Rising employment costs and labour shortages squeeze construction industry

In May 2025, the number of registered company insolvencies in England and Wales was 2,238, 8% higher than in April 2025 (2,053), and 15% higher than May 2024 (1,946). 

The construction industry experienced the highest number of insolvencies in the 12 months to April 2025 at 4,032, making up 17% of all industry cases. 

Commenting on the latest construction insolvency statistics, James Hawksworth, Restructuring Advisory Partner at RSM UK, said: “Amid rising employers’ National Insurance contributions, increases to the National Minimum Wage, tariffs uncertainty and subdued activity in April, it’s no surprise the construction industry continued to experience the highest number of insolvencies among all sectors in the economy. For some time now housebuilding in particular has been struggling with tight margins, inflated material and labour prices, heightened regulatory pressures and fixed-term contracts, which makes it even more difficult for them to absorb further labour costs. Tariffs uncertainty in April also dampened investor confidence amid concerns regarding the impact on supply chains.

“Despite the Spending Review announcing £39bn in affordable and social housing investment, plus £1.2bn per year in training and apprenticeships by 2029, the industry is still concerned about delivering housing targets and infrastructure projects given the shortage of skilled employees. It’s therefore unlikely businesses will feel the benefits of this extra investment for a long time. Additionally, housebuilders are still waiting on clarity regarding investment and incentives for private residential housebuilding, leaving them under pressure to deliver unattainable housing targets.

“In the short term, rising employment costs could really squeeze larger players, as with fewer subcontractors, they have less flexibility to grow their workforce to ensure delivery of projects and manage their cash flow. As such, we expect to see a knock-on impact for sub-contractors across the sector, which may unfortunately lead to more distress for some businesses stretched by tight margins and project delays. This is reflected in the number of HMRC and creditor-led winding up petitions, which remains high for the fourth consecutive month.” 

He added: “But, there is hope that the recent Infrastructure Strategy and announcement of the new National Housing Bank will demonstrate the government’s commitment to funding accelerating delivery of infrastructure and housing projects. The industry needs certainty and funding which sets out a clear investment pipeline and delivers on planning reform pledges enabling construction businesses to invest confidently in skills, materials and technology, to meet demand and unlock economic growth.”