Tackle Late Payments Crisis
Liberal Democrat · what the evidence says
An independent, source-checked look at Liberal Democrat’s policy “Tackle Late Payments Crisis” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.
Prosperity & living standards — Helps
moderate · moderate confidence
Making the prompt payment code enforceable for large firms and government should reduce the £11bn annual drag on the UK economy from late payments, helping small businesses survive, invest, and grow. The main caveat is that enforcement mechanisms are untested at this scale, and some of the baseline problem already exists in a partially addressed form following recent procurement law changes.
The evidence
- The policy would require all government agencies, contractors, and companies with more than 250 employees to sign up to the prompt payment code and make it enforceable. — libdems.org.uk (manifesto) — “Require all government agencies and contractors and companies with more than 250 employees to sign up to the prompt payment code, making it enforceable.”
- Late payments cost the UK economy an estimated £11 billion per year. — cityam.com (media) — “Late payments are estimated to cost the UK economy almost £11 billion per year.”
- Approximately 14,000 businesses close each year as a direct result of late payments. — peoplematter.tv (media) — “Approximately 14,000 businesses close each year as a direct result of late payments, equivalent to 38 businesses every day.”
- Over 1.5 million businesses, or 28% of all UK businesses, are affected by late payments each year. — assets.publishing.service.gov.uk (government) — “Over 1.5 million businesses, or 28% of all UK businesses, are affected by late payments each year.”
- Businesses collectively are owed an estimated £26 billion in late payments at any given time. — assets.publishing.service.gov.uk (government) — “Businesses are collectively owed an estimated £26 billion in late payments at any given time, with an average of £17,000 per affected business.”
- An estimated 133 million hours of staff time are spent chasing late payments each year, representing a productivity loss. — londoneconomics.co.uk (media) — “An estimated 133 million hours of staff time are spent chasing late payments each year across the economy.”
- Late payments deny firms cash flow to invest in growth, innovation, and technology adoption, impacting overall productivity. — cityam.com (media) — “Late payments deny firms the necessary cash flow to invest in growth, innovation, and technology adoption, impacting overall productivity.”
- The previous Prompt Payment Code was criticised as toothless due to its voluntary nature and weak enforcement. — designingbuildings.co.uk (media) — “the FSB has consistently campaigned against late payments, characterizing the previous Prompt Payment Code as "toothless" due to its voluntary nature and weak enforcement.”
- The Procurement Act (2023), in force since February 2025, already legally mandates 30-day payment terms for public sector contracts with the requirement flowing to subcontractors. — constructionline.co.uk (media) — “the Procurement Act (2023), in force since February 2025, legally mandates 30-day payment terms for all public sector contracts, with this requirement flowing down the supply chain to subcontractors.”
- Making the code enforceable is expected to improve cash flow for SMEs, enabling better planning and investment. — procurementmag.com (media) — “The primary benefit will be a more reliable and timely cash flow for small and medium-sized suppliers, reducing their financial strain and enabling better planning and investment.”
- With more stable cash flow, SMEs are expected to invest in technology, expand operations, and create jobs, potentially boosting economic growth and productivity. — cityam.com (media) — “With more stable cash flow, SMEs will be better positioned to invest in technology, expand operations, and create jobs, potentially boosting economic growth and productivity.”
- Enforced payment limits are projected to prevent viable suppliers from failing due to liquidity strain caused by payment delays from larger buyers. — procurementmag.com (media) — “"enforced limits will prevent viable suppliers from failing due to liquidity strain," emphasizing how payment delays transfer liquidity pressure from large buyers to smaller, more vulnerable suppliers.”
Biggest unknown: Whether the enforcement regime will be robust enough to change behaviour in practice, given the previous code was widely criticised as toothless and the newest framework (Fair Payment Code) is only recently introduced.
Our reading: The evidence establishes a clear and substantial baseline problem: late payments impose an estimated £11bn annual cost on the UK economy, cause around 14,000 business closures per year, affect over 1.5 million businesses, and consume 133 million hours of staff time chasing debts. These are not trivial drags — they directly suppress SME investment, productivity, and firm survival, all core O13 indicators. The policy addresses this by mandating and enforcing prompt payment obligations on the largest firms and all government bodies, closing the voluntary loophole that made the previous code ineffective. The mechanism is credible: cash-flow certainty enables SME investment and reduces closures, which translates to productivity gains and improved economic opportunity at scale. Moody's Analytics supports the view that enforcement prevents viable supplier failures. The counterfactual matters: absent the policy, the voluntary code would continue to be widely ignored (as evidenced by the FSB's 'toothless' characterisation), and recent procurement law changes only cover public sector contracts, leaving the large private-sector prime-contractor relationship unaddressed. That said, the effect is partially moderated by existing reforms — the Procurement Act 2023 already covers public sector supply chains, so the marginal gain is primarily in the private sector. The main uncertainties are how rigorously the code will be enforced, whether large firms will find workarounds, and whether the policy references the now-superseded Prompt Payment Code rather than the newer Fair Payment Code. On balance, the evidence supports a moderate improvement in prosperity and living standards — particularly for the SME sector that drives much of UK firm formation and dynamism — within a parliamentary term as enforcement beds in.
