Business news 21 June 2022

James Salmon, Operations Director.

Business insolvencies jump 30% in three months. Zombie companies set to reach record high. SMEs face ‘cost-of-working crisis’. Personal insolvencies up in May. And more business news.

Business insolvencies jump 30% in three months
Analysis by Mazars shows a surge in corporate insolvencies, with a 30% increase in the last three months. Close to 6,000 firms have gone down in the period, up from 4,578 in the previous three months. There were 1,817 insolvencies last month, with this a 79% increase on the number recorded in May 2021. Mazars said interest rate rises were a key factor as it means debts were harder to service. Rebecca Dacre, a partner at Mazars, said the figures suggest that “just as the cost-of-living crisis is hitting consumers, it is doing the same for businesses.” She added that businesses are “being hit from both sides” by rising costs and falling consumer spending. She noted that those that were already struggling have started to become insolvent, warning that figures pointing to an economic contraction “do not bode well for businesses that are close to the water line.”

Zombie companies set to reach record high
Business recovery group Begbies Traynor has warned that the number of zombie companies is set to reach a record high. Julie Palmer, partner at Begbies Traynor, said the number of firms showing significant financial distress was likely to surpass the peak of 725,000 seen during the pandemic, saying: “That figure definitely looks like being exceeded.” She added: “Given the high levels of employment at the moment, there might never be a better time to let the zombies fall over. They are bad for the economy. They suck capital away from more efficient businesses and end up costing us more in the long term.” Zombie firms are usually defined as low-growth or heavily-indebted firms barely able to cover interest payments on company debt.

SMEs face ‘cost-of-working crisis’
Eight in 10 small businesses are facing a “cost-of-working crisis” due to poor customer service from suppliers, according to a survey by telecommunications provider TalkTalk Business. On average, SMEs spend 16 hours a month calling supplier customer service teams, which 62% said results in less time spent focusing on their core business. The most common issues faced include not having issues dealt with in one call (44%), being kept on hold (55%) and being passed between customer service agents (48%). Businesses said speaking to the same agent (41%), speaking to a human customer support agent over an automated one (54%), and speaking to someone who understands their company ethos (36%) would enable them to overcome cost-of-working issues more effectively.

Personal insolvencies up in May
Personal insolvencies rose by 11.2% month-on-month to 10,476 in May. The total marks a 23.3% increase on May 2021. Insolvency body R3 said those on lower incomes were the worst hit. Meanwhile, corporate insolvencies fell by 8.9% last month to 1,817.

Mortgage arrears value reaches 12-year high
The value of mortgage arrears in the UK has reached its highest level since 2010, with £2.05bn of mortgage debt unpaid at the end of Q1, according to new data from Mazars. The proportion of mortgages in arrears with no formal arrangement in place is higher than when arrears last reached this level in 2010. In 2010, 36% of mortgages in arrears had a formal arrangement in place with the lender. That figure has now dipped under 20%. “As the cost of living crisis evolves, UK mortgage lenders are now seeing arrears start to build,” Mazars partner Matthew Carter, said. “The rise in arrears has been modest so far, but the small, persistent rises over the last few years are now adding up,” he added. Separately,  UK homeowners are facing on average a £1,344 increase in a fixed rate mortgage costs according to Hamptons estate agents.

Train Strikes proceed

UK RMT union has started a 3 day strike over pay and working conditions. Tuesday, Thursday and Saturday will be impacted by the union walkout.

Big pay rises could push prices up, says minister
Treasury minister Simon Clarke has warned employees not to expect their wages to rise along with inflation, saying that large increases in salaries to meet the rising cost of living could end up in an “inflationary spiral.” Mr Clarke, chief secretary to the Treasury, urged employers to be “very careful” in setting pay rises to prevent this, warning that inflation could become a “self-fulfilling prophecy”. He told the BBC that “unrealistic expectations around pay” could “intensify this endless inflation problem.” A BBC-commissioned survey of more than 4,000 people saw 82% say they thought their wages should increase to match the rising price of goods and services.

