Insolvencies in the UK Construction and Business Sectors - A Deep Dive with a Scottish Focus

23rd January 2026

Over the past eighteen months, the UK has witnessed a wave of corporate insolvencies, with the construction sector standing out as the hardest hit.

More than five thousand construction firms have collapsed during this period, either through liquidation, administration, or receivership. This figure underscores the fragility of the industry, which has consistently topped insolvency statistics compared to other sectors such as retail and hospitality.

In the twelve months leading up to November 2025 alone, nearly four thousand construction businesses across England and Wales became insolvent. Monthly figures reveal the scale of the crisis: October 2025 saw 362 construction firms fail, while November recorded 297 collapses.

Even in months where the numbers dipped, construction remained the single largest contributor to UK insolvency totals. Specialist contractors—plumbers, electricians, joiners, and other niche trades—have been particularly vulnerable, often operating on thin margins and exposed to delayed payments from larger developers.

Retail and hospitality, though less severe in absolute numbers, have also faced significant distress. Around 2,500 retail firms and 2,200 hospitality businesses became insolvent in the twelve months to mid-2025.

Retail chains such as River Island and Claire's entered administration, while hospitality operators including TGI Fridays, Pizza Hut, and Leon struggled under the weight of rising energy costs and reduced consumer spending. These sectors, while not matching construction's scale of collapse, have nonetheless contributed to widespread redundancies and economic disruption.

Scotland's experience deserves particular attention. Corporate insolvencies there rose from 1,236 in 2024 to 1,272 in 2025, a modest increase of three percent but one that masks sharper monthly spikes.

December 2025 alone saw 111 insolvencies, a 35 percent increase compared to the same month in the previous year. Construction again dominated the Scottish figures, with specialist contractors and mid-sized building firms most exposed. Retail and hospitality also featured prominently, reflecting the same pressures seen across the UK: weak consumer demand, rising wage bills, and high energy costs.

The human impact in Scotland has been considerable. Insolvencies typically involve small and medium-sized enterprises employing between ten and fifty staff, but larger collapses have resulted in hundreds of redundancies at once. Across 2025, job losses linked to insolvency in Scotland are estimated in the low tens of thousands. Construction firms often shed between 150 and 300 jobs when they fail, while retail chains can see more than 500 employees made redundant in a single administration. Hospitality venues, heavily reliant on younger and lower-paid workers, have also been forced to cut staff as minimum wage increases and National Insurance contributions drive up payroll costs.

Looking ahead to 2026, the outlook remains challenging. Rising compulsory liquidations in Scotland—up thirteen percent in 2025 compared to 2024—suggest that financial distress is worsening, with fewer firms able to negotiate voluntary arrangements.

Across the UK, construction is expected to remain the most exposed sector, though insolvency rates may fluctuate month by month. Retail and hospitality are likely to see further high-profile collapses, with redundancies continuing in the tens of thousands. Professional services and utilities, too, are showing signs of strain, with restructuring attempts such as those at Thames Water highlighting broader systemic pressures.

Government policy plays a crucial role in shaping this landscape. Changes to National Insurance thresholds and increases in the minimum wage are pressing heavily on employers. In April 2026, the National Living Wage for workers aged 21 and over will rise to £12.71 per hour, a 4.1 percent increase.

Rates for younger workers and apprentices are also climbing, with the 18-20 rate up 8.5 percent and the apprentice rate up 6 percent. These changes, while beneficial to employees, add significant costs for businesses already struggling with cash flow. Construction subcontractors, retail chains, and hospitality venues—sectors with high labour intensity—are particularly exposed.

Potential government solutions could include temporary reductions in employer National Insurance contributions, targeted tax credits for SMEs, and sector-specific support schemes. Faster payment enforcement on public contracts would ease cash flow pressures in construction, while energy cost subsidies could provide relief for hospitality and manufacturing. Access to finance remains critical, and government-backed loans or guarantees could help smaller firms weather the storm.

The Insolvency Service's 2025-26 plan to strengthen prevention and rehabilitation through education and guidance is a step in the right direction, but more direct financial support may be necessary to stem the tide.

The UK's insolvency crisis is far from over. Construction continues to lead the statistics, retail and hospitality remain fragile, and Scotland is experiencing sharp monthly spikes that highlight the vulnerability of its SMEs.

Rising employment costs, energy bills, and financing challenges are pressing down on businesses, and without targeted government intervention, insolvency rates in 2026 are unlikely to fall sharply. For Scotland in particular, where construction dominates the economy and SMEs form the backbone of employment, the stakes are especially high.

The Highland Position

The Highlands of Scotland have seen a smaller absolute number of corporate insolvencies compared to the Central Belt, but the impact is disproportionately heavy because the region relies on SMEs in construction, tourism, and hospitality. Insolvency arrangements in the Highlands often involve Debt Arrangement Schemes (DAS) and Protected Trust Deeds (PTDs), which allow struggling businesses and individuals to manage debt without immediate liquidation.

Insolvency Position in the Highlands
While official statistics are published at the national level, regional breakdowns show that the Highlands and Islands record fewer insolvencies than Glasgow or Edinburgh, but the consequences are more acute due to the smaller size of local economies.

Construction firms: Many Highland contractors are small, family-run businesses. Insolvency here often means the loss of 10-30 jobs, which can be significant in rural communities.

Hospitality and tourism: Hotels, guesthouses, and restaurants are vulnerable to seasonal demand. Insolvencies in this sector have ripple effects on local employment and supply chains.

Retail: Independent shops in Inverness and smaller towns face pressure from online competition and rising wage costs.