Good work & fair pay — Helps
moderate · moderate confidence
Making the prompt payment code enforceable for large companies and government contractors should help small businesses get paid on time, reducing closures and freeing up cash to invest and hire. The main caveat is that enforcement mechanisms and compliance culture will determine whether the rules actually change behaviour.
The evidence
- The policy requires all government agencies, contractors, and companies with more than 250 employees to sign up to the prompt payment code and makes it enforceable. — libdems.org.uk (manifesto) — “Require all government agencies and contractors and companies with more than 250 employees to sign up to the prompt payment code, making it enforceable.”
- Late payments cost the UK economy an estimated £11 billion per year. — cityam.com (media) — “Late payments are estimated to cost the UK economy almost £11 billion per year.”
- Approximately 14,000 businesses close each year as a direct result of late payments. — peoplematter.tv (media) — “Approximately 14,000 businesses close each year as a direct result of late payments, equivalent to 38 businesses every day.”
- Over 1.5 million businesses — 28% of all UK businesses — are affected by late payments each year. — assets.publishing.service.gov.uk (government) — “Over 1.5 million businesses, or 28% of all UK businesses, are affected by late payments each year.”
- Businesses collectively are owed an estimated £26 billion in late payments at any given time. — assets.publishing.service.gov.uk (government) — “Businesses are collectively owed an estimated £26 billion in late payments at any given time, with an average of £17,000 per affected business.”
- The previous Prompt Payment Code was characterised as toothless due to its voluntary nature and weak enforcement. — designingbuildings.co.uk (media) — “characterizing the previous Prompt Payment Code as "toothless" due to its voluntary nature and weak enforcement.”
- Making the code enforceable is expected to improve cash flow for SMEs, reducing financial strain and enabling better planning and investment. — procurementmag.com (media) — “The primary benefit will be a more reliable and timely cash flow for small and medium-sized suppliers, reducing their financial strain and enabling better planning and investment.”
- With more stable cash flow, SMEs are expected to be better positioned to invest, expand, and create jobs. — cityam.com (media) — “With more stable cash flow, SMEs will be better positioned to invest in technology, expand operations, and create jobs, potentially boosting economic growth and productivity.”
- Enforced payment limits are expected to prevent viable suppliers from failing due to liquidity strain caused by delayed payments from larger buyers. — procurementmag.com (media) — “"enforced limits will prevent viable suppliers from failing due to liquidity strain," emphasizing how payment delays transfer liquidity pressure from large buyers to smaller, more vulnerable suppliers.”
- Questions have been raised about how firms most likely to default would be encouraged to comply with the code. — allianz-trade.com (media) — “They raised questions about how firms most likely to default would be encouraged to volunteer for the code.”
Biggest unknown: Whether enforcement powers will be robust enough in practice to change behaviour among large firms most likely to delay payment.
Our reading: The evidence baseline is stark: late payments affect over 1.5 million businesses, cost the economy £11 billion annually, and drive around 14,000 closures a year. The existing Prompt Payment Code was voluntary and widely described as toothless. This policy's core mechanism — mandatory sign-up and enforceability for large firms and government contractors — directly targets the structural asymmetry where large buyers use smaller suppliers as free credit. Projected benefits flow logically from the mechanism: more timely payment improves SME cash flow, which supports job retention and investment, directly improving job security and pay conditions for workers in those supply chains. The magnitude is moderate rather than major because the policy addresses a real and large problem but its effectiveness depends heavily on enforcement in practice — a genuine crux flagged even by analysts supportive of the intervention. Some larger firms may already comply under existing procurement rules (Procurement Act 2023 mandates 30-day terms for public contracts), meaning marginal gains are concentrated in the private contractor and large-company segments newly covered. Overall, the direction of effect on good work and fair pay is positive: SME survival and cash flow stability are preconditions for decent employment, and the evidence clearly ties late payments to business closures and suppressed investment. Confidence is moderate because projected benefits rest on enforcement being effective, which remains untested at this scale.