UK construction industry struggles as insolvencies rise
By Mike Hayes25 August 2023
Approximately 4,280 construction UK construction businesses became insolvent in the 12 months leading up to June this year, according to data from the government’s Insolvency Service.
According to a report from the Financial Times, this marks a 16.5% increase compared with the same period a year earlier.
The recent collapse of Buckingham Group – a major contractor involved in high-profile projects such as the new HS2 railway line and the Liverpool Football Club’s Anfield stadium – has added to the growing list of casualties.
With a workforce of 660 employees, Buckingham Group attributed its downfall to a series of unexpected impacts, chief among them being “extreme inflation”.
The rising costs of materials, compounded by planning delays and shortages in skilled labour, have compounded contractors’ financial woes, as highlighted by Professor Noble Francis, the economics director at the Construction Products Association.
Capital projects in jeopardy
The UK government has itself been forced to delay several large-scale road and rail initiatives due to the escalating costs.
Phase 2a of the high-speed railway line HS2, connecting Birmingham and Crewe, has been pushed back by two years due to “significant inflationary pressure and increased project costs”.
Work on the HS2 terminal at London’s Euston station has been halted, while several road projects, including the €10.5 billion Lower Thames Crossing, have experienced significant delays.
Meanwhile, many housebuilders have announced a reduction in new construction projects. Crest Nicholson, a prominent player in the housing sector, issued a profit warning as rising interest rates curbed buyers’ enthusiasm.
Small businesses hit hardest
The recorded number of failures within the construction industry during the 12-month period up to June is the highest since 2012, when construction insolvencies peaked following the aftermath of the global financial crisis.
Smaller, specialised subcontractors have borne the brunt of the impact, making up around 60% of the total insolvencies.
However, main building contractors have also been severely affected, unable to offload their challenges onto others within the supply chain, according to Professor Francis.
While certain construction material prices have slightly receded from the peaks reached after geopolitical events like Russia’s invasion of Ukraine, they still remain substantially elevated.
Data from the Office for National Statistics indicates that construction materials prices are 42.7% higher than in January 2020.
Some material prices continue to surge at double-digit rates; ready-mixed concrete prices rose by 19% in the year leading to June, while bitumen and precast concrete prices rose by 12%.
As the construction industry grapples with a convergence of adverse factors, stakeholders are calling for comprehensive measures to stabilise the sector and avoid further economic repercussions.