Construction Companies Insolvency Rate Soars

UK construction companies are going bankrupt at the highest rate in a decade as inflation, a drop in housebuilding and delays to major government infrastructure projects bite.

Data released from the government’s Insolvency Service, analysed by the Financial Times, shows that 4,280 operators entered insolvency in the year to June, a 16.5 per cent jump on the 12 months prior.

Rampant inflation has plagued the industry, bumping up the cost of materials, energy and labour.

According to the ONS, the price of construction materials is currently 42.7 per cent higher than pre-pandemic levels.

The findings follow last weeks’ news that Buckingham Group – a company involved in infrastructure projects at Anfield and on HS2 – had stopped trading, citing “extreme inflation linked to the Ukraine conflict”.

Rebecca Larkin, head of construction research at the Construction Products Association (CPA) said construction firms had experienced

“double-digit price inflation for their own inputs of fuel energy and materials, as well as flatlining economic growth”.

Larkin said that higher interest rates were

“affecting clients willingness to proceed with projects”, with labour shortages piling on problems when they do finally get underway.

FT analysis of Insolvency Service data showed the worst hit companies over the last year were smaller, specialist subcontractors, which accounted for 60 per cent of the insolvencies in question.

However, Larkin noted that in recent months, the

“increase in insolvencies has been strongest among larger firms”, which she said reflected “the inevitable knock-on effects of firms going bust further down the supply chain”.

Alongside cost inflation, a slowdown in the housebuilding sector linked to inflation has also hit operators’ bottom lines.

Persimmon said it was slashing the number of homes it was building by nearly a third earlier in the month amid high inflation, while Crest Nicholson last week lowered its profit forecast for the year by over £20m.

A spokesperson from the National Builders Federation (NBF) argued that government regulation in housebuilding had contributed to the damage caused by inflation, leaving much of the industry “treading water at best”.

The NBF noted that 13 new taxes and regulatory costs had been announced or implemented in the last three years in housebuilding, with some “adding thirty per cent to build costs”.

A number of major infrastructure developments on rail and road have also been delayed by government in the last year, most notably HS2’s Euston terminus.

A July report from the government’s Public Accounts Committee (PAC) inquiry noted 30 to 40 per cent swings in raw material costs in its assessment of the much-scrutinised project.

A government spokesperson said:

“We understand the increased financial pressures on the construction sector, and we’re working hard with industry to help manage these costs by collaborating with the Construction Leadership Council to provide advice and guidance.”

“We are also backing small and medium enterprises in the sector with £1.5 billion through our Levelling Up Home Building Fund, and we have also introduced legislation to reduce delays and costs for housebuilders.”

Source City AM