Has 2024 been another lost year?

How to sum up 2024? “Strange” is how one construction boss described it to me, and by that he meant that it has been a white-knuckle ride of navigating political upheaval, economic uncertainty and contractor insolvencies.

 We all knew it would be a tricky 12 months – the phrase “survive till 25” was ringing in everyone’s ears this time last year. And yet hopes picked up in the first half at the news of an early election. A sure change in political leadership was welcomed by most of the business community, heartened by Labour’s “listen and learn” round of chin-wags to find out how to drive growth.

Then came August’s interest rate cut, the first in four years. Firms started to feel more optimistic, expecting that further cuts to interest rates and growing pipelines of work from a new government would underpin a recovery. But that hope soon fizzled out.

>> Also read: Contracting profit falls 9%, Building research shows

>> Housebuilding profit tumbles by 36%, Building research shows

Business leaders have since placed a large part of the blame on the chancellor and her £40bn tax-raising Budget. In reality, the gloom had set in during the weeks leading up to Budget day when ministerial pronouncements seemed calibrated to dampen expectations and depress as many people as possible.

Inevitably – in the face of the national insurance double-whammy – business confidence took a dive. T&T Alinea has pointed out that the much hoped-for “post-election bounce” has not materialised, blaming continued concerns about public finances and high interest rates.

This view on sentiment is supported by the latest Purchasing Managers’ Index data. While it showed a ninth successive month of output growth, businesses’ confidence about prospects for the next 12 months is at its lowest for over a year.

And just this week, Arcadis has said that in its view inflation, rising costs and regulatory burdens all mean a full recovery will not happen until 2026.

Why is it that whenever construction as a sector seems set for calmer waters, a new combination of headwinds manage to blow it off course?

Of course, not all companies are struggling. Our Top 150 Housebuilders & Contractors rankings (published in full tomorrow) reveal a range of fortunes from firms’ latest sets of accounts, the majority of which have year-ends in 2023 or 2024. Among the big names picked out in our analysis for revenue growth are the likes of Balfour Beatty, Morgan Sindall, Kier and Mace, while offsite contractor Reds10 increased turnover by an eye‑catching 70%.

The interesting trends emerge, however, from the aggregated data. This shows that overall the turnover of this group of 150 firms has increased by 2%, but that is down compared with a 9% rise in last year’s listings.

And there is a split between the contractors and the housebuilders here, with the former showing an 8% revenue increase compared with a 10% fall among the latter. Evidently the challenges in the housebuilding market are playing out and we can see how dramatically housebuilders’ activity has fallen off.

Still, contractors as a group hardly have much to celebrate, given that collectively their operating profit from contracting activities has fallen 9% year-on-year. Just as worrying, over half the entire top 150 reported a fall in pre-tax profit.

Notable by its absence, of course, is ISG having collapsed into administration in September. ISG never managed to file its 2023 accounts. We now know from EY, the administrator, that at the time of the collapse those accounts would have revealed a loss of more than £130m after tax. Remember, this was a company employing more than 2,000 staff and with a revenue of £2.2bn.

EY’s 176-page report detailing what happened to ISG sets out a specific series of events, making it hard to draw conclusions about the wider sector. Nevertheless, the balance of risk versus reward is a constant challenge for contractors, and from the evidence of the past 12 months their operating environment is not getting any easier.

Even Labour’s most ardent supporters would admit it has made some clumsy mistakes

Just to go back to the government’s role for a moment, and what helps and what does not. Bold statements and big ambitions that highlight the importance of construction and housing projects do raise morale.

I am sure many were pleased to hear last week that two of the prime minister’s six “milestones” focused on the built environment: the 1.5 million homes target and fast-tracking planning decisions on major infrastructure projects; and achieving 95% clean power by 2030.

Further planning reform details that are emerging this week will no doubt be welcomed by those who want to accelerate schemes that otherwise would get “stuck in the system”.

But setting ambitious housing targets and consulting on planning reforms does not on its own guarantee the delivery of anything. For that the government needs builders, and it needs builders which are thriving businesses so that they have the capacity to develop the right combination of skills and expertise.

Labour has been in power just over five months, and even its most ardent supporters would admit it has made some clumsy mistakes. Those feeling less generous might say it has squandered the goodwill of the very people it needs to build this country’s economic future. Let’s hope ministers take a different tack in 2025 – if they want to shift from aspirational talk to actually getting stuff done, they need to get on side with businesses.  

Meanwhile, those seeking a little festive cheering-up can do no better than to read our interview with Kier boss Andrew Davies, whose enthusiasm and optimism for construction is the antidote to gloom: “It’s still huge fun; it’s a good time to be in this industry,” he insists. It’s upon such optimism that great companies are built – and just what we need to see us through the new year.

Chloë McCulloch is the editor of Building