Business Failures Rise As Govt Help Declines

As business costs increase and government support shrinks, insolvency experts predict more companies will experience failure in the coming months.

Last month saw the largest number of business failures in England and Wales since the Covid pandemic began. Data from the Insolvency Service show that in September, company insolvencies totalled 1,446, increasing from 1,349 in August and 56pc higher than the same month last year.

September found many firms struggling with rising energy and labour costs, together with the tapering of Covid government support. Some insolvency experts fear the number of failures will increase further.

Energy companies Utility Point and PfP Energy, chilled food delivery firm EVCL Chill, as well as musical instrument maker Roli, all went under last month.

Will more firms face failure?

Claire Burden, partner at professional services firm Tilney Smith & Williamson, said the continuing energy price rises will have a knock-on effect on additional sectors and push more companies such as those in manufacturing and consumer goods into financial meltdown.

This will cause subsequent failures, she added, when combined with the existing pressures of increased transport costs and supply chain issues.

Earlier this month, the Bank of England stated that one third of small businesses in the UK are classed as ‘highly indebted’, meaning that their debt levels are more than 10 times their cash balances.

Matt Richards, restructuring and insolvencies partner at accountants Azets, says he expects the upward trend of business failures to continue, in view of the fact that the Government has withdrawn most of its corporate support measures.

The additional pressures facing businesses today, he says, such as higher inflation, staff shortages, increasing energy prices, as well as the need to repay Covid-incurred debt, are likely to increase the number of failures over the next 12 months.

However, an HM Treasury spokesperson has said the Government had subsidised UK businesses with £400bn of support, including through the Plan for Jobs scheme.

It is working, the spokesperson said, as two million fewer people are now expected to be out of work than previously feared and the number of redundancies remains near a seven-year low.

The Government is also unlocking investment through the £20bn per year so-called super deduction, the largest two-year business tax cut in modern British history, while £650bn of private and public infrastructure investment will support 425,000 jobs over the next four years.

Supply chain crisis deepens

Companies in retail, food and defence have warned of further damage from supply chain problems that have plagued industry during the disruption caused by the coronavirus pandemic and Brexit.

Some businesses have been unable to take advantage of economic recoveries that have followed lockdowns, as months of shipping delays have caused prices and lead times of goods from abroad to soar.

Firms have also complained that post-Brexit restrictions on immigration have hindered their efforts to find sufficient workers, resulting in record numbers of UK job vacancies.

Here are two of the warnings delivered by companies on Thursday:

Ikea, the world’s largest furniture retailer, said stock shortages would continue for as long as another year, following months of disruption during which the company has sometimes been unable to meet insatiable demand.

Jon Abrahamsson Ring, CEO of Inter Ikea, the owner of the Ikea brand, told the Financial Times that the company had commissioned its own trains to transport materials from Asia to Europe in a bid to avoid shipping bottlenecks.

QinetiQ, the FTSE 250 defence technology company, said ‘technical and supply chain issues on a large complex programme’ could cost £15m, equivalent to 10pc of its profits before tax in its 2021 financial year. The company is a key supplier to the UK’s Ministry of Defence, providing a range of services from maintaining Typhoon fighter jets to engineering navy warships and army vehicles.

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