jack: There is existing legislation in that area. Small businesses can already charge larger businesses that have not paid them interest at a rate of 8% above the Bank of England base rate. There is an argument that there is a chill factor when it comes to their being able to do that in practice because they are concerned about losing business. Part of the legislation is about strengthening their hand in those kinds of negotiations. For example, there will be a strengthening of the existing 30-day limit for public-sector organisations to pay and the 60-day time limit for private organisations to pay. At the moment, there are provisions to allow a company and its customer to agree longer payment terms where that is not grossly unfair to the smaller business. That provision is being adjusted in smaller businesses' favour. There is a feeling that the existing regime is not strong enough.

Mr Delargy: That is useful. Is there any more detail that you could get for us from the commissioner or anybody with whom you are working about how those thresholds will be applied? It is about the application of them, rather than the law. I just want to see whether they will make a difference. We do not want something on paper that is not going to have an impact in practice. As David said, if there is any sort of variance or difference for businesses in the North, we need to be aware of that now. It is about understanding that threshold and how practical it is going to be.

Mr Jack: We will certainly follow up on that issue. There will be further stages as the legislative consent memorandum is published and the motion goes through the Assembly, so we will make sure that we look into that issue in more detail.

Ms Forsythe: Thank you both for being here. It is critical that the Bill come forward at pace. It was maybe two years ago that the Public Accounts Committee had a procurement inquiry, which heard that one of the main barriers for small and medium businesses here was their being pushed out due to late payments during some projects.

I was not aware of the Office of the Small Business Commissioner. The Bill will give that office stronger powers. Its website states that it:

their legislation. Is it funded directly by the UK Government or through the Department for the Economy's block? If you are enhancing its powers, will there be an extra cost to the Northern Ireland block through the Department for the Economy, or will it —?

Mr Jack: No, it is funded by DBIST, but its remit includes Northern Ireland.

Ms Forsythe: OK. Thank you.

The Chairperson (Mr Brett): Colin, my final question is not relevant to this issue, but I will just ask you while you are here: how are you getting on with the drafting of the credit union Bill?

Mr Jack: The credit union Bill is drafted, and the Minister hopes to bring it to the Executive shortly.

The Chairperson (Mr Brett): OK. I know that, from a Committee perspective, we are very keen to see that and do everything that we can to expedite its processes. Well done on getting it drafted.

Thank you very much. Michael, thank you as well, sir. We appreciate it.

Mr Jack: Thank you.