Insolvencies Double – Business news 25 April 2022

James Salmon, Operations Director.

Insolvencies double with firms hit by inflation. Small firms eye financial growth despite slump in optimism. Half of UK small companies say rising costs will hit growth. Russian sanctions to cost UK economy £6bn. UK retail sales take hit as cost of living crisis intensifies.  And more business news.

Insolvencies double with firms hit by inflation

Official figures released on Friday show company insolvencies more than doubled in March as soaring inflation and rising borrowing costs pushed firms over the edge.

Some 2,114 firms in England and Wales registered for insolvency during the month, up from 1516 in February and 999 in March 2021. The first quarter of this year saw the highest number of company insolvencies recorded since the third quarter of 2017.

So not only have we seen  insolvencies double in a year, they are up 39% in just one month.

Mazars said UK firms were feeling the squeeze as interest rate hikes had left some firms unable to service debt. “Businesses that were just hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge,” said Rebacca Dacre, partner at Mazars. “Between interest rates and inflation, this is the most difficult period for businesses since the height of the pandemic. This time they are having to manage without government support.”

Margaret Carter, restructuring and insolvency director at Azets, added that industry had been expecting this “tsunami” of insolvencies following the withdrawal of government financial pandemic support.

Small firms eye financial growth despite slump in optimism

A new survey by Azets reveals that 51% of SMEs across the UK and the Nordics are optimistic about the economic outlook, down from 68% last summer.

UK SMEs are the least positive, with 40% expecting the economic climate to worsen. However, despite concerns over the economy, 62% of all SMEs expect their turnover to increase during the next year and 53% expect profits to improve.

Peter Gallanagh, regional chief executive for Azets in Scotland, said it is no surprise optimism around the economic outlook has reduced. However: “Despite this new uncertainty, SMEs remain committed to pivoting their business models and embracing digitalisation as the biggest opportunities to fuel growth. It is this flexibility and agility that will be key for SMEs as they continue to build their resilience and pursue their growth plans.”

Half of UK small companies say rising costs will hit growth

A survey carried out by the Federation of Small Businesses reveals that nearly half of small firms believe rising costs will stall growth this year. While the FSB’s small business index stood at +15.3, meaning more companies expected to grow than contract during the first quarter of this year, the reading still came in 12 percentage points lower than the same period in 2021.

Martin McTague, the national chairman of the FSB, said policymakers should be doing all they can to encourage start-ups after the business community shrank “to the tune of hundreds of thousands” during the pandemic. “As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, whilst workplace absences are making it hard to operate at full capacity in a tight labour market,” Mr McTague added. “At the same time, new paperwork and supply chain disruption are weighing on our importers and exporters, and an endemic poor payment culture continues to destroy thousands every year.”

Russian sanctions to cost UK economy £6bn
Government analysis of the sanctions issued against Russia in the wake of its war in Ukraine estimates the measures will cost the UK economy £6bn over the next nine years. At the beginning of the month, Foreign Secretary Liz Truss announced an export ban on items including luxury goods, oil refining goods and quantum computing while the imports of some iron and steel products were also banned. According to the analysis, the total value of the goods exported to Russia covered by the sanctions was £775.9m in 2021, representing 27.9% of all UK exports to Russia that year.

UK retail sales take hit as cost of living crisis intensifies

The Office for National Statistics (ONS) said sales volumes fell 1.4% in March – faster than the 0.5% drop in February – although they remain 2.2% above pre-Covid levels of February 2020.

ONS director of economic statistics Darren Morgan said: “Retail sales fell back notably in March, with rises in the cost of living hitting consumers’ spending. Online sales were hit particularly hard due to lower levels of discretionary spending. Fuel sales also fell substantially, with evidence suggesting some people reduced non-essential journeys, following record high petrol prices, while food sales continued to fall, dropping for the fifth consecutive month.”

Jacqui Baker, partner and head of retail at RSM UK, said: “Fear around the cost of living crisis has seen consumer confidence plummet to peak pandemic levels as uncertainty grips consumers spend, so it’s no surprise to see retail sales fall by 1.4% in March. The cost of living crisis and rebalancing of consumer spending habits is now starting to bite for online sales.”

More retailers will disappear from Britain’s town centres

Andrew Goodacre, CEO of the British Independent Retailers Association, has warned that more businesses will disappear from Britain’s town centres this year than during the two years of the pandemic.

Mr Goodacre said: “Just when we thought it could not get worse after coming out of Covid it has. All of their operating costs, from supply to energy and wages are going up faster than sales are going up. If the cost of products go up these can be passed on to the consumer but it is very difficult to pass energy and wage rises on entirely.”

Mr Goodacre added that some members were also struggling to be accepted for energy contracts as suppliers were deeming them too high risk to pay their bills. Separately, almost a third of retailers plan to pause investment in their businesses this year, according to a survey by BDO, while 40% have already increased prices or plan to. Two in five retailers told the firm’s analysts that they needed additional funding.

