Insolvencies on track for worst year since 2009

The number of companies going bankrupt this year is on track to be the highest since the depths of the financial crisis in 2009, according to the latest figures from the Insolvency Service.

Insolvencies rose 10% from a year ago in the three months to the end of September.

There has also been a sharp rise in the number of firms at risk of going out of business.

The figures show that between 1 July and 30 September 2023, there were 6,208 company insolvencies, made up of 4,965 creditors’ voluntary liquidations (CVLs), 735 compulsory liquidations, 466 administrations, 41 company voluntary arrangements (CVAs) and one receivership appointment.

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales (ICAEW), said: ‘Insolvencies remain close to levels seen in the aftermath of the global financial crisis and are only slightly down from the previous quarter’s 14-year high.

‘ICAEW’s own Business Confidence Monitor (BCM) suggests that business conditions are deteriorating as the squeeze from weakening customer demand and higher interest rates more than offsets a boost from easing inflation.

‘With our forward-looking measures of domestic activity, employment and investment intentions also disappointingly downbeat, company insolvencies could well start rising in subsequent quarters.’ 

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Interest rates raised for 12th time in a row

UK interest rates have been raised for the 12th time in a row in a further attempt by the Bank of England to slow rising prices.

The increase to the Bank’s base rate from 4.25% to 4.5% means rates are now at their highest level since the height of the global financial crisis in October 2008.

The rise will mean higher mortgage payments for some homeowners, while people looking for loans will face higher borrowing costs. However, high interest rates can benefit savers.

Reacting to the decision, David Bharier, Head of Research at the British Chambers of Commerce (BCC), said: ‘The unprecedented and prolonged spike in inflation has been devastating for many small firms who have been struggling to absorb continued price rises.

‘But interest rate rises can also have serious negative effects too, particularly for firms looking to borrow to manage their cashflow problems. The combination of high interest rates and high inflation would mean the worst of both worlds for many small firms.

‘The UK government should consider further action to break this vicious cycle by boosting economic growth through investment in infrastructure, skills training and global trade.’

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UK business confidence plummets to 13-year low

The UK’s business confidence has dropped to a 13-year low, according to a survey conducted by the Institute of Chartered Accountants in England and Wales (ICAEW).

The ICAEW’s latest Business Confidence Monitor (BCM) showed that record high inflation and rising costs, including energy and the cost-of-living crisis, have adversely affected business confidence.

The latest monitor showed confidence had fallen to -23.4 for Q1 2023, the lowest since the global financial crisis of 2009. This has dropped considerably when compared to -16.9 for Q4 2022.

Most sectors have shared this decline, with construction, property, retail and wholesale and manufacturing the least confident. Annual growth in domestic sales was slowest in the manufacturing and engineering (3.9%) and retail and wholesale (4.8%) sectors.

Michael Izza, Chief Executive of the ICAEW, said: ‘Financial challenges have had a big impact on certain sectors and across the board investment is set to fall over the next year, but it is notable that sentiment could be starting to level off.

‘With confidence at a decade low, it’s time for the Chancellor to outline his long-term vision for growth for Britain, injecting resilience into the economy and bringing in a period of renewal for the future.’

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Number of firms in critical financial distress rises sharply

A growing number of UK businesses are at risk of going under as costs spiral and COVID loan repayments become due, according to a report from insolvency firm Begbies Traynor.

Although COVID restrictions have been lifted, some firms are still feeling the impact of disruptions to supply chains, and the price of energy and other inputs have risen sharply.

Firms are finding it hard to recruit staff in some sectors, and wage costs, including the minimum wage and national insurance payments, have gone up.

As the cost of living rises, many UK households are looking for ways to save money, putting further pressure on businesses that rely on discretionary spending, like bars and restaurants.

The construction and hospitality are the sectors struggling most, according to the report.

Julie Palmer, Partner at Begbies Traynor, said: ‘The government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make. Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?

‘Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts.’

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Energy bosses call for price cap to be scrapped to prevent ‘horrific’ winter

Bosses of the UK’s largest energy firms have called on the government to intervene with ‘unprecedented’ measures to prevent a fuel poverty crisis next winter.

The chief executives told MPs investigating energy prices that while pre-payment customers were already reeling from the effects of rising bills, they expected the numbers in financial distress to only increase as time goes on ahead of another expected leap in the energy price cap from October.

Energy regulator Ofcom lifted the price cap on bills earlier this month, sending the average household dual-fuel tariff from £1,278 to £1,971. That is due to increase again in October, with some experts expecting the price cap to hit £2,600.

Keith Anderson, CEO of Scottish Power, called for the introduction of a £1,000 deficit fund or social tariff for vulnerable customers. The fund would take £1,000 off the bills of the poorest people in the country in October and the government or consumers would then pay this off over ten years, he suggested.

Mr Anderson said: ‘Come October that’s going to get horrific, truly horrific. It has got to a stage now where the size and scale of it is beyond what I can deal with, beyond what I think this industry can deal with. I think it needs a massive shift, a significant shift in the government policy and approach towards this.’

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Report suggests pay for under-40s is ‘11% lower than before financial crisis’

Typical hourly pay for UK workers aged under 40 is at least 11% lower than before the 2008 financial crisis, a report published by the Resolution Foundation has suggested.

Hourly pay for employees aged between 22 and 39 was down by 11% during its peak, compared to -5% for workers in their 50s and -2% for workers in their 60s.

