Three years ago, the Family Business Research Foundation (FBRF) reported family-owned construction businesses in the UK account for 95.7% of all private-sector firms nationally.
This means that, as of 2023, there were 833,188 legacy firms operating within the UK.
These generationally-led businesses account for over half of all private sector employment within the UK, seeing 156,888 firms providing jobs for 1.67million people.
In total, these businesses make up over 80% of all construction sector employment.
If the jobs these family-owned construction firms provide isn’t enough to make members of the British public think this is an overlooked sector, maybe money can do the talking.
Family businesses in construction accounted for the greatest share of Gross Added Value (GVA) at 85.3% throughout the entire sector, contributing £117.5billion to the government directly adding to the UK’s GDP (Gross Domestic Product).
GDP is a key measure of the size and health of the economy – the total of all goods and services produced within the country over a specific time.
On top of this, the cumulation of tax paid by family-owned businesses, across all sectors, gave the government a lovely little top up of £422billion in 2023.
However, taxes imposed on family-owned companies are not getting any lighter.
An article by Construction News in January revealed the effect changes to business property relief (BPR) rates will be on family-owned construction firms which will all, at some point, face inheritance tax.
Businesses already contributing to the government through GVA will lose potential BPR from April 2026 which will see only the first £1million exempt from inheritance tax.
Speaking to Construction News, Keith Miller of Cavana Homes claimed allowing this tax to come in will lead to fewer houses being built as firms will not have the capital to match previous figures.
Yet despite the seemingly positive output figures, there is a not-so-secret secret which is tearing the industry down.
Nepotism is the practice of favouring relatives, and sometimes friends, for promotions and other activities simply because they’re better connected.
In construction this is rife, and the effects are detrimental to the success of companies.
Roles filled on a whim of promises made by fresh-faced and eager nepo-babies are often those at the top of the food chain.
These roles fuel construction’s cesspit’s reputation of ‘macho-culture’ and can exacerbate toxic work-places, leading to the failings companies in general, and specifically family-owned construction companies.
An On The Tools white paper, Behind the High Vis, outlined how a number of interviewees reported a sense of pressure to maintain a ‘macho’ appearance when at work.
However, when you’re feeling like the king of the world as the freshly-appointed director of your grandfathers £3billion company, the tone changes and heads get lost.
Mark Downes, an employee of a family-owned construction firm, explained the effects of nepotism in construction and his opinions of the sector.
Downes said: “Second and third-generation children tend to enter a company when it is in a more financially-sound position – they are removed from the day to day leading up to their employment and therefore have no knowledge of the struggle during the establishment of a company that some of the workforce will have been there to experience.
“This causes them to make bad decisions financially as they have less fear of the impact, also some do not want to be put under pressure so will pay above the odds to make their life easier and it could be put down to a lack of experience in the build-up of the business.”
He added: “Nepotism definitely has different effects based on the individual involved, sometimes it can be positive because the person is willing to learn about the trade whilst also adding modern touches in certain areas of the business for example with their use of social media for promotion.
“However, unfortunately in most cases, nepo-babies fall for the entitlement trap that comes with large scale promotion in the workplace – and ultimately because of this sense of entitlement, staff relationships with leadership tend to sour which can have detrimentally negative impacts on the running’s of the company and often lead to the business losing key staff who may have vital client relationships.
“Ultimately, the failing of companies at the hands of nepo-babies comes down to decisions being made in business based on the experience of being scolded as a child – it may be bad at the time, but it will be forgiven.
“Also, they have the support of the other parent and are aware that no matter what, their job is safe.”
At the same time as this rise in nepotism and the shortcomings of family-owned construction firms, construction activity in the UK is facing its longest period of decline since the 2007 Global Financial Crisis.
October statistics released in the S&P Global Construction PMI, which measures the economic health of the sector, revealed construction has declined at the fastest rate since May 2020.
This comes during a period of huge strain on the sector.
It has been just over two years since prime minister Keir Starmer and his government revealed their plans for 1.5million new homes to be built across the UK.
Yet now, over 100,000 construction companies across the UK are in ‘significant’ financial distress.
Recent figures from Begbies Traynor’s Construction Red Flag Alert also found the number of companies in ‘critical’ distress has risen 70% year-on-year in Q3, bringing the total to 7,361 firms nationwide.
However, construction isn’t just falling short because of its finances or inactivity.
As previously reported by The Londoners, it is at the forefront of one of the UK’s most prolific mental health battles, which has seen 7,000 tradespeople die by suicide in the past decade.
The S&P Construction PMI surveyed 150 construction firms, revealing total industry activity measured at 44.1 in October, down from 46.2 the previous month.
October marked the 10th-consecutive month below the no-change mark of 50.0 – the longest period of continuous decline since the Global Financial crisis nearly 20 years ago.
Civil engineering is the weakest performing subsector within construction after having seen the largest decline in activity in April, August, September and now, October.
This comes as respondents shared a growing concern for lack of new work in the books to replace completed projects.
In a time where the government promised 1.5 million new affordable houses, residential work continues to decrease.
October saw the greatest decline for eight months from 46.8 in September to 43.6 in October.
Economics Director at S&P Global Market Intelligence, Tim Moore said: “Business activity expectations for the year ahead were among the lowest since the end of 2022, suggesting that construction companies remained cautious about the near-term outlook and have yet to see a turning point on the horizon.
“Many survey respondents reported caution among clients ahead of the Autumn Budget and a general reluctance to commit to major capital expenditure projects against a subdued domestic economic backdrop.”
Andrew Curtain, founder of industry news and insights publication Construction Wave, explained why he believes finances and activity are in such a decline right now.
Curtain said: “Lately, there are numerous things – you have a lot of contractors locked into pre-COVID prices, so like pre-COVID and pre-Ukraine prices.
“So, you’re stuck into a contract, and say you’re building a high rise in central London, then it’s four or five years and you’ve signed the contract then all of a sudden, material prices go through the roof and you can’t don’t have access to the same raw materials anymore.
“And then very, very quickly your profit starts to erode, so that’s probably the most recent one.”
As well as this, Curtain outlined how the pricing strategies used in the construction sector have played a relevant role in financial difficulties.
However, he did agree technological advancements in the industry have played a huge role in improving companies’ ability to fairly and accurately price jobs.
Then there is the issue of nepotism in construction.
Curtain said: “On the softer side, construction is one of those industries where nepotism is ripe. You have wrong people in the wrong seats at the wrong time.
“If you look at the top four or five contractors, they all have pretty steady margins because they’re all very well governed. They have a strong leadership team in place.
“Where the collapses seem to happen more is in family businesses and legacy businesses. If you ask any restructuring company, when one of these companies, come into difficulty, they’re very poor at asking for help.
“They think ‘we can ride it out’, whereas they really need to reach out to someone like KPMG or someone like that with a restructuring team and say ‘listen, we’re in a bit of bother here’.
“There’s this lads-type of attitude that still lingers in construction.”
Meanwhile, a massive problem affecting all parts of the sector, but more specifically smaller, family-owned businesses is retention.
Curtain is positive this is becoming less of a problem as the government is beginning to crack down on it, but it is still a huge factor in the shortcomings of the industry and something which is both massively unfair and overlooked.
He said: “Imagine you’ve finished a project and delivered whatever engineering work you agreed to do, then all of a sudden you can’t get your £1million back because they start making up things that are incomplete.
“When you’re a small businesses and you’re missing that £1million ‘deposit’, you could call it the effects can be detrimental as those businesses are still being taxed as if they have it.”
All images: Mackenzie Whittaker
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