Business confidence low and insolvencies a threat, but is it quite as bad as people think?
Nick O’Reilly, former R3 President and Restructuring Director at MHA, the accountancy and advisory firm, comments on today’s insolvency statistics:
Total company insolvencies in the UK rose slightly in July (by just over 1%), as businesses continue to navigate a difficult economic environment.
The retail and hospitality sectors are having a particularly difficult time, with Claire’s Accessories the latest to fall victim to a the wider high street malaise appointing administrators in the UK and Ireland and seeking Chapter 11 protection in the US, putting more than 2,000 jobs and hundreds of stores at risk.
Increased employer National Insurance contributions and a rise in the national minimum wage have led to higher staff costs, and the retail, hospitality, and leisure sector has had its 75% discount on business rates cut to 40%. With these changes taking effect from April, we are now seeing the significant impact this is having on the retail and hospitality sectors.
Yet, for many of these struggling companies increased business costs were the straw that broke the camel’s back, rather than a catalyst for previously flourishing businesses to go under. Claire’s, for example, has been under intense financial pressure for several years. In 2018, it made the decision to cut its number of European stores and went into administration in the US. While these increased post April costs are far from welcomed by UK businesses, but it is too easy to blame the sectors woes entirely on the Government’s actions. Look also to falling sales, high inflation and growing competition from online rivals.
In truth business confidence in the UK is lower than it should be. The construction sector is a good example of this. While confidence in the sector is lacking, as the especially low construction PMI for July showcases, and the sector’s small profit margins make businesses particularly vulnerable to insolvency we are not yet seeing this reflected in total insolvencies. While increased costs, global trade tensions, and uncertainty ahead of the Autumn Budget mean that this is not an ideal environment for businesses, there is also evidence that business owners have convinced themselves that the situation is more dire than it is.
