The government has announced new power to tackle late payments to small businesses in what it says is the “largest set of reforms in over a generation”.

The Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws.

The measures will tackle a problem costing the UK economy £11bn every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it.  Measures will also prevent the abuse of retention payments in construction

These measures build on and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, more than 25 years ago.

The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.  

Government also proposes to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.

Business secretary, Peter Kyle, said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.

“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”

The consultation response and supporting impact assessment can be found here.