Diesel and energy costs put construction and trades at risk of insolvency

What starts on the price boards at petrol stations is, for many construction and trades businesses, ending right on the brink of insolvency. A recent sector study shows just how severely the surge in energy costs is squeezing the construction industry-especially small and medium-sized firms with tight margins and a high reliance on vehicles.

Expensive diesel wipes out any profit

Since the latest conflicts in the Middle East began, fuel prices have climbed sharply. For builders and tradespeople, this is not a minor inconvenience-it can be the difference between staying afloat and going under. Vans, panel vans, lorries, excavators, cranes: without diesel, work on site simply stops.

"The sector reports that more than nine out of ten businesses are feeling the pump-price shock directly in their day-to-day work."

Companies running heavy equipment on so‑called gas oil for non-road vehicles (GNR) are being hit particularly hard. This specialised diesel product powers excavators, wheel loaders and access platforms-and its price has risen markedly.

A practical example shows the scale of the problem: a 20-tonne construction machine uses around 20 litres of fuel per hour. If the per-litre price of site diesel goes up by 30p, operating that machine costs about £6 more per working hour. If the equipment runs for eight hours a day, that is nearly £50 extra-per machine, per day.

Small firms are especially exposed

Large groups can soften sudden price spikes to some extent: they negotiate better purchasing terms, consolidate fleets, and lock in long-term supply contracts. Many small trades firms do not have those options. They may run one or two vans between several sites a day, price jobs tightly, and often carry the fuel-risk alone.

Those working in rural areas also clock up longer distances. A few pence more per litre sounds manageable, but over weeks and months the additional spend quickly adds up to thousands of pounds-money that was neither built into the original quote nor easily recoverable from the customer.

Material prices rise in step

Fuel is only the most visible part of the issue. Behind the scenes, the shock ripples through the entire supply chain. Manufacturers and merchants pass higher transport and energy costs on to their customers-namely construction and trades firms.

Materials tied to oil or energy-hungry production processes are particularly affected. According to industry figures, well over half of businesses are being notified of supplier price increases, in some cases at a dramatic level.

• Oil-based products such as bitumen membranes, insulation boards, PVC pipes
• Timber and wood-based products, such as formwork, roof battens, sheet materials
• Concrete and cement products
• Metals such as copper and zinc
• Thermal insulation materials such as mineral wool and glass wool

Increases ranging from a few percentage points to as much as 20% for certain product groups are no longer unusual. In insulation especially, merchants report double-digit jumps. Many hauliers are currently operating on the edge, cutting back runs or temporarily dropping unprofitable routes-tightening the pressure even further.

Delivery bottlenecks disrupt site schedules

On top of price rises, there are warnings about possible supply interruptions. A number of suppliers are intermittently reporting shortages for standard items such as glass wool, certain timber types, or plasterboard. On site, that translates into delays, last-minute re-planning, and teams left waiting.

"If a key component is missing, an entire schedule can unravel: walls remain open, follow-on trades are forced to wait, and stage payments are delayed."

Smaller firms, in particular, can then run into cashflow trouble quickly. Wages, rent and lease payments still have to be covered, while invoices can only be issued-or paid-later.

Quotes at risk: pricing becomes a gamble

Another sensitive pressure point is costings and quote preparation. Anyone agreeing a fixed price today cannot know what materials and fuel will cost in three months’ time. Many business owners say merchants’ price lists are changing month by month.

The consequences:

• Quotes become less dependable and variations become more frequent.
• Customers react with irritation or suspicion to price adjustments.
• Businesses end up carrying a growing share of the cost risk on their own.

Some firms are now avoiding long price-hold periods, or they issue quotes with clear validity limits and price-adjustment clauses. That offers some protection, but it can also make winning work harder-homeowners and smaller clients are often put off by uncertain final costs.

Psychological strain on owners and employees

The financial pressure does not stop at the balance sheet. After two years shaped by the war in Ukraine, material shortages and fluctuating demand, this next wave of costs is pushing many owners beyond their limits.

Industry representatives report growing fatigue, sleep problems and fears about livelihoods. Some associations are openly considering dedicated points of contact for mental health support. Construction work is physically demanding at the best of times; when constant commercial uncertainty is added, morale can quickly slide into resignation or anger.

Trade bodies demand countermeasures

Key organisations representing the construction trades are urging politicians to act. They warn that without rapid relief, the country faces not only company failures but also delays to urgently needed modernisation and climate-protection projects.

Several core demands are being raised:

• Reduced VAT on renovations and refurbishments to stimulate demand and support firms.
• Time-limited help with fuel costs for site vehicles and construction machinery.
• Tax relief or a cap on fuel duties and levies to dampen extreme price spikes.
• A revival of crisis-policy roundtables between government, trade bodies and supply-chain stakeholders.

Some representatives point to earlier tools such as a “sliding” energy tax that automatically countered sharp swings in oil prices. The aim is to lessen the double impact of high crude prices and high taxes per litre of diesel.

Climate policy and the trades: a delicate balancing act

This crisis is landing at a moment when governments are strongly accelerating renewable energy roll-out and energy-efficiency upgrades. Many tradespeople see a contradiction: on the one hand they are expected to install heat pumps, insulation and solar PV at record levels; on the other, the cost surge is eating away at the commercial base that makes that work possible.

Without financially stable construction and trades businesses, climate targets remain only on paper. Each insolvency reduces capacity to modernise homes, expand networks and adapt infrastructure.

What businesses can do themselves now

Alongside political demands, many owners are trying to regain control through practical steps. Common strategies include:

• Improve route planning: combine trips, avoid empty runs, use digital route-planning tools.
• Review vehicles: favour fuel-efficient models, tighten maintenance, keep tyre pressures consistently correct.
• Update costing: show variable energy costs clearly in quotes and limit validity periods.
• Rethink stockholding: secure critical materials early, without overstocking.
• Work through partnerships: share transport with neighbouring firms or buy jointly.

For many owners, this is a narrow tightrope: raise prices too far and customers walk away; react too little and losses build quickly.

Explanations of key terms

The site diesel often referenced in the sector (GNR) is a specialised fuel for work machines that must not be used in normal road traffic. It is subject to its own tax and duty rules, and is therefore particularly sensitive to policy decisions on energy taxation.

Another key term is margins: the gap between what a business pays for materials, wages and operating costs, and what it charges the customer. When rising costs squeeze those margins, there can be little or no profit left despite full order books-a hidden but very serious risk to the stability of the construction industry as a whole.

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