Budget sparks 13 per cent jump in business insolvencies
The number of business insolvencies in England and Wales rose 13 per cent in November, as the impact of the Budget continues to hit firms hard.
Experts have also warned that things are not going to get better, with April’s looming Employers’ National Insurance increase leaving firms in a “perilous position”.
Nearly 2,000 firms went to the wall in November, a double-digit jump from October’s figure that reversed a four-month decline in insolvencies stretching back to July.
But the figure remains 12 per cent lower than the same month last year, when the Bank of England’s base rate was at its peak of 5.25 per cent and the UK was teetering on the edge of a technical recession.
November also saw the number of administrations rise by over a third. The sharp jump, which was accompanied by a 37 per cent rise in court-driven compulsory liquidations, suggests larger businesses, able to afford the professional fees incurred by an administration, are finding their operating environment increasingly difficult.
The numbers represent yet another dire economic reading for the UK, which has performed below economists’ expectations for much of the second half of this year.
A bleak picture for the UK economy
Last week the economy was put ‘on recession watch’ by economic observers after the Office for National Statistics unexpectedly found the economy contracted by 0.1 per cent in November.
And on Monday, a closely-watched survey found the number of jobs in the private sector shrunk at its fastest rate in nearly four years despite the headline figure for business confidence remaining unchanged.
“Fallout from the Budget and ongoing cost issues have driven corporate insolvencies this month,” said Tim Cooper, president of insolvency and restructuring trade body R3.
“After years of rising outgoings and falling margins, businesses are facing further increases in wages as a result of the Chancellor’s announcement and this could be an expense too far for some firms.”
Cooper added the insolvency numbers can be expect rise further in early next year, due to a rising number of member enquiries over month, with business owners having “early conversations about their financial concerns or their insolvency options ahead of the new year”.
Mark Ford, a partner in Evelyn Partners’ restructuring and recovery team, said that, paired with the other recent economic readings, the numbers showed “festive spirit was in short supply”.
He added: “The new year sees the significant tax hikes announced by the Chancellor in the last Budget come into effect which will leave many firms in a perilous position. Business leaders from multiple industries have been vocal about the need to consider increasing prices or cutting jobs to remain competitive given upcoming increases to employer National Insurance contributions and the minimum wage.”
Restructuring experts said that cost inflation, and the higher-for-longer approach to interest rates being adopted by the Bank of England, also lay behind the insolvency jump.
Costs have jumped substantially in the past two year for many firms, while others have only recently started to refinance or negotiate loans since rate setters hiked interest rates by over five per cent between 2022 and 2023.
Evelyn Partners’ Ford added: “Even before the Budget tax hikes were announced, some businesses were already under significant strain and saddled with debt following a long period of high borrowing costs, high inflation and low consumer confidence.
“For some businesses it is only a matter of time before they run out of cash and cease trading.”
Separately, personal insolvencies fell month on month, but were up 25 per cent year on year.