Insolvencies to remain high as sector awaits action, experts warn

Construction insolvencies are expected to remain high until the impact of the new government’s plans for homes and infrastructure is felt, commentators have said.

New figures released today (19 July) show that construction remained the worst-hit sector for insolvencies in the year to May 2024, as in April.

This was despite a month-on-month decline in sector companies going under, from 401 in April to 354 in May, according to the Insolvency Service.

Mark Supperstone, managing partner at financial advisors ReSolve, said: “While the level of construction insolvencies has eased off with an 11.7 per cent decrease in May 2024 compared to April 2024, the construction sector remains an area of concern.”

He said this week’s King’s Speech set out helpful policies including the Labour government’s plan to deliver 1.5 million new homes, adding that this would bring in “much needed revenue” in time.

“However, the timeline for the commencement of this project remains unclear. As such, the sector will likely remain under pressure for a little while longer. This will continue to reflect itself in the insolvency statistics over the following months,” Supperstone added.

A total of 4,287 insolvencies were recorded in the sector in the 12 months to May.

The next worst-hit industry was wholesale and retail, with 3,811 cases.

Kelly Boorman, head of construction at accountants RSM UK, said: “Funding is still tight for construction businesses, with added cost pressures due to geopolitical uncertainty in the run-up to the general election.

“Although inflation is showing signs of easing, businesses are still facing additional financial challenges including high interest rates, payment terms stretching the supply chain, as well as accumulated debt and falling cashflows from legacy contracts.”

Boorman called on the government to reform payment terms and access to funding, especially for smaller and newer businesses.

“This would help to create fairer trading environments, with access to funding enabling innovation and efficiency, ensuring the government delivers on its plans to accelerate housebuilding with 1.5 million new homes over the next five years,” she said.

Aecom managing director for building and places Jo Streeten said insolvencies were likely to remain high in the second half of the year as interest rates remained high.

“Despite this, sector confidence will be buoyed following the general election result and the stability a parliamentary majority provides for the nation’s future direction – particularly when it comes to infrastructure investment,” she said.

“However, change won’t be delivered overnight, and contractors will need to remain alive to volatile market conditions and continue to cost-manage effectively.”

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