Insolvency in the UK construction sector

The construction industry has always tended to suffer a disproportionate share of both corporate insolvency and individual bankruptcy within Great Britain. This is particularly the case in the aftermath of economic recessions. The latest figures seem to indicate that almost a quarter of all corporate insolvencies in England and Wales involve Construction Companies. In Scotland, the situation is worse with almost one third of insolvencies coming from the sector. This is way out of line with construction’s five to six per cent share of Gross Domestic Product. Because of the differing legal definitions between England and Wales and Scotland, the main analysis will use data from England and Wales. Scotland and Northern Ireland are excluded from the formal analysis. Time series data on insolvency by industry is available from 1969 through to 2008 for England and Wales. This period covers three major recessions; in the mid-1970s, the late-1980s and the current slump. In the case of Scotland the data is available from 1998 to 2009. This only includes one recession so will be of less use for the purpose of this analysis. This paper will seek to analyse the causes of this using time series data with a multiple regression model. The key variables tests will include level of profitability for construction companies, fluctuations in demand, and availability of working capital, and lagged general insolvency data to measure the domino effect. This is concerned with an insolvent company dragging down one or more members of its supply chain. The results proved somewhat counter intuitive in some aspects.