The collapse of construction group Carillion earlier this year triggered a 20% spike in the the number of UK building firms becoming insolvent, according to a report.

In a devastating knock-on effect for the sector, a total of 780 companies in the industry fell into insolvency in the first quarter of 2018 – a one-fifth rise on the same period the previous year – the analysis by accountancy firm Moore Stephens revealed. In total there were 2,764 insolvency casualties among building firms in the 2017-18 financial year, up by 6% on the previous 12 months.

Carillion filed for bankruptcy in January after its stock market value slumped 90% on the news it had racked up debts of about £1bn and was struggling to fill a £600m hole in its pension fund.

At the time, the Wolverhampton-based company – the UK’s second largest building firm – had more than 19,000 employees, many working on Whitehall-commissioned contracts to build roads, schools and hospitals.

Following its high-profile liquidation, thousands of subcontractors lost major contracts and were left reeling with substantial debts, Moore Stephens said. Ministers were accused of realising too late that the company was in financial difficulties and then making matters worse by offering fresh contracts in an attempt to bolster investor confidence.

“The collapse of Carillion sent shockwaves through the construction sector, and we are seeing more insolvencies as a direct result,” said Lee Causer, spokesman for Moore Stephens. “Large construction companies are infamous for squeezing the profit margins of the contractors and subcontractors who work for them. These contractors often cannot negotiate against the terms set for them by their larger clients.”

Small to medium-sized enterprises and specialist subcontractors had been hit particularly hard by Carillion’s fall, he said “Many of them will have relied on the giant for significant amounts of their work. It is also likely that these subcontractors would have had to write off virtually everything owed to them by Carillion.”

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While thousands of jobs were lost following Carillion’s collapse, a subsequent parliamentary report found that Deloitte – which received £10m to be the outsourcing company’s internal auditor – had been either “unable or unwilling” to identify failings in financial controls, or “too readily ignored them”.

The government has called for a comprehensive review of Britain’s auditing industry in what could herald huge changes to a sector dominated by the firms known as the “big four”. Calls for reform have grown after the collapse of Carillion and former high street stalwart BHS revealed serious inadequacies in the auditing process.

It also emerged last week that taxpayers are set to pay more than £150m following the collapse of Carillion after it was revealed the bill for redundancy payments alone is expected to hit £65m.