Construction tops insolvency table with 4,371 collapses last year

The construction industry saw more companies go bust than any other sector last year, with a record 4,371 building firms collapsing in England and Wales.

New data published by the Insolvency Service shows that construction accounted for almost one in five business failures where a firm’s sector was known.

Construction was the only industry to suffer more than 4,000 insolvencies, putting it ahead of retail, hotel and food, administration and science.

The latest data also showed that the final three months of last year represented the 12th successive quarter when construction had the most insolvencies.

At 4,371, the building sector had its highest annual number of company collapses since 2009 and the global financial crisis.

In addition, October to December last year represented construction’s worst quarter in the current 10-year data series, with 1,154 insolvencies occurring in the sector.

Kelly Boorman, national head of construction at auditor RSM UK, said the grim data “reflects the acute pressure for businesses amid a year of major slowdown in the pipeline of work due to supply-chain disruption, surging material prices and labour shortages”.

She added: “Moving into 2024, there is some reason for cautious optimism, as interest rates stabilise and inflation continues to fall, meaning businesses will start to see funding becoming more readily available later in the year.”

But she cautioned: “Despite more favourable economic conditions, the industry needs to start making acquisitions to build back its supply chain, which in turn will impact the speed at which projects are mobilised.

“However, the retention-reporting rules coming in from April 2024 for contractors bidding on government contracts may help to improve cashflow and strengthen the supply chain, reducing the number of insolvencies.”

She urged firms to be selective in their bidding and use technology and data to keep projects efficient.

Across all industries, insolvency volumes were at a 30-year high in 2023, but the number of overall registered companies also increased, meaning the rate per 10,000 active businesses was lower than during the 2008/09 recession.

Mark Ford, a partner in restructuring and recovery services at Evelyn Partners, said: “The cost increases, supply-chain friction and volatile trading conditions experienced in the aftermath of the pandemic might have eased somewhat but a harsh and uncertain macroeconomic environment continues to make life difficult for businesses of all shapes and sizes.

“Even though interest rates are now widely expected to have peaked, the effects of higher borrowing costs are still feeding through the business cycle, and firms will still be adjusting to the impact of debt-servicing expenses that soared last year.

“Meanwhile, inflation might have moderated but many costs are still rising, particularly wage bills, which many firms are struggling with as earnings growth has gathered pace.”

A meeting of the Construction Leadership Council recently heard that continued use of retentions in the industry was contributing to company failures.

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