Alejandro Gonzalez
5 min read
The UK construction sector is facing a perfect financial storm. In March 2025, more construction firms collapsed than in any other month since July last year. A total of 377 construction businesses became insolvent, according to the Insolvency Service, up from 368 in February.
The vast majority were specialist subcontractors, including 87 electrical and plumbing firms and 71 building completion and finishing contractors.
These figures come against a broader trend of financial stress across the UK economy. Overall, there were 2,238 company insolvencies in England and Wales in May 2025, up 8% from April and 15% from the same month a year ago. The construction sector was the worst affected, accounting for 17% of all insolvencies over the past 12 months.
While the sector remains vital to economic growth and housing targets, small and medium-sized enterprises (SMEs) are increasingly unable to weather the squeeze. Data from Bibby Financial Services’ (BFS) Q1 SME Confidence Tracker paints a stark picture: 72% of construction SMEs cite rising material costs as a major drag on profitability. At the same time, nearly a third (29%) say they don’t have sufficient cashflow to operate effectively, much higher than in other sectors such as transport (6%) or wholesale (12%).
BFS Construction Finance Report (Under Embargo)Download
The result? Mounting bad debt and tightening margins, pushing more SMEs toward insolvency.
Despite the sector’s growing pain, many small firms remain optimistic. According to BFS, 67% of construction SMEs expect sales to rise in the coming year, up from 57% a year ago. But this optimism is tempered by doubt: 60% of firms believe that the Government’s Industrial Strategy, anchored by £100 billion in capital commitments and a pledge to build 1.5 million homes by 2030, will disproportionately benefit large main contractors.
The concern is that while large firms may have the resources and leverage to bid on and manage major infrastructure and housing projects, smaller subcontractors and regional builders are being left on the sidelines. And without targeted support, the risk is that the Industrial Strategy could deepen the divide between large and small players, rather than level the playing field.
Contractual complexity is a persistent barrier for smaller construction firms. BFS’s research found that nearly half (48%) of SMEs find contracts difficult to understand, rising to 56% among the smallest firms (1–9 employees). Even more worryingly, 58% of the smallest firms feel they must accept terms as-is, for fear of losing business altogether.