Average weekly earnings fell by 0.4% during the first three months of this year, the report also revealed.

However, the Foundation predicts that the current pay squeeze will be ‘shallower and shorter’ than the significant fall that followed the financial crisis.

Stephen Clarke, Economic Analyst at the Resolution Foundation, commented: ‘The pay squeeze made an unwelcome return at the start of 2017 and looks set to stay with us for the rest of the year at least.

‘The wages of younger workers and those living in London are still more than 10% lower than they were back in 2008, and this latest squeeze means it will take many more years for their earnings to fully recover.’

UK workers’ wages ‘fell by 1% per year’ following financial crisis, TUC suggests

Wages for workers in the UK fell drastically following the 2008 financial crisis, research from the Trades Union Congress (TUC) has suggested.

The TUC’s analysis of International Labour Organisation (ILO) figures outlined that, from 2008 to 2015, UK real wages fell by 1% a year.

As a result, the UK ranks 103rd out of 112 countries for wage growth during the post-recession period. The business group warned that this ranking is unlikely to improve any time soon.

Wages for German workers, however, rose by 0.9% per year during the period, while wages for workers in France rose by 0.6%, the analysis revealed.

The data also showed that average wage growth across all countries was 2.3%. The median was 1.6%.

Frances O’Grady, General Secretary of the TUC, commented: ‘UK workers suffered one of the worst pay squeezes in the world after the financial crash. And with food prices and household bills shooting up again, another living standards crisis is a real danger.’

Young likely to be poorer than parents ‘at every stage in life’, claims IFS

A new report by the Institute for Fiscal Studies (IFS) claims that young people are on course to be less wealthy than their parents throughout their lives, largely due to increasing pension values for older generations.

The IFS report examined the evolution in household wealth between 2006 to 2008 and 2010 to 2012 and discovered that young people today are more ‘financially insecure’ than previous generations.

It found that UK households actually grew wealthier between 2006 and 2012 despite the financial crisis, but said that the reason for this was the increase in pension values over the period.

Households aged between 45 and 54 saw the biggest increases in their pension wealth in the period, rising on average by £38,000. However, the slow rate of growth in overall wealth suggested that young people would lag behind earlier generations at every stage.

Dave Innes, a research economist at the IFS and an author of the report, said: ‘Despite the financial crisis, household wealth on average increased in real terms over the late 2000s, driven by increases in private pension entitlements.’

But he added: ‘Even with these increases in average wealth, working-age households are at risk of being less wealthy at each age than those born a decade earlier.’

The study also found that many people still have inadequate savings for retirement. 30% of individuals reported saving for an unexpected expense, 23% reported saving for holidays or leisure and 15% for planned expenses, but only 10% of respondents claimed to be saving to provide a retirement income.

In addition, one third of households aged 25 to 34 expected the state pension to be their largest source of income after retirement, yet 24% did not expect to receive any income from the state pension at all.

Meanwhile, some 44% of all respondents did not anticipate receiving any income from a private pension at the end of their working lives.

Rowena Crawford, a senior research economist at the IFS, said: ‘It is striking how many individuals do not expect private pensions to have a role in financing their retirement, let alone be their main source of income. It will be interesting to see how these attitudes change as auto-enrolment into workplace pensions is rolled out.’

Bank of England reports significant rise in consumer borrowing

06 May 2015

Bank of England figures show that between February and March consumer borrowing rose by £1.2bn – the largest rise since the 2008 financial crisis.

Most of that – some £1.1bn – was accounted for by unsecured borrowing, such as overdrafts and bank loans. That was the highest figure since February 2008, and has been widely attributed to current record low borrowing rates.

By contrast, credit card lending showed only a small rise of £200m, while the number of mortgages approved in March was 61,341, a slight drop from 61,523 in February.

Although the increase in borrowing has led to fears of a rise in personal debt, a separate report by the Insolvency Service last week showed a steep decline in the number of personal insolvencies in England and Wales.

In the first three months of the year some 20,826 individuals became insolvent, the lowest figure since 2005 and a drop of 18.6% compared to the same period a year ago.

That news was welcomed by the debt charity StepChange, but their head of policy Peter Tutton warned that the increase in personal borrowing meant that the dangers of the past could return.

‘With levels of personal borrowing growing rapidly once again, the next government and lenders must ensure that the mistakes of the pre-crisis credit boom are not repeated. Our concern is that growing levels of consumer credit will be followed by growing numbers of people falling into problem debt,’ he said.

Younger workers hardest hit by financial crisis, study shows

Research by the Institute for Fiscal Studies (IFS) has been released, showing the impact of the financial crisis and economic recovery on UK employees.

For workers aged 60 and older, average hourly pay in 2014 had returned to its 2008 levels, while workers in their 20s were an average of 9% worse off. Average weekly wages were also shown to have dropped by 5.9%, due mainly to a rise in part-time work.

One author of the report, Jonathan Cribb, said: ‘Almost all groups have seen real wages fall since the recession. Women have seen much smaller falls than men. Falls for the low-paid have been somewhat smaller than for those on higher pay, driven by trends since 2011’.

Other key findings show real earnings growth returning to normal, while individuals who have remained full-time in the same job since 2011 have seen their pay rise year on year. However, part-time workers have increasingly reported that full-time hours are not available.

The full report is available here from 4 February 2015.