Retail and construction lead insolvencies as UK firms in ‘perilous position’
Wholesale and retail traders and construction firms accounted for nearly a third of all insolvencies seen in the 12 months to April.
Data published by the Insolvency Service has pointed to a further concerning trend in the UK economy as the number of companies insolvencies in May grew eight per cent month-on-month.
The number of insolvencies in May hit 2,074, which was also 15 per cent higher than levels seen 12 months ago.
The rate of insolvency at the beginning of this year has been roughly double that seen in 2020, with more companies opting for creditors’ voluntary liquidations, a type of insolvency where directors agreed to close down businesses with the agreement of creditors.
The Insolvency Service said trends since the second half of 2022 have been at levels last seen during the 2008 and 2009 recession which followed the financial crash.
Construction, seen as a crucial sector for the UK government’s ambitious infrastructure plans, made up 17 per cent of all insolvencies in the year to April while wholesale and retail trade, along with garages and motor vehicle repair firms, made up 15 per cent of cases.
The rate of insolvencies in the year to May now stands at one in 189 companies, pointing to the vulnerability of businesses when costs are quickly mounting.
Tom Russell, president of R3, the UK’s insolvency and restructuring trade body, said Chancellor Reeves’ tax hikes could put dozens of companies at risk in the months ahead.
“Many businesses will already have increased prices and cut expenditure to cope with the existing economic challenges and many, especially SMEs, will find it increasingly difficult to respond to further cost increases,” Russell said.
“It is unlikely that we will see the full impact this will have on businesses until later in the year, but the prospect of these changes being introduced has influenced a number of directors’ decisions to seek insolvency and restructuring advice and consider the future of their businesses.
“The recent increase in unemployment indicates that the tax increases, along with the prospect of the Employment Rights Bill coming into law, has also affected hiring levels and investment as management teams wait to see how it will affect their wage bills, and we expect this to continue until the picture is clearer.”
Insolvencies signal ‘perilous position’
S&W restructuring partner Mark Ford said some firms were in a “perilous position” due to sluggish growth, low consumer confidence and high borrowing costs.
“Businesses are now facing newer challenges that threaten their viability and this means we are likely to continue to see a steady stream of company insolvencies in the coming months,” Ford said.
“Higher costs resulting from increases to employer national insurance contributions, the minimum wage and business rates are all heaping considerable pressure on businesses, particularly those that feel they are unable to increase prices for fear of losing customers.”