Two significant changes are bearing down on UK construction at the same time. The government has announced a ban on retention payments in construction contracts. And the Building Safety Levy goes live on 1 October 2026, charging developers on new residential projects submitted for building control approval from that date.
Neither of these is a distant proposal. Both require action now, not when the legislation lands. This article sets out what each change involves, who it affects, and what you should be doing about it today.
The Retention Ban
What has been announced
On 24 March 2026, the Department for Business and Trade announced its intention to ban the withholding of retention payments under construction contracts. The proposal forms part of the government’s wider late payment reform programme, described as the most significant overhaul of UK payment law in over 25 years.
Retention clauses are a fixture of standard construction contracts. Typically, an employer or main contractor withholds between 3% and 5% of each interim payment, releasing half at practical completion and the remainder at the end of the defects liability period. For subcontractors and smaller businesses, this can mean tens or hundreds of thousands of pounds sitting inaccessible for a year or more after practical completion.
The scale of the problem is well documented. Around £4.5 billion is tied up in retentions across UK construction at any point in time. Late Payment statistics show 44% of contractors have lost retention money due to upstream insolvency, and 70% have suffered late or non-payment of retentions. Late payments more broadly cost the UK economy an estimated £11 billion each year.
What the ban means in practice
The ban has not yet become law. Further technical consultation is planned, and implementation details are still to be confirmed. However, the direction of travel is clear: retention deductions will be prohibited under construction contracts, and standard form contracts such as JCT and NEC will need to be amended accordingly.
For developers and main contractors, the ban removes a familiar tool for managing performance risk during the defects liability period. For subcontractors and specialist contractors, it removes the risk of losing money to upstream insolvency. Industry bodies including the NFRC have welcomed the announcement, noting that 80% of their members reported retentions still affecting their business as recently as 2025.
The government expects the industry to replace cash retentions with alternative performance security. Performance bonds, retention bonds, defects bonds, project bank accounts, and parent company guarantees are all in the frame. The surety market is being asked to expand capacity to support this shift, and the International Underwriting Association’s surety committee has already signalled its readiness to do so.
The insurance angle
This is where the change becomes relevant to your insurance programme. Performance bonds are one of the most likely replacement mechanisms for cash retentions, particularly on larger contracts. A performance bond provides the employer with financial security if the contractor fails to complete the works or remedy defects, without requiring cash to be withheld from interim payments.
Retention bonds operate similarly, providing security for the defects liability period in place of withheld funds. Both instruments typically require the contractor or subcontractor to approach the surety market, and both carry a cost that will need to be factored into contract pricing.
For main contractors who have been using retention as a tool when dealing with their own supply chain, the shift also creates a new exposure: if performance or defects bonds are not in place and a subcontractor fails during the defects period, there is no cash holdback to draw on. Reviewing how your contracts are structured, and what security you hold against subcontractor performance, is a practical step to take now.
What you should do
The ban is not yet in force, but waiting for it to become law before preparing puts you behind. The practical steps are:
- Review your existing contracts to identify where retention clauses sit and what they are protecting
- Begin familiarising yourself with performance bonds and retention bond products
- If you are a subcontractor or specialist contractor, model the cash flow improvement the ban would bring and factor it into your forecasting
- If you are a main contractor or developer, consider what alternative security mechanisms you need in place before retention is removed
- Speak to your broker about performance bond cover and the options available now
The Building Safety Levy
What it is and when it starts
The Building Safety Levy is a charge on new residential development in England, introduced under the Building Safety Act 2022. The regulations have been approved by Parliament. The levy takes effect on 1 October 2026.
It is a tax on new residential buildings, paid by the developer. The money raised, expected to total £3.5 billion over ten years, will fund the remediation of building safety defects in existing residential buildings, protecting leaseholders from those costs.
The levy applies to most new residential developments of ten or more dwellings. Purpose-built student accommodation of 30 bedspaces or more is also in scope. Exemptions apply to social housing and several other categories. The rate is calculated per square metre of gross internal area, varies by local authority based on average house prices in the area, and is halved for development on previously developed brownfield land.