Employers shift from gimmicks to permanent improvements

The Times on Saturday detailed how employers are shifting from the more gimmicky methods of luring staff back in to the office – puppy yoga classes, for example – to attempts at permanent improvements to space and culture.

Offerings such as a free lunch on Wednesdays have been recognised as not a substantial enough so firms are installing gyms and putting a greater focus on wellbeing. PwC has a wellness centre offering massages at its Belfast office and its London office staff can access an on-site physio and dentists. But upgrades to office space won’t solve the need among staff for flexibility, experts say.

New York-based consultant Dror Poleg suggests: “It’s much more of a management challenge, redesigning work itself rather than redesigning an office and that is something that many companies are struggling to come to terms with.”

UK venture capital surges ahead of Europe
Data from investment analysis firm Pitchbook show venture capital investment in the UK and Ireland boomed in the first three months of the year with funding coming in just short of £7bn between January and March. This made up over 30% of total European investment. Overall European deal value topped €27.5bn in the first quarter, with €19.7bn in investment occurring at the late stage, equivalent to 71.6% of total deals. However, analysts at Pitchbook warned that global market volatility could spark a slowdown. “Although VC is relatively insulated from public market shocks, tighter fiscal policy and poor macroeconomic performance will reduce investors’ risk appetite and hinder investment flows,” they said.

Civil Service advertises £100k work from home jobs

Despite a push by Government to get civil servants back into the office, roles paying up to £100,000 are being advertised which require candidates to be in the office only 40% of the time, the Telegraph reported on Saturday. The paper also points out that staff based in the capital, some of whom receive a £4,000 London weighting allowance, are still working elsewhere despite the pandemic being over. One civil servant commented: “Obviously there needs to be alignment with the way that civil servants are paid according to their preferences, otherwise it’s the taxpayer losing out.” Separately, the FT reports on new data showing the number of employees returning to workplaces has stalled after recovering strongly following the lifting of restrictions, with office occupancy running at around a quarter of pre-pandemic levels.

New fights over executive pay expected
Dominic O’Connell predicts in the Times that the cost of living crisis will spur public anger at executive pay, which PwC estimates is now roughly back where it was pre-pandemic. O’Connell says this time around, attention should be paid to the uniformity of pay structures, which enables remuneration consultants to charge big fees for peddling roughly the same scheme to a large number of clients. The schemes unsurprisingly deliver similar results, O’Connell continues, citing a study by Pearl Meyer which found 80% of CEOs returned about the same bang per buck to shareholders, with a lengthy tail sloping down to zero. Claims that remuneration schemes are carefully tailored to deliver pay only for performance are therefore evidently rubbish, O’Connell argues, adding: “What the schemes deliver is high pay almost regardless of the outcome for shareholders.”

Labour pledges to scrap non-dom tax break
The Labour party has promised to scrap the non-dom status used by rich individuals to cut their tax bills if it gets into power. Labour’s shadow chancellor, Rachel Reeves, said: “As the Tories raise taxes on working people, it simply isn’t right that those at the top can benefit from outdated non-dom tax perks. With Labour, people who make the UK their home will contribute to this country by paying tax on their global income.” Labour would replace non-dom tax status with a mechanism similar to those in Germany or Canada which also allows temporary residents to avoid domestic tax on overseas earnings. The party also announced that it will review the use of trusts hidden offshore and in tax havens to avoid paying tax in the UK. Rules allow those non-doms who create a trust before their status lapses to continue to benefit from the tax break via that trust once the 15-year limit is reached – part of the reason for Labour’s review of trusts. The move comes after weeks of tension over the use of non-dom status by the Chancellor’s wife, Akshata Murty, and questions over Rishi Sunak’s use of offshore trusts.

Labour calls for emergency Budget
Labour leader Sir Keir Starmer has urged the Government to hold an emergency Budget to bridge the “yawning chasm” left by the Government’s approach to the cost-of-living crisis. Labour has called for the National Insurance increase to be scrapped, for a cut to business rates for SMEs, and for more money to be invested into insulating homes, with a “one-off windfall tax” on oil and gas company profits to fund further support for households struggling with rising bills. The Government insists it is “already providing £22bn worth of support this year”, and that there will be “a number of ways we can help households through this difficult time that don’t rely on using taxpayer funding and don’t push up debt even higher”.

UK House Prices

UK House Prices rose to a fresh record high in April despite growing economic pressures, figures from Rightmove showed. UK house prices hit a high of £360,101 in April, up 1.6% from £354,564 in March. It was also the third straight monthly increase for house prices.

Digital Services Act

The EU has agreed new Digital regulations putting more responsibilities on platforms such as facebook and twitter for illegal content posted. If they fail to police content more vigorously they could face fines in the billions!

The pound hits lows

The pound hit its lowest since the height of lockdown in November 2020 as reports show the recovery has faltered and the UK is falling behind other G7 nations.

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