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Small business insolvency rises by 6pc in first quarter

Small business insolvency rises by 6pc in first quarter


Distress signal: construction, admin and retail are all seeing greatest number of insolvencies

Small business insolvency rose by 6.3pc in the first three months of 2019 compared with the previous quarter.

There were 4,187 company insolvencies between January and March this year, according to The Insolvency Service.

Construction, administration and retail — sectors all struggling with higher wages and employer pensions auto-enrolment costs — were the sectors most affected by small business insolvency.

The construction sector, which is notoriously dogged by late payments, has the highest level of insolvencies, up 0.6pc in 2018.

Mike Cherry, chairman of the Federation for Small Businesses, said: “These latest figures show the immense strain that small businesses are currently under with rising employment costs and unfair business rates as well as significant uncertainty as a result of the Brexit process.

“Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which highlights the ongoing turbulence that small firms are now up against.”

Growing number of SMEs in distress

Meanwhile, nearly half a million UK companies are in significant financial distress — 16pc of all businesses in Britain.

Small or medium-sized businesses (SMEs) account for 99.8pc of private companies, with small businesses alone making up 99.3pc of that.

According to insolvency firm Begbies Traynor, 484,000 UK business were in significant distress at the end of March 2019. The number of businesses in critical distress during Q1 2019 — often a precursor to formal insolvency — rose by 17pc year on year.

The FSB’s own research has found that small businesses are spending around 15pc more on the likes of taxes, levies and employment obligations than they were six years ago.

SME sectors worst affected

Again, the property sector was particularly badly affected, seeing a 13pc year-on-year increase in the number of companies in significant financial distress rising to 48,182. Companies involved in buying, selling and letting were especially battered.

The hotels & accommodation sector also saw a 9pc rise in the number of businesses in significant financial distress. The sector relies heavily on migrant workers and, with net EU migration to the UK falling to its lowest level since 2009, hotels and other accommodation are having to deal with a “perfect storm” of a reduced labour supply and increasing costs due to the recent 5pc increase in the national living wage, says Begbie Taylor.

Financial services is also seeing an increase in the number of firms in distress, up 5pc to 12,728 compared with Q1 2018. Brexit uncertainty has been blamed for the turbulence affecting financial services, although Begbie Taylor notes the sector’s fundamentals remain reasonably good.

Julie Palmer, partner at Begbies Traynor, said: “Many UK businesses are currently in limbo and deferring major investment decisions. This combined with consumers holding back on big ticket purchases has resulted in increasing significant distress across many sectors.

“Worryingly this data shows that this economic malaise is spreading to the UK’s dominant services sector and does need to be stopped in its tracks by a combination of political certainty and a commitment to support UK business, particularly SMEs which are the ‘engine room’ of the UK economy.”

Ric Traynor, executive chairman of Begbies Traynor, added: “We have heard from businesses that Brexit uncertainty has been a hindrance to business growth and investment. There has already been a number of high-profile firms announcing their decision to invest in other countries, which not only impacts regional economies, but also the SME supply chain.”

Further reading

Financial distress edges up as economy prepares for uncertain year



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