Who pays and when
The levy liability sits with the client, as defined under the Building Regulations 2010. This is the person or organisation for whom the construction project is carried out. The local authority issues a levy liability notice when the developer submits a commencement notice for building control approval. Payment must be made before the first completion or final certificate is issued.
The critical trigger is the date of the building control application, not the start of construction or the date of planning permission. Any application for building control approval submitted on or after 1 October 2026 is subject to the levy. Applications submitted before that date are not, even if construction continues well into 2027.
The practical deadline is earlier than it looks
Developers with projects ready to start should not assume that submitting a building control application in late September guarantees levy-free status. Applications are not considered submitted at the point of upload, but at the point of validation. Local authorities can reject incomplete or inconsistent applications, and the time taken for validation can run into weeks.
In London in particular, where submission volumes are high and local authority processing times can be extended, many developers are treating 31 August as the effective deadline to avoid the levy safely. Any programme delay or incomplete submission that pushes validation past 1 October triggers the levy.
For a residential scheme in a high-value area, the levy could represent a material cost. For a 50-unit scheme in London at the applicable rates, levy liability could reach six figures. For developers who have not priced this into their appraisals, the cost will either compress margin or need to be absorbed elsewhere.
Insurance and financial implications
The Building Safety Levy is a tax, not an insurable cost. It cannot be covered by a construction insurance policy. However, it has direct implications for project viability, which in turn affects the insurance decisions developers need to make.
Projects that are financially marginal before the levy may become more exposed once the cost is factored in. Developers should review their property developers insurance programme in light of any changes to project scope, value, or timeline that the levy decision prompts.
The levy also focuses attention on latent defects insurance, which provides long-term protection for owners and lenders against building safety failures. As the levy makes clear, the cost of remediating defective buildings falls on someone. Ensuring your own project is protected through structural warranty and latent defects cover is a practical response to a regulatory environment that is increasingly focused on where that liability sits.
How the Two Changes Interact
Both the retention ban and the Building Safety Levy land in the same period, and both increase the cost and complexity of doing business in construction. The retention ban removes a cash flow tool and pushes the industry toward performance bonds and surety products. The levy adds a direct cost to residential development that was not in previous project models.
Together, they reinforce the case for reviewing your insurance programme and your contract structures now, rather than responding to them when they are fully in force.
Two Changes, One Window to Prepare
The retention ban and the Building Safety Levy are both moving quickly. The levy has a fixed date. The retention ban is coming, with a consultation process that will determine the detail but not the direction.
For contractors, subcontractors, and developers, the window to prepare is now. That means reviewing contracts, modelling the financial impact of both changes, and ensuring your insurance programme reflects the risk profile you are moving toward. If you are unsure how either change affects your cover, speak to Construction Insure for a no-obligation review.
Frequently Asked Questions
When does the retention ban come into force?
The ban was announced on 24 March 2026 and further technical consultation is planned. Draft legislation has not yet been published. Industry feedback has called for a 12 to 24 month transition period. The ban is not yet law, but preparation now is advisable. Monitor announcements from the Department for Business and Trade for implementation timelines.
Does the Building Safety Levy apply to all residential developments?
No. It applies to developments of ten or more dwellings in England, and to purpose-built student accommodation of 30 or more bedspaces. Social housing, supported housing, care homes, and several other categories are exempt. The levy is halved for development on brownfield land.
Can the Building Safety Levy be insured against?
No. It is a tax and cannot be covered by a construction insurance policy. It needs to be factored into project appraisals and contract pricing as a direct cost.
What replaces retention once the ban is in force?
No mandatory replacement has been specified. Performance bonds, retention bonds, defects bonds, project bank accounts, and parent company guarantees are all being discussed as alternatives. The government is working with the Construction Leadership Council and the surety market on practical solutions.
If I submit my building control application before 1 October 2026, am I exempt?
Yes, provided the application is accepted as valid before that date. Applications that have been submitted but not yet validated by 1 October 2026 may still attract the levy if they do not pass validation in time. Submit early and ensure applications are complete.