The government has unveiled its Small Business Plan - featuring a new crackdown on late payment, more support and funding for start-ups and growth firms and a promise to cut admin costs for SMEs by 25%.
The Labour government has unveiled its long-awaited Small Business Plan, including what it describes as the “toughest crackdown on late payments in a generation”.
Late payment costs the UK economy £11bn a year and shuts down 38 businesses every day. The new laws are set to give stronger powers to the Small Business Commissioner, including the right to fine the biggest firms who persistently pay their suppliers late - potentially worth millions.
The Small Business Commissioner will also be able to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes.
Tackling long payment terms
The upcoming legislation will introduce maximum payment terms of 60 days, reducing to 45 days, as well as mandatory interest on overdue invoices. Audit committees, under the proposals, will be legally required to scrutinise payment practices at board level, putting pressure on large firms to show they’re treating small suppliers fairly.
"From builders and electricians to freelance designers and manufacturers - too many hard-working people are being forced to spend precious hours chasing payments instead of doing what they do best - growing their businesses. It’s unfair, it’s exhausting and it’s holding Britain back. So, our message is clear: it’s time to pay up." Prime Minister Keir Starmer.
Widespread approval for the Small Business Plan
The focus on tackling late payment has been welcomed by business groups. Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), said: “I’m pleased that FSB and the government have been able to work in lockstep on the bold and ambitious measures needed to tackle the scourge of late payment through legislation, and other pro-growth, pro-small business measures. [This] plan is an encouraging commitment from the government to take the side of small businesses in the great growth challenge ahead.”
IPSE, the UK’s self-employed trade body, has described government proposals to legally cap payment terms to small businesses as a “landmark moment”.
"We’ve long called for a legal payment deadline, so this is a landmark moment that could help level the playing field for freelancers,” said Vicks Rodwell, IPSE managing director. “Late payments can force freelancers out of business, but obscenely long payment terms for work can put just as much of a strain on the self-employed. It’s not right that freelancers can fall behind on their own bills - or even into debt - while their clients sit on money for months at a time. By clamping down on late invoices and limiting long payment terms, the government can tear down one of the biggest barriers to growth for freelancers and sole traders."
Roan Lavery, ceo of accounting software supplier FreeAgent, said: "These proposals are great news for small business owners across the UK who are plagued by late payment issues. Our most recent research shows nearly one in five (18%) business owners have felt their business was at risk because of late or non-payment, and more than one in ten (13%) have taken legal action to recover what they’re owed. We’ve also found that 42% of small business owners have suffered burnout and late payment issues are likely to have played a significant role in this."
However, Lavery added: "It is a little disappointing to see that there are currently no plans to make the Fair Payment Code mandatory for all businesses, which could have been a real game-changer in the fight against late payment."
Supporting start-ups and growing businesses
Other key measures announced in the Small Business Plan are:
- £4bn of additional financial support for small businesses aimed at boosting growth and supporting start-ups.
- Mentoring support for would-be entrepreneurs and 69,000 new Start-Up Loans.
- A £3 billion boost to the British Business Bank to help lenders offer more small business loans at better terms through ENABLE, the government-backed guarantee scheme.
- Cuts to planning and licensing red tape to boost the hospitality and arts sector and fill vacant high street premises.
- A revamped Board of Trade to get more small firms exporting.
- A new online Business Growth Service to give SMEs easy access to business support.
- Plans to introduce permanently lower business rates multipliers for the retail, hospitality and leisure sector.
"I hear all too often about businesses who just don’t have the cash needed to start up or grow. Today, we’ve announced measures as part of our Plan for Change to tackle all of those issues and beyond. This is the government listening to businesses, working with them, and delivering real change." Small business minister Gareth Thomas.
Michelle Ovens, founder of Small Business Britain, said: "I am thrilled to see the Small Business Plan launched today, putting the nation’s smallest businesses at the heart of government strategy where it should be. These job creators and economy builders will benefit from a huge boost to funding through the British Business Bank, a boost to skills, support for high streets and a long hoped-for legislative backing for getting paid on time."
However, a new survey of SME finance brokers by small business lender Iwoca suggests that the Labour government may still have a mountain to climb when it comes to winning over small business owners. The key findings of its Q2 2025 SME Expert Index show that:
- 70% of SME finance experts say the Labour government has negatively impacted small businesses.
- 52% say rising running costs remain small business owners' biggest concern.
- 78% predict inflation will be 3% or higher by year-end, missing the Bank of England's 2% target.
Written by Rachel Miller.