Debbie Abrahams, Labour MP for Oldham East and Saddleworth, had tabled a new clause to the Procurement Bill that aimed to enforce the use of PBAs to protect subcontractors’ payments in construction contracts.

In support of her Clause 12 amendment during the reading of the Bill in the House of Commons, she argued using project bank accounts would establish a fair playing field for small businesses and prevent insolvencies.

Abrahams MP said: “Small businesses are the backbone of the economy. In difficult economic times like these it is more important than ever that they are supported, and abusive payment practice is stamped out.

“It is estimated that 6000 small construction firms will become insolvent this year, driven largely by unprecedented cost pressures but made unmanageable by large companies exploiting their power and using a myriad of poor payment practices.”

But the Government rejected the amendment on the grounds that the use of PBAs was already being encouraged through its main spending departments and that use on small contracts would not always be cost-efficient.

Cabinet Office minister Alex Burghart said: “Project bank accounts are most often an effective way to ensure fair payment and to protect suppliers, and they are already the Government’s preferred vehicle for construction contracts where it is cost-effective and cost-efficient.

“Government Departments have made a commitment to use PBAs in construction projects unless there are compelling reasons not to do so.

“However, it is not the Government’s position that PBAs should be mandated across all contracting authorities, as they are not always suitable or cost-effective, particularly where the subcontractor is very small or is paid more frequently than monthly, or where the supply chain is short.

“Instead, we intend to continue educating contracting authorities, through guidance, on the circumstances in which we believe PBAs are practical and effective.”