Construction challenges in 2025

High insolvency, budget related wage cost rises, general cost increases, and labour shortages will challenge the construction industry in 2025.

A new year is upon us, and few would have been happier to see the back of 2024 than the construction industry. But does 2025 promise to be a better year?

Fortunately, the answer is yes.

It is expected that 2025 will see the sector tentatively starting down the road to recovery and experience growth, at least in output. There are already numerous major projects set to start this year and it is expected that the government will start injecting some serious cash into the sector via their planned home building and infrastructure projects come the second half of the year.

But to make the most of this year’s positives, there will still be some major challenges to navigate, especially as the sector enters it in relative ill health.

To help you avoid the bad and so you can find the good, we have compiled a list of some of the key challenges the construction sector will face in 2025.

Bad debt and insolvency will remain high

Whilst it is expected this will be a year of recovery, it does not mean that the sectors financial problems are over. There is still billions in bad debt within the sector and many companies are currently operating in a position of significant financial distress.

Many of these companies are most likely passed being able to trade their way into profitability and ultimately will go insolvent.

This means that you will still need to practice strict and thorough credit risk and KYB procedures to protect your business before taking on any work. For those that do, it is likely that they will end the year in an industry that is noticeably financially healthier and contains less companies that are a credit risk.

The ISG collapse hangover

The October collapse of ISG left £1.1 billion in bad debt and the bulk of the knock on effects will really start to be felt in the first half of this year. This will mainly be in the form of creditors forced into insolvency by the loss suffered.

Expect the bulk of these to be in Q1 with some bleed over into Q2.

Budget related wage cost rise

You’ll no doubt already be planning around how your business is going to deal with the national insurance contribution rise coming at the start of the new financial year. The brutal reality is that some companies will simply not be able to afford it or will implement the wrong strategies, leading to eventual business failure.

Make sure that you lean heavily on your credit risk and KYB processes once the new budget is in place, especially in Q2 and Q3 when there will be at least one wave of budget related failures. During this time it will be useful to consider potential clients employee counts as part of your credit risk decisioning process.

Material and service cost rises

One of the most obvious ways that companies will react to the budget wage cost rise is to raise their prices, especially as a first knee jerk reaction, which will of course cause your associated costs to rise accordingly.

How severe this will be remains to be seen, however. The majority of economic analysts expect the bulk of these costs will actually be born by employees, in the form of job losses, stagnant wages, and reluctance to create new jobs.

The Oxford University Centre For Business Taxation estimates that initially 60% of the added costs will be borne by employees, rising to 75% in the long term. This suggests that after an initial spike, prices will settle to be only relatively modestly higher than pre-budget levels.

Skilled labour shortages

The difficulty in finding skilled employees will continue into the new year, especially in finding young and qualified talent.

There is currently a skills shortage of around one million people to meet the industries growing and future needs, without any real or coherent plan of how to solve to this. This means that you should place an added importance on talent development and retention.

A large part of the skills shortage is due to a lack of young people entering the industry or even considering it as an option, mainly due to their misconceptions around construction work. But, with high wages, great job availability, many hi-tech jobs, and a strong career path it is actually highly desirable.

Given this fact, and that if the government is going to meet their various infrastructure and house building targets there needs to be more construction workers, it is likely that we will see more efforts being made to drive young people into these vacant roles.

Navigate 2025 safely with Red Flag Alert

We are proud to work with many companies in the construction industry to allow them to protect their revenue and supply chain with our market leading credit risk and KYB reports and data, as well as automate their onboarding processes.

With easy to understand but highly detailed KYB reports, a customisable monitoring tool, and an onboarding automation tool (which works with all your existing software and checks) we make it simple to do smarter, faster, and more profitable business.