No, they can’t. Some funeral directors choose to hold ashes until the family pay the bill, but they are not allowed to it is the applicant’s right under Section 7 of the Cremation Act 1902 and Statutory Rules and Orders, 1903, No 286. Cremation England & Wales.
It must be noted that this is NOT standard practice for the vast majority of funeral directors. However funeral directors are often small independent business’ and when bills arent paid it can have a crippling impact. And non payment does happen, funeral costs are substantial and families will often wish to show respect by arranging a fitting send-off sometimes without knowledge that it is beyond their means or what the estate can afford. Also, it can be the case that, as many funeral arrangements are made somewhat in haste, before agreement has been reached in the family who is paying for what – and subsequent disagreements can leave the funeral director out of pocket. So some choose to hold to that ashes by way of an insurance, they can’t and they shouldn’t but you can see why they might consider it.