Government warned of ‘perfect storm’ awaiting SMEs after October

Government warned of ‘perfect storm’ awaiting SMEs after October

Rudi Klein

The Specialist Engineering Contractors’ Group has written to the secretary of state for BEIS Andrea Leadsom MP and new UK construction minister Nadhim Zahawi MP to prioritise action on fair payment for construction SMEs.

As an industry body that has campaigned for many years on fair payment, SEC Group said it intends to fully engage with the new BEIS team to ensure continuity in taking forward measures to improve payment security in the construction industry and eradicate poor payment practices.

Last year there were more than 3000 insolvencies in the construction industry, more than for any other sector of the UK economy. SEC Group believes that this figure is likely to be exceeded this year given the continuance of widespread payment abuse, the introduction of the VAT reverse charge on 1 October (which will reduce cashflow to SMEs) and the likelihood of increased material costs after Brexit.

The trade body’s position is that the government only needs to introduce legislation to mandate the use of project bank accounts and to protect cash retentions; this will make a significant difference to the prospects for the majority of construction SMEs.

Both Kelly Tolhurst, who was re-appointed as small business minister, and former construction minister Andrew Stephenson were very keen to resolve the impasse on retentions.

During the course of a debate in the Commons on 19 June 2019, Ms Tolhurst said: “With regard to cash retentions, I have been clear that if industry cannot come to a consensus on a way forward, the Government will step in and take action.”

SEC Group is concerned that in the wake of the Carillion collapse 20 months ago the expected progress in improving cashflow security for firms in construction supply chains has not materialised.

Rudi Klein, SEC Group’s CEO, added: “A ‘perfect storm’ awaits construction SMEs after Brexit – late or non-payment, reverse charge VAT and hikes in materials costs. We intend to seek meetings with Nadhim Zahawi and Andrea Leadsom as soon as possible to discuss BEIS priorities for payment reform.

“The re-appointment of Kelly Tolhurst will help ensure continuity in a very critical area of policy as far as construction is concerned. Our priorities now are to reinforce the case for legislation that ring-fences retention monies and mandates the use of project bank accounts for building works over £500,000.”

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