Commercial Payments Bill [HL]: Progress in the Lords

Approximate read time: 10 minutes

Contents

1. Key points

2. What would the bill do?

3. What happened at second reading?

4. Letters from the minister and report of the Lords Delegated Powers and Regulatory Reform Committee

5. What happened at committee stage?

The Commercial Payments Bill [HL] aims to tackle the issue of late payments to small businesses. This briefing provides a summary of the bill’s second reading and committee stage in the House of Lords ahead of its further consideration at report.

1. Key points

• Introduced under Sir Keir Starmer’s government, the Commercial Payments Bill [HL] includes provisions to tackle the issue of late payments to small and medium sized enterprises (SMEs).
• The House of Lords gave the bill an unopposed second reading on 9 June 2026. Many speakers during the debate emphasised that the bill had cross-party support, although there was discussion about a number of issues, including whether the proposed 60-day maximum payment limit was sufficiently ambitious.
• The House of Lords Delegated Powers and Regulatory Reform Committee said that the provisions to allow exemptions to maximum payment periods were inappropriately wide and should be removed. The government subsequently published a supplementary delegated powers memorandum which sought to justify the delegated powers contained in clauses 1 to 3.
• The House of Lords agreed 30 government amendments during the bill’s committee stage, which took place on 21 July 2026.
• In total 105 amendments were tabled at committee. Themes discussed included the impact of the proposed ban on retentions; the powers and resources of the small business commissioner (SBC); insolvency legislation; and decreasing the
  60-day payment period.

2. What would the bill do?

SMEs made up 99.9% of the 5.7 million private sector businesses in the UK at the start of 2025.1 In the same period SMEs accounted for 60% of employment and 51% of turnover. However, recent evidence given to the House of Commons Business and Trade Committee suggests that 44% of invoices from SMEs are paid late.2 Late payments are estimated to cost the UK economy £11bn per year, with 14,000 businesses closing each year due to late payments.3 The committee found the problem particularly pronounced in the construction sector and drew attention to the use of practices such as retention and uncapped liabilities in construction contracts.4

As introduced the Commercial Payments Bill [HL] included provisions which sought to:

• improve payment practice by imposing stricter maximum payment terms in contracts within scope
• prohibit the deduction and withholding of retention sums under a construction contract
• provide the SBC with stronger powers including the power to adjudicate contractual payment disputes; investigate persistent poor payment practices and take enforcement action; and impose financial penalties on businesses for breach of their statutory publication requirements

Most provisions in the bill would extend and apply to the whole of the UK. Late payments are a devolved matter for Scotland and Wales and a transferred matter in Northern Ireland. The government has said it would work closely with the devolved authorities to ensure regulatory alignment. The measures in the bill would apply only to UK-to-UK business transactions and would not affect global supply chains or international trade.

The bill was introduced in the House of Lords on 19 May 2026, following a commitment made in the 2026 King’s Speech to introduce legislation to tackle late payments to small businesses. The House of Lords Library published a briefing ahead of the bill’s second reading in June 2026:

• House of Lords Library, ‘Commercial Payments Bill [HL]: HL Bill 4 of 2026–27’, 4 June 2026

3. What happened at second reading?

The bill received its second reading in the House of Lords on 9 June 2026. Lord Leong, then a government whip, opened the debate on behalf of the government. Lord Leong became a parliamentary under secretary of state in the Department of Business and Trade (DBT) on 12 June 2026.5

Describing small businesses as the backbone of the economy he said that the bill built on the work of previous Conservative government reforms, Labour manifesto commitments and a public consultation launched in July 2025. It would, he said, ensure that when goods were supplied or services delivered, SMEs could be confident they would be paid “fairly and on time”.6 Lord Leong emphasised the “constructive engagement and support received from noble Lords across the House” for the bill, arguing:

The bill strikes the right balance between respecting commercial freedom and intervening where persistent unfairness harms businesses, jobs and economic growth. It is pro-enterprise, pro-growth and pro-fairness.7

Speaking for the Conservative Party, Shadow Minister for Business and Trade Lord Hunt of Wirral described the bill as “undoubtedly a step in the right direction” in supporting small businesses, and “founded on sound principles”.8 However, while confirming Conservative support for the bill, he raised some concerns about the potential impacts of the exemption on transactions between large businesses. He also queried whether the ban on retention payments in the bill would prevent construction defects from being rectified. While welcoming the increased remit for the SBC, he noted “the success of these reforms will depend ultimately on resources”.9

Speaking for the Liberal Democrats, Baroness Kramer welcomed many elements of the bill, particularly the intention to give the SBC “real enforcement powers”.10 However, she noted that this support “does not remove the need for scrutiny of its detail”. In particular, she raised the issue of the protection of small businesses who complained to the SBC, and also of the need for “a safe channel for whistleblowers” who highlighted poor payment practices.11 Among other speakers, she expressed concern about “whether the government have been sufficiently ambitious on payment timescales”, noting “there is significant support for a 45-day maximum payment period, and we will explore whether that should be the eventual goal”.12 Baroness Kramer also expressed caution about the use of delegated powers in the bill.13

