Construction companies continue to top the insolvency tables month-on-month, but a new report by sector experts predicts a new spike prompted by imminent hikes in National Insurance (NI) and minimum wage costs.
Turner & Townsend’s (T&T) UK Market Intelligence report flags that unless contractors can pass on these higher labour costs in their tender prices, they can expect further erosion of their already low margins. Against a background of lower construction output resulting from poor weather and a fall in new work, the jump in NI contributions from 13.8 to 15 per cent in April, along with a slashed earnings trigger from £9,100 to £5,000 per employee, spell big trouble for the sector. All levels of minimum wage will also rise next month, with anyone aged 21 or older receiving at least £12.21 an hour.
Thin margins increase the risk of contractor insolvency, which in turn poses significant risks to project delivery and cost stability, says T&T. It forecasts annual property tender price inflation of 3.5 per cent from 2026 to 2028, up from 3 per cent this year. Infrastructure tender price inflation is predicted to remain at its current 5 per cent level until 2028. Labour shortages remain an important factor, with demand for skilled tradespeople often outstripping supply. Tariff wars inject a further element of uncertainty.
Construction was the worst-hit sector for insolvencies in the year to December 2024, with 4,032 building businesses hitting the wall. Despite easing slightly on 2023, the figures were a 25.3% increase on pre-pandemic 2019. The sector presently accounts for 17% of all insolvency cases in England and Wales. By comparison, they represent around 14% of all registered businesses.
It seems hard to reconcile the Government’s goal of building hundreds of thousands of new homes every year – in theory great news for several trades within the broader sector, including civil contractors, roofers and fit-out companies – with the inescapable fact that many businesses will need a cash injection to be able to undertake large projects. Cashflow problems already caused by late payment or bad debts are set to continue in the foreseeable future. The ongoing labour shortage could add more woe: while some redundant workers from failed companies might get snapped up quickly elsewhere, huge numbers have left the sector, either returning home to Europe or simply retiring. The skills gap in plumbing, bricklaying and other areas will need to be plugged by higher wages, further reducing margins.
Longer term, it is likely that the sector will need to consider a broader set of skills and disciplines, including digitally-enabled elements, that will form a more resilient construction workforce.
Interest rates cuts are unlikely to accelerate in the foreseeable future, with mortgage rates easing probably at an even slower rate. While underlying demand for housing is relatively stable, let’s not forget that many companies are still financially weak. Many will need to trade out of the red before taking full advantage of a better environment – when it appears. Credit insurers agree that delayed projects, a lack of skilled labour, or a squeeze in worker supply could be the last straw for many. The construction sector remains poorly placed to absorb losses.
Written by Oliver Southwell, Turnaround Executive at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.