The construction industry has emerged as the hardest-hit sector for insolvencies in the year leading up to April 2024. Recent data from the Insolvency Service found that 4,401 construction companies in England and Wales registered as insolvent. This accounts for a significant 18% of all business insolvencies during this period. This highlights the unique challenges the construction sector has faced.
Why the construction sector is worse hit for insolvencies?
Below we have listed just some of the factors that have contributed to the construction sector’s vulnerability to insolvencies.
Funding: Funding remains a critical issue, as interest rates have not decreased as swiftly as needed. According to Kelly Boorman, RSM UK’s national head of construction, tight funding and rising labour costs have significantly squeezed profit margins. As construction pipelines grow, companies struggle to manage the lack of access to working capital necessary for project delivery and mobilisation.
Uncertain political landscape: The political landscape adds to the uncertainty, exacerbating financial strain. Payment times are stretching across the supply chain. Furthermore, access to labour is expected to become more difficult in the summer months to further intensify the sector’s difficulties.
These factors collectively contribute to a higher insolvency rate and it is expected that insolvency rates could increase even more during the third quarter of 2024.
Which other sectors are significantly affected by insolvencies?
While the construction sector leads in insolvencies, other industries have also been significantly affected. The wholesale and retail sector saw 3,906 insolvencies, making it the second worst-hit industry. The accommodation and food service activities sector followed closely with 3,821 insolvencies. These numbers reflect broader economic challenges impacting multiple sectors.
How does the construction sector move forward?
Moving forward, the construction sector must navigate its financial challenges with strategic measures. According to Boorman, the next government should prioritise de-risking the supply chain, reducing payment terms, and providing clarity on infrastructure planning and spending. These steps would enable businesses to make more informed, long-term growth decisions when bidding for projects.
It is going to be difficult for construction businesses to ride this economically turbulent wave. During this period of difficulty it is vital that construction companies manage their balance sheets effectively and pay close attention to their cost management. The new Government may cause political certainty and result in improved economic conditions. However, contractors must continue to navigate the current landscape with careful financial management until any increase in demand materialises.
Conclusion
The construction sector’s high insolvency rate underscores the need for strategic interventions and support from both industry stakeholders and the Government. Addressing funding challenges, managing costs effectively, and ensuring a stable political and economic environment are crucial for the sector’s recovery and growth. As the industry moves forward, collaboration and informed decision-making will be key to overcoming the current challenges and achieving long-term stability.
How can we help?
At Hawsons we have a dedicated team of property and construction accountants at our offices in Sheffield, Doncaster, and Northampton.
Hawsons has a dedicated team of specialist property and construction accountants in Sheffield, Doncaster and Northampton.
We act for a large number of property and construction firms across all three of our offices, including:
- Investors
- Developers
- Construction firms
- Estate agents
- Surveyors
- Architects
Having an accountant who understands the challenges of this dynamic sector and is able to help you plan for the future is an advantage in a competitive environment. At Hawsons we have a great deal of experience in advising and helping businesses in property and construction and we can assist you as your business grows.
Our in-house tax team have advised in many aspects of taxation specific to the property investor including in the areas of VAT, Capital Allowances, Income, and Corporation Tax and Capital Taxes.
More from our tax experts
You can find all of our latest tax articles and tax resources here.
If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.
Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.
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