Labour unveils crackdown on late payments to protect small businesses and boost economy

Labour has signalled a robust approach to late payment practices, with new government measures set to impose severe penalties on firms delaying payments to suppliers. Jonathan Reynolds, the business secretary, revealed the scale of the problem, with late payments costing the UK economy an estimated £11bn annually and contributing to the closure of up to 38 businesses a day.

Speaking ahead of new legislation, Reynolds outlined plans that will see the small business commissioner granted new enforcement powers. These will include the ability to issue spot checks, verify claims, and hand out fines potentially worth millions. The strengthened watchdog will also enforce strict deadlines for businesses to resolve disputed payments, aiming to restore confidence among tradespeople, shopkeepers, startups, and family-run firms who have long struggled with cash flow issues.

The upcoming legislation will introduce maximum payment terms of 60 days at the outset. Businesses will then see standard payment terms further tightened to 45 days after an introductory period. This structured transition aims to give small businesses certainty regarding payment while holding large companies to account. The commissioner’s oversight will be backed by mandatory interest charges for late payments, increasing the cost for persistent offenders.

Transparency will become a key element under new rules, with large firms required to make their payment practices more visible and subject to scrutiny at board level. Audit committees will now examine supplier payment processes, increasing pressure to treat small businesses fairly within supply chains.

The government’s new package also places a focus on small business growth more broadly. In parallel with the crackdown on late payments, startup loans totalling £4bn will be made available to 69,000 fledgling companies. Government figures indicate that small and medium-sized firms remain a cornerstone of the UK economy, employing 60% of the workforce and accounting for £2.8tn in turnover. Keir Starmer, Labour leader, affirmed the centrality of this support, arguing that reliable payments are crucial for driving growth and supporting Britain’s entrepreneurial spirit.

As economic pressures persist, including consecutive months of contraction, ministers are keen to position these reforms as both practical and ambitious steps to energise the business sector. The move signals a shift in business culture, aiming to end the exhausting cycle of chasing unpaid invoices and to establish fairer terms for all engaged in the UK’s supply chains.