The Carillion crisis: how will it affect the self-employed?

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The construction industry contributes 6.7 per cent of GDP to the UK economy. Little wonder then that Monday’s news of the liquidation of Carillion – the second biggest construction firm in the country – sparked widespread concern.

What has happened to Carillion mimics what happened to the banks. Carillion now has its own credit crunch as lenders have started to demand repayment.

The news further compounds concerning ONS data last week that showed that construction output declined by £779 million at the end of 2017.  

With 800,000 self-employed people working in the UK construction industry, there is particular concern about what Carillion’s liquidation will mean for their self-employed contractors. In fact, the construction sector accounts for one in six of all self-employed people, and many of them will be affected by Carillion’s demise. It is essential these people are considered in the aftermath of the company’s liquidation.

The many small businesses in Carillion’s supply chain need to be paid what they are owed, otherwise we may see further job losses. Sadly, these kinds of businesses will be used to poor payment practices because of the 120-day payment terms imposed by companies like Carillion.

Filing for liquidation rather than administration shows the severity of Carillion’s problems. With liquidation, their assets will be sold to fund the creditors Carillion owe money to, before the company is eventually dissolved.

With administration, there is always a hope that the company can turn itself around. With liquidation, however, this is unlikely.

What we know so far is that the Pension Protection Fund is safeguarding the benefits of people on Carillion’s defined benefit scheme. Self-employed people, however, will not be so lucky.

It is unlikely they will be particularly high on the creditors list, which may mean that many of them are left out of pocket. Otherwise they may be some way down the supply chain, meaning their contracts may be terminated early, while the liquidation process is still underway.  

The one silver lining for the self-employed is that the UK’s flexible labour market should hopefully open up more opportunities for these highly skilled people. There are other construction companies with major projects where they may well be able to find work.

A major company collapsing is never welcome news, especially when the impact will be felt so heavily by self-employed people. It is important that the people working on Carillion contracts are kept informed so they can plan accordingly for any eventuality. 

Meet the author

Tom Purvis

Political and Economic Adviser