Prime minister sets out a range of options for consultation to tackle the problem of late payment

The government will consider introducing stronger penalties for main contractors who do not pay their subcontractors on time, the prime minister said this week.

The proposal will be included in a consultation on strengthening prompt payment laws later this year.

Other options which will be put forward in the consultation include strengthening the government’s Prompt Payment Code; increasing transparency of firm’s payment practices; and encouraging greater oversight of payment at senior management level.

Major construction firms signed-up to the government’s Prompt Payment Code include Balfour Beatty, Carillion, Costain, Galliford Try, Interserve and Kier.

The consultation will also propose making improvements to enforcement of current legislation banning “grossly unfair” payment terms.

This could prove problematic for Carillion, which has extended its payment terms to 120 days as part of its controversial supply-chain finance scheme, which allows subcontractors to get paid early for a fee.

David Cameron said he was “determined to make Britain the best place to start, grow and do business” and that meant tackling late payment.

He added: “It’s not right that suppliers are not getting paid on time for the work they do and the services they provide and I know that late payment can have devastating effects on our small and medium sized businesses.

John Allan, national chair of the Federation of Small Businesses, welcomed the attempt to tackle late payment and said it was an “increasing issue” for his members. “Being paid late or given extended terms can severely hamper many small firms. They simply don’t have the same cash-flow buffer as large businesses,” he said.

Labour MP and campaigner against late payment Debbie Abrahams, said the announcement was a “response to the pressure” campaigners had put the government under.

But Abrahams, who chaired a cross-party enquiry into late payment that recommended legislation to tackle the issue, said she remained concerned about the proliferation of supply chain finance schemes in the construction industry.

Last month Kier and Balfour Beatty (see below) both launched supply-chain finance schemes, following the wake of Carillion’s scheme.

Abrahams said the schemes were “the start of a slippery slope”.