Debt recovery and tax hunts by the UK Government could add to the growing number of construction firms in critical distress, experts have warned.
In the last year, 7,361 construction companies in the UK were identified as being in ‘critical’ distress – a more than 70 per cent rise on the previous year.
Meanwhile, firms experiencing ‘significant’ distress increased year-on-year to 103,551, up 14.6 per cent in Q3 of this year, rising 1.2 per cent since the last quarter.
Perhaps unsurprisingly, most businesses in ‘significant’ distress were specialist firms – smaller sub-contractors and SMEs – whose numbers rose 23.5 per cent in Q3 to 6,799:
- Development of building projects (+23.17 per cent in Q3 – 15,258)
- Plumbing, heat and air-conditioning (+17 per cent in Q3 – 6,971)
- Electrical installation (+16.1 per cent in Q3 – 7,247)
- Domestic buildings (+9.9 per cent in Q3 – 11,742)
In the 12 months to August 2025, 3,934 construction firms in England and Wales became insolvent – the highest of any sector in the UK – with 290 collapses in August alone.
Out of the 290 construction insolvencies recorded that month, 178 were companies engaged in ‘specialised activities’.
The trend of sub-contractor firms outpacing the number of larger contractors disappearing from the landscape is consistent with previous findings by the Insolvency Service, as construction firms in the UK continue to fail at the highest rate in a decade.
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Certain factors contributing to the statistics coming from the construction sector include:
- Rising National Insurance payments
- Higher National Minimum Wage
- Higher material and labour costs
- Tight margins in housebuilding
- Regulatory pressures
- Fixed-term contracts
- Subdued activity
- Project delays
- Cashflow
Despite signs of improvement in Q1 this year, the health of the British economy had fallen in Q2.
However, August 2025 was the lowest monthly total for construction insolvencies since July 2023, and an 8.7 per cent decrease from the 4,310 recorded in the previous 12-month period.
Unpaid taxes
“The other side of government action affecting business is its drive to recover unpaid taxes,” said Julie Palmer, managing partner at insolvency expert Begbies Traynor, which compiled the data.
“It seems to have taken the view that for too long HMRC has been the lender of choice for some, and whilst its strategy of chasing unpaid business taxes will see it recover debt, it may also put down many businesses with excess debt in the process.”
Palmer added: “As the number of businesses in critical distress continues to soar and unemployment figures look to be on the rise, boardrooms across the UK need this [Autumn Budget] to release pressure and uncertainty from their financial outlook.
“Whilst there are some larger players continuing to grow, many in the SME space are close to the wire and will have to seek restructure, refinance or an exit.
“The next month is crucial for the UK economy and construction industry.”
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