FEWER construction firms went into liquidation in Scotland in the third quarter of this year than during the same period in 2007, despite the downturn in the house building industry.

Official Government insolvency figures show 16 construction companies went into voluntary or compulsory liquidation in the three months to the end of September, down from 20 last year and 17 in the previous quarter of this year.

In the first nine months of this year 64 construction firms fell into liquidation, compared with 65 in 2007.

But Matt Henderson, business recovery and insolvency partner with Johnston Carmichael, warned that the full impact of the credit crunch on the construction industry is yet to be felt.

"The floodgates are yet to open as there is generally a time lag of 12 to 18 months before economic downturns come through in the statistics for company failures," he said. "I know of a number of companies hit during October."

Last month house building firms Anderson Homes and Gregor Shore went into administration in Scotland.

Henderson added: "There is a lot of pressure building up, but the better advised companies will survive. The main casualties will be the workforce as firms cut jobs."

Ronnie Ludwig, a partner with accountancy firm Saffery Champness, is urging firms to treat redundancies as a last resort.

He said: "Having to consider redundancies is likely to be a new experience for many company bosses. However, the redundancy process itself can be costly and time-consuming and can also have unintended long-term costs."

Ludwig urged employers to think about recruitment fees and training costs when the business climate improves.

But Ernst & Young is warning that a further blow could be dealt to the construction industry by the Government if it presses ahead with plans to phase out national insurance contributions (NICs) on holiday pay. It estimates this will increase business tax costs by 12.8%.

Construction industry employers are currently able to pay into a holiday pot for employees without having to make an NIC. This tax exemption is due to be scrapped by 2012.

Lee Muter, a director in E&Y's tax team, said: "In an average-sized construction firm the phasing out of NIC on holiday pay could leave an employer with an additional monthly wage bill of £200,000."



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