IoD proposes code of conduct for company directors
The Institute of Directors (IoD) has suggested that company directors should sign up to a code of conduct to improve behaviour in boardrooms. It has proposed a voluntary nine-point code covering ethics, diversity, competence and lawfulness.  The plan would supplement the existing corporate governance code administered by the Financial Reporting Council (FRC) and general legal duties under UK company law. Roger Barker, the IoD’s director of policy and governance, said: “There is a risk that each new corporate scandal or collapse will renew pressure on government to impose prescriptive regulatory obligations relating to directorship.” The IoD has asked the Department of Business and FRC to support the development of the code, which would be administered by industry rather than a regulator or government. The industry body suggested that a whistleblowing process could be established to allow the reporting of poor conduct, adding: “An appropriate investigations and sanctions process would also need to be defined.”

Law change will let agency staff do jobs of strikers
Ministers are set to repeal laws banning businesses from using temporary workers to replace striking staff. This comes amid concerns over increasing walk-outs, with a Whitehall source telling the Times that ministers are trying “urgently to protect against future strikes.” Business Secretary Kwasi Kwarteng has presented plans enabling agency staff to be used to perform the roles of striking workers to cabinet colleagues, with the statutory instrument making the change expected to be tabled this week and new rules set come into effect in mid-July. The ban on agency workers has been in place since 1973. Former Prime Minister David Cameron had pledged to change the law in his 2015 election manifesto but later abandoned the proposal amid intense union opposition.

A fifth of workers plan to quit this year
More than 6.5m people plan to quit their jobs within the next year as they search for better pay and benefits, as well as an improved work/life balance. About 20% of workers said it was likely they would leave their role in the next 12 months, according to a survey of more than 6,000 British workers by the Chartered Institute of Personnel and Development. This marks an increase on the 16% who said the same last year. While 35% cited better pay and benefits as the chief reason for searching for a new job, 27% wanted better job satisfaction and around the same proportion wanted a better work/life balance.

More workers top up wages with extra work
Some workers are finding their earnings from full-time employment are no longer sufficient to make ends meet, with thousands turning to the gig economy amid the cost of living crisis. Data from Fiverr shows that 58% of UK workers have taken on extra work since the beginning of the pandemic. A recent report from Total Jobs suggests that 17% of people have taken a second job to boost their income since the crisis began, rising to 20% for essential workers. One-third of employees said they were considering looking for new, better-paid jobs.

Manufacturers call for support
Manufacturers have reported a slowdown in growth and orders. Orders for goods and services almost halved compared with the first quarter of this year, according to a survey of 287 companies between mid-May and early June by industry body Make UK and BDO. Make UK has urged ministers to waive or reduce business rates for the next year, allow companies to defer VAT payments, make permanent the increase in annual investment allowance and extend the tax super-deduction to encourage investment. Richard Austin, head of manufacturing at BDO, said: “Rapidly rising input costs, ballooning energy bills and in some cases inflation-busting pay settlements have hit margins and frozen investment plans. There is a strong case for government action to help manufacturers weather the immediate storm and incentivise investment for long-term growth.”

Three quarters of CEOs expect global recession
Three quarters of global business leaders are expecting a global recession within the next 12 to 18 months, pointing to Russia’s invasion of Ukraine as a key factor in the economic decline. A Conference Board survey found that 76% of CEOs across the world expected their region to fall into recession – or feel it already has. The poll of 750 chief executives shows a shift from a year ago when just 22% expected a recession. Paul Knopp, CEO of KPMG US, said Russia’s attacks on Ukraine, as well as supply chain issues and Covid, are “creating some uncertainty in terms of the outlook.”

National debt interest hits £100bn a year
Interest payments on the UK’s £2.3trn national debt are set to top £100bn a year, with the interest bill having more than doubled since before the pandemic. This will cost each household £2,426 a year – more than £500 higher than previously forecast. In March the independent Office for Budget Responsibility (OBR) said interest payments on the debt would peak at a record £83bn in the year to April 2023, with this double what it had predicted five months earlier. New analysis using the OBR’s own forecasting model shows the figure could instead hit £106bn as interest rates continue to rise. A Treasury spokesman said: “We’ve always been aware of risks to debt interest costs from rising inflation and interest rates, which is why we have taken a balanced and responsible approach to the public finances.”

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.


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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.