Late payments, tight margins and skills shortage threaten construction growth ahead of Budget

Late payments, wafer-thin margins, a critical skills shortage and disproportionate risk are threatening the construction industry’s ability to deliver the government’s housing and infrastructure ambitions, sector leaders has warned ahead of the Budget.

Top 50 law firm HCR Law and accountants Azets brought together senior construction industry representatives from across the industry to air their most critical issues ahead of the budget later this month. 

The government is seeking to deliver a £718bn infrastructure pipeline over the next decade and build 1.5 million homes during this parliament, but figures underline the scale of the challenge: construction output in Great Britain fell by 0.5 per cent in the three months to July 2026, while the S&P Global UK Construction PMI stood at 46.1 in September — below the 50 mark that signals growth.

The industry’s biggest concerns are that tight cash flow – due in part to increasingly long payment cycles, an insufficient workforce, lack of confidence and difficult procurement culture are stopping the pipeline of work turn into sustainable growth.

Round table delegates agreed that payment cycles of 120 to 180 days are unsustainable, particularly for SMEs expected to fund labour, materials and overheads long before receiving payment.

Participants called for public bodies and major clients to lead reform through faster payment, proportionate risk, realistic tender evaluation and better competence checks.

They said procurement too often rewards the lowest price rather than long-term value, while repetitive pre-qualification processes consume SME time and resources. Earlier planning certainty would also give businesses greater confidence to invest in people, equipment and training.

Trade bodies should support their members robustly to collectively challenge poor payment practices, delegates agreed.

Risk allocation was another major concern. Participants said contracts frequently push liabilities down the supply chain rather than placing them with the party best able to manage them.

Specialist subcontractors can be required to absorb unforeseen cost increases, accept demanding programmes and secure insurance cover worth many times the value of their package, often with little opportunity to negotiate.

Michael Hiscock (pictured), partner at HCR Law, said: “Those involved need to ask who should carry the risk — and whether there should even be a risk in the contract. ‘That’s our standard position’ is not a good enough answer. The right person should be pricing the right risk for that project.”

Skills shortages continue to be a major challenge for the sector. Although government funding aims to train up to 60,000 additional skilled construction workers by 2029, the Construction Industry Training Board estimates the UK needs an average of 41,200 extra workers every year to meet expected demand.

Brexit, an ageing workforce, low apprenticeship completion and volatile order books are making recruitment and retention harder, while smaller firms struggle to invest in training as costs rise.

But across the construction sector, delegates highlighted opportunities to raise productivity and strengthen bidding, planning, logistics and safety through the adoption of AI, automation, drones, 3D printing, predictive maintenance and improved data use – although they warned that businesses operating in survival mode have little headroom to fund such innovation.

Paul Fenner, Audit and Advisory partner at Azets, said: “Construction has a huge role to play in the country’s economic growth. The openness of the discussion helped us get to the heart of the issues and opportunities. By tackling them head on, we can start to see the sector thrive.”

Michael Hiscock added: “Some of the industry’s difficulties are legal and some are financial, but all are practical.

“Changes in law over the next two or three years will fundamentally affect how organisations enter into agreements with each other. We all want to get the sector growing again.”