In summary, issues raised during second reading included:

• the length of the payment period set at 60 days and whether this could be reduced
• the ban on retention payments and whether this would lead to defects in construction work being unrectified
• increasing resources for the SBC to match its increased role
• the scope of the bill—should it be expanded to include international trade
• how any adjudication scheme would work

4. Letters from the minister and report of the Lords Delegated Powers and Regulatory Reform Committee

Following second reading, on 24 June 2026 Lord Leong wrote to all members who spoke in the second reading debate.14 In his letter he sought to address some of the concerns raised during the debate. These included:

• Maximum payment terms of 60 days: Lord Leong described this as “a fair balance between helping businesses get paid in a timely manner whilst also recognising that in many sectors 30 or 45 days may have been a step too far at this stage”.
• Payment disputes and arbitration: Lord Leong confirmed that there would be no “arbitrary timeframe for disputes to be resolved”.
• SBC resourcing: Lord Leong said the SBC would be provided with additional resources to carry out its new functions. He noted that the bill would allow the SBC to determine any sums due to a small business, including any statutory interest and compensation, and also to give the commissioner the power to recover the costs arising from investigations.15
• Retentions in the construction industry: Lord Leong argued that retentions were “neither an effective means of preventing defects, nor remediating significant problems”. He also highlighted work to prevent circumvention of the use of retentions, with the bill currently including a clause to allow for the amendment of the definition of retentions through an affirmative statutory instrument “where there is evidence that the definition needs to be amended to prevent the ban being circumvented”.16

The House of Lords Delegated Powers and Regulatory Reform Committee published its report on the delegated powers in the bill on 19 June 2026.17 The report noted that there were 16 provisions in the bill concerning delegated powers. It drew the attention of the House to the provisions relating to clauses 1 to 3 which would provide the government with the power to make exemptions to requirements relating to maximum payment terms. The committee argued that the government had provided too little detail regarding how it would approach exemptions concluding:

[…] we recommend that the delegated powers in clauses 1 to 3 are inappropriately wide and should (in the absence of a convincing justification for their retention) be removed from the bill.18

The government published a supplementary delegated powers memorandum on 21 July 2026, the day of the bill’s committee stage.19 In addition to providing greater detail on the proposed government amendments to be discussed at committee, the memorandum sought to “substantially address” the concerns expressed by the Delegated Powers and Regulatory Reform Committee. For example, it highlighted concerns about the potential impacts of maximum payment terms on UK importers and exporters of goods, stating that the government would “ensure that any exemption of these contracts is evidence-based and goes no further than necessary”. In relation to the power to exempt collateral contracts from maximum payment terms, it argued that the bill:

[…] strikes the right balance between maintaining a robust statutory payment regime and allowing sufficient flexibility to provide for exceptional and legitimate circumstances that may change over time.20

5. What happened at committee stage?

The House of Lords considered amendments to the Commercial Payments Bill [HL] at committee stage, which took place on 21 July 2026. In total 105 amendments were tabled, including 11 amendments withdrawn by sponsors. A further 62 amendments were not moved by sponsors. The House was therefore not asked to agree to them, although the amendments may have been debated. Two amendments were withdrawn before debate.21

During committee stage 30 government amendments were agreed to without division. Amendments agreed to included:

• Changes to the Procurement Act 2023 which sought to bring it into line with the purposes of the bill and ensure implied payment terms would not exceed 30 days for public authorities or for public construction contracts. Amendments were also made to make provision for Northern Ireland.
• “Minor and technical” amendments which sought to ensure the provisions relating to the SBC would work as intended. Examples included clarifying which costs the SBC could recover in connection with its investigations and ensuring adjudication decisions could be enforced consistently across the UK’s three jurisdictions.
• A requirement for the secretary of state to consult the SBC and other persons as the secretary of state considered appropriate before making regulations about financial penalties which the SBC may impose in connection with investigations that the SBC may carry out under new powers in the bill.
• A regulation-making power for the chancellor of the Duchy of Lancaster (CDL) to make regulations consequential on the bill (in addition to the secretary of state). The government has said the amendment reflects the CDL’s responsibility for procurement policy.22

Other themes debated during committee included:

• retention payments, particularly related to the ability of registered providers of social housing to assure themselves of the quality of the social housing build they had contracted for and get any construction flaws rectified
• how the bill interacts with insolvency legislation and the special administration regime
• powers and resources of the SBC
• reducing the length of the maximum payment period from 60 to 30 days and longer-term aspirations to move towards a shorter payment period than 60 days over time
• definitions of different sized businesses and the economic impact of exempting upward payments (from micro and sole undertakings) to small businesses from provisions in the bill
• including international trade in the scope of the bill
• allowing small businesses to invoice at shorter intervals (receive stage payments) rather than relying solely on end-of-contract invoicing
• statutory interest on overdue payments and when this will apply, for example where payments were delayed by public holidays
• nationalised bodies and how the bill applies to them, for example whether they count as public authorities (with a 30-day payment period) or businesses (subject to a 60-day payment period)

