Construction insolvencies surge to new record high due to escalating expenses
Follow the Bricks: Construction Insolvencies Reach Unprecedented Heights
The construction industry is currently grappling with a storm of issues, pushing insolvencies to record-breaking levels, as revealed in a thorough analysis by City AM. In the first four months of the year alone, a staggering 840 construction firms have crumbled, an uptick of over 5% compared to the previous year and nearly doubling the pre-pandemic norm.
The Insolvency Service's latest data paints a grim picture, with construction companies accounting for a whopping 19.5% of all UK company failures in February — a jump of roughly three percentage points compared to last year and the highest share in three years.
What's behind this industry-wide crisis? The rising tide of expenses, chiefly labor and materials, coupled with a dearth of skilled workers, are thought to be the main triggers for the cascade of collapses. Adding to the woes, soaring energy costs and an increase in employer taxes further tighten the screws. In response to the escalating instability, lenders have begun retreating from the scene, citing elevated risk levels.
"Construction firms are going under, not being salvaged, hence leading to mass layoffs," a senior insolvency consultant told City AM, hinting that personal guarantees by directors could ignite a wave of personal bankruptcies. The fall of larger players in the industry has sent shockwaves throughout the ranks, with many smaller subcontractors struggling to keep their heads above water due to dwindling cash flow.
The industry isn't the only one feeling the heat, with insolvency rates across all sectors in March climbing by over 9% compared to the previous year, according to Insolvency Service figures, with total compulsory liquidations for the first quarter skyrocketing nearly 15%. Still, the numbers remain below the peaks reached during the 2008-09 recession.
The challenges for the construction sector are far-reaching and interconnected, impacting the sector as well as the broader economy. From disrupting supply chains to increasing market consolidation and job losses, these insolvencies cast a long shadow. The sector's reliance on fixed-price contracts and cyclical demand adds to the woes, suggesting an uphill battle even with intervention measures in place.
Despite the gloomy outlook, government efforts are underway, such as the £150m loan facility jointly backed by Homes England and Octopus Real Estate, aimed at supporting SME builders while promoting green construction. Monitoring insolvency rates is also crucial, as the 12-month rolling liquidation rate, which reached 53.1 per 10,000 companies in March, underscores systemic risks in the industry.
The Nitty-Gritty:The construction sector's struggles are tied to multiple overlapping pressures, affecting the industry and the economy at large:
The Big Problems:- Bursting Budgets: Skyrocketing input costs (steel, timber, concrete) and energy prices are shrinking profit margins, exacerbated by labor shortages and wage growth.- Tough Regulations: Stricter building safety standards post-Grenfell and decarbonisation requirements (Future Homes Standard) have boosted compliance costs.- Time Wars: Supply chain bottlenecks and planning delays have extended project timelines, ramping up overheads.- Thin Wallets: Many SMEs operate with lean cash reserves, making them easily susceptible to contract defaults or delayed payments.
Sector-Specific Trends: Construction accounted for 17% of all UK insolvencies (4,046 cases) in the 12 months to March 2025, with 389 firms going under in April 2025 alone — the highest sectoral contribution. Scotland mirrored this trend, with company voluntary liquidations surpassing compulsory liquidations since 2020.
Economic Impact:- Supply chain disarray: Insolvencies among subcontractors and material suppliers create potentially fatal risks for surviving firms.- Market reshuffle: Smaller builders exit the scene, diminishing competition and potentially driving up consumer costs.- Labor woes: Each insolvency typically results in job losses, affecting local economies and skilled labor availability.
Helping Hands:- Government-backed financing: The loan facility launched by Homes England and Octopus Real Estate aims to support SME builders and champion green construction.- Insolvency rate tracking: The 12-month rolling liquidation rate reached 53.1 per 10,000 companies in March, highlighting industry-wide risks.
- The highest share of insolvencies in three years, as revealed in a thorough analysis by City AM, indicates that the construction sector is currently grappling with unprecedented levels of financial difficulties, primarily due to burgeoning expenses related to labor, materials, and energy, as well as increased employer taxes.
- In response to the escalating instability, lenders have begun retreating from the scene, citing elevated risk levels, which may further strain finance for construction firms, especially smaller subcontractors struggling with dwindling cash flow.
- The fall of larger players in the industry has sent shockwaves throughout the ranks, potentially leading to a wave of personal bankruptcies among directors who have given personal guarantees, as suggested by a senior insolvency consultant.
- The challenges for the construction sector extend beyond the industry itself, with implications for supply chains, market consolidation, and job losses, pointing towards an ongoing uphill battle even with intervention measures in place, such as the £150m loan facility jointly backed by Homes England and Octopus Real Estate, aimed at supporting SME builders while promoting green construction.