Debt Solutions and Arrangements
In Scotland, businesses and individuals can access statutory debt solutions overseen by the Accountant in Bankruptcy (AiB). These are widely used in the Highlands:

Debt Arrangement Scheme (DAS): Allows firms or individuals to repay debts over time while freezing interest and charges. Popular among Highland SMEs trying to avoid liquidation.

Protected Trust Deeds (PTDs): A formal agreement with creditors to repay part of what is owed, often used by sole traders in hospitality and retail.

Bankruptcy: Still a last resort, but numbers remain steady.

Moratoriums: Short-term breathing space to prevent creditor action while restructuring options are explored.

In Q4 of 2024-25, Scotland recorded over 1,600 personal insolvencies (bankruptcies and PTDs), with a notable share coming from rural regions like the Highlands, where household and business finances are closely intertwined.

Local Impact
Employment: Redundancies in the Highlands carry more weight because alternative jobs are limited. A single hotel closure can affect dozens of staff and suppliers.

Community effects: Insolvencies often mean the loss of long-standing family businesses, reducing local services and weakening community resilience.

Sector concentration: With construction, tourism, and hospitality dominating the Highland economy, insolvency pressures are concentrated rather than spread across diverse industries.

Outlook
The Highlands are expected to remain vulnerable in 2026. Rising minimum wage levels and employer National Insurance contributions will weigh heavily on labour-intensive sectors. Seasonal tourism demand may soften insolvency risk in summer months, but winter downturns could trigger more failures. Debt solutions such as DAS and PTDs will continue to play a critical role in helping Highland businesses survive.

In the Highlands, insolvency hotspots tend to cluster around the larger population centres and tourism hubs, where businesses are more numerous but also more exposed to seasonal demand and rising costs. While official statistics are not broken down to every town, patterns from Scottish Insolvency Service data and regional business reports highlight several key areas:

Highland Insolvency Hotspots
Inverness: As the commercial capital of the Highlands, Inverness consistently records the highest number of insolvencies in the region. Construction firms, retail outlets, and hospitality venues are most affected. The city’s reliance on SMEs means failures often ripple through supply chains.

Fort William: Tourism-driven businesses here, including hotels, restaurants, and outdoor activity providers, have faced insolvency pressures. Seasonal demand swings and rising wage costs make this a vulnerable hotspot.

Skye (Portree and surrounding areas): Hospitality and tourism dominate the local economy. Insolvencies here often involve guesthouses, restaurants, and tour operators, with redundancies hitting small communities hard.

Caithness (Wick & Thurso): Smaller construction and service firms have struggled with cash flow and delayed payments. Insolvencies in these towns, though fewer in number, carry significant local impact.

Aviemore & Cairngorms: Seasonal tourism businesses, particularly ski-related operators and hospitality venues, are prone to insolvency during poor winters or when energy costs spike.

Why These Areas Are Vulnerable
Seasonality: Tourism-heavy economies mean businesses rely on summer or winter peaks. A weak season can trigger insolvency.

SME dominance: Most Highland firms are small, family-run businesses with limited reserves.

Employment costs: Rising minimum wage and National Insurance contributions weigh heavily on labour-intensive sectors like hospitality.

Geographic isolation: Supply chain costs are higher, and access to finance is more limited compared to the Central Belt.

The Highlands are expected to remain vulnerable in 2026, with insolvency risks concentrated in Inverness, Fort William, Skye, and Aviemore. Construction firms and tourism operators will continue to face the greatest pressures, while retail insolvencies may rise in smaller towns as online competition intensifies.

What Can Be Done
For many businesses the following is a bit like trying to teach your granny to suck eggs. However even if its obvious make a start if you need to.

Businesses in danger of insolvency can take immediate, practical steps to improve their survival chances. While not every company can be saved, especially if debts are already overwhelming, there are several urgent measures that can reduce risk and buy time.

Immediate Changes to Avoid Insolvency
1. Tighten Cash Flow Management
Prioritise collecting outstanding invoices quickly, even offering small discounts for early payment.

Negotiate extended payment terms with suppliers to ease short-term pressure.

Monitor daily cash flow rather than monthly, so problems are spotted early.

2. Cut Non-Essential Costs
Halt discretionary spending (marketing campaigns, expansion projects, non-critical hires).

Review subscriptions, leases, and contracts to eliminate waste.

In the Highlands, where SMEs dominate, trimming even small recurring costs can make a big difference.

3. Renegotiate with Creditors
Approach lenders and creditors proactively to restructure debt or extend repayment schedules.

In Scotland, formal tools like Debt Arrangement Schemes (DAS) or Protected Trust Deeds (PTDs) can freeze interest and provide breathing space.

4. Seek Government and Local Support
Tap into Scottish Government SME support grants, Highlands and Islands Enterprise schemes, or UK-wide loan guarantees.

Explore energy bill relief or wage subsidies where available.

5. Adapt Workforce Strategy
Use flexible staffing models (seasonal contracts, part-time arrangements) to reduce payroll strain.

Consider temporary pay freezes or reduced hours, with staff consultation, rather than redundancies.

In hospitality and tourism-heavy Highland towns like Fort William or Skye, this can help businesses survive seasonal downturns.

6. Diversify Revenue Streams
Construction firms can pivot toward smaller, faster-paying jobs rather than large projects with delayed payments.

Hospitality businesses can expand into off-season offerings (events, catering, local partnerships).

Retailers can strengthen online sales to offset declining footfall.

Why Immediate Action Matters
Insolvency often creeps up through cash flow crises, not necessarily lack of profitability. Acting early — before creditors escalate or compulsory liquidation looms — gives firms the best chance of survival. In the Highlands, where insolvencies hit smaller communities harder, proactive measures can preserve not just businesses but local employment and services.