Lord Hunt of Wirral tabled amendments probing how the small business scheme would be funded. He also sponsored an amendment from Liberal Democrat peer Lord Fox which would prevent the SBC’s new adjudication and investigation functions from being commenced until the government laid a funding plan before Parliament. If the minister did not commit to a funding plan, he said, “we will return to this matter on report”.23

Speaking for the Liberal Democrats, Lord Fox called for a progress report from Companies House “when we get back” to detail work being done to ensure consistency in the way in which the size of businesses are defined.24

Crossbench peer Lord Thomas of Cwmgiedd withdrew his amendments regarding international trade being included in the scope of the bill. However, he noted that he “might, if circumstances look providential, bring it back on report”.25 Lord Holmes of Richmond (Conservative) highlighted his intention to come back to how the bill’s provisions interacted with insolvency legislation and the special administration regime to ensure these provisions received “serious consideration to ensure that they are got right”.26 In addition, he said that the principles relating to the payment of statutory interest were “worth exploring between committee and report”.27

At the time of writing a number of amendments have been tabled by the shadow Department for Business, Innovation, Science and Trade ministers Lord Hunt of Wirral and Lord Sharpe of Epsom on topics including how the bill applies to nationalised bodies; the length of maximum payment terms; the scope and impact of excluding upward payments to small businesses, including those from micro and sole undertakings, from the bill’s provisions; the definition of small business; statutory interest payments; and the special administration regime.28 In addition, the shadow ministers have tabled a number of written questions on subjects raised during committee stage of the bill.29

For the Liberal Democrats, Lord Fox has tabled amendments on subjects including agreements relating to copyright and other intellectual property; funding for the SBC; proposals to reduce the length of the maximum payment period of 60 days to 45 days within five years of the bill coming into force; and payments collected by intermediaries.30

Image business photo created by freepik.

Footnotes

• 1 Department for Business and Trade, ‘Business population estimates for the UK and regions 2025: Statistical release’, 2 October 2025.
• 2 House of Commons Business and Trade Committee, ‘Small business strategy’, 11 February 2026, HC 1057 of session 2024–26, p 13.
• 3 Small Business Commissioner, ‘Late payments research’, 31 July 2025.
• 4 House of Commons Business and Trade Committee, ‘Small business strategy’, 11 February 2026, HC 1057 of session 2024–26, pp 15–16.
• 5 Following a government reorganisation of departments, Lord Leong was appointed as minister for small business and enterprise in the Department for Business, Innovation, Science and Trade on 22 July 2026.
• 6 HL Hansard, 9 June 2026, col 1243.
• 7 HL Hansard, 9 June 2026, col 1245.
• 8 HL Hansard, 9 June 2026, cols 1247–8.
• 9 HL Hansard, 9 June 2026, col 1247.
• 10 HL Hansard, 9 June 2026, col 1272.
• 11 HL Hansard, 9 June 2026, col 1273.
• 12 HL Hansard, 9 June 2026, col 1274.
• 13 HL Hansard, 9 June 2026, col 1274.
• 14 Department for Business and Trade, ‘Letter following second reading of the Commercial Payments Bill’, 24 June 2026.
• 15 A government amendment to clarify what costs the SBC could recover from investigations was passed at committee stage.
• 16 Department for Business and Trade, ‘Letter following second reading of the Commercial Payments Bill’, 24 June 2026. A statutory instrument laid under the affirmative procedure must be actively approved by both Houses of Parliament.
• 17 House of Lords Delegated Powers and Regulatory Reform Committee, ‘2nd report of session 2026–27’, 19 June 2026, HL Paper 18 of session 2026–27, pp 4–6.
• 18 As above, pp 5–6.
• 19 Department for Business and Trade, ‘Supplementary memorandum from the Department for Business and Trade for the Delegated Powers and Regulatory Reform Committee’, 21 July 2026.
• 20 As above, para 12.
• 21 Further details on the amendments tabled at committee stage can be found on the Commercial Payments Bill [HL] page on the UK Parliament website.
• 22 Department for Business and Trade, ‘Supplementary memorandum from the Department for Business and Trade for the Delegated Powers and Regulatory Reform Committee’, 21 July 2026, p 5.
• 23 HL Hansard, 21 July 2026, col 1107.
• 24 HL Hansard, 21 July 2026, col 1077.
• 25 HL Hansard, 21 July 2026, col 1084.
• 26 HL Hansard, 21 July 2026, col 1070.
• 27 HL Hansard, 21 July 2026, col 1086.
• 28 UK Parliament, ‘Commercial Payments Bill [HL]: Report stage—amendments’, accessed 25 August 2026.
• 29 For more information see the following House of Lords written questions: Business: Billing (HL2755), 4 August 2026; Small businesses (HL2760), 3 August 2026; Small businesses (HL2758), 3 August 2026; Business: Billing (HL2754), 3 August 2026; Business: Billing (HL2703), 3 August 2026; and Business: Billing (HL2757), 31 July 2026.
• 30 UK Parliament, ‘Commercial Payments Bill [HL]: Report stage—amendments’, accessed 25 August 2026.