The number of corporate insolvencies edged up last year as businesses faced challenges including rising costs and shaky consumer confidence.
Underlying corporate failures in England and Wales rose by 2.5 per cent in 2017 compared with the previous year, figures from the Insolvency Service show. This was after the impact of “bulk” insolvencies related to a crackdown on personal service companies, which are used to reduce contractors’ tax bills, was stripped out.
Duncan Swift, deputy vice-president of R3, the insolvency trade body, said that the increase was a “reflection of the difficult year that firms have been through.
“Once exceptional events have been stripped out, there has been a small upwards trend in insolvencies since 2016, reversing several years of falling insolvency numbers.
“Inflation has eaten into many firms’ margins, thanks to rising input costs on the one hand and with customers proving somewhat reluctant to stomach higher prices on the other.”
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The number of personal insolvencies rose by 9 per cent last year compared with 2016, the second consecutive annual rise, but they fell by 11 per cent in the final three months of 2017 compared with the previous quarter. The annual rise was driven by a record number of individual voluntary arrangements, considered a “lighter-touch” form of insolvency than bankruptcy.
Mr Swift said: “There are pressures pulling indebted individuals in different directions across the previous 12 months. On the one hand, unemployment was at or near record lows, which helped many to stay afloat; on the other, wage growth has been poor, inflation has taken a bite out of disposable incomes and much of the employment available can be insecure, making it much harder for people to budget.
“While we’re nowhere near close to the insolvency levels seen before the financial crisis, people are still increasingly struggling to keep up with their bills.” Mr Swift said that hurdles included changes to business rates and a higher minimum wage. The construction and retail industries were said to be under the most strain.
The benefit that some manufacturers had experienced from the weaker pound, which helped to boost exports, had “balanced out some of the serious problems [inflation] caused for businesses earlier in the year”, Mr Swift said.
The impact of “intense competition and discounting” among retailers in the Christmas period and the recent failure of Carillion, which is expected to have a significant affect on construction suppliers, will not be known until the next set of official insolvency figures.
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Corporate insolvency levels are low by historical standards. The increase in the number of corporate failures was driven by a rise in creditors’ voluntary liquidations. Other types of insolvency decreased compared with 2016.
Brian Johnson, an insolvency partner at HW Fisher & Company, an accountancy firm, said: “The Bank of England is acutely aware of the risk that hiking rates will push Britain’s army of zombie companies — the weak businesses being kept afloat solely by rock bottom interest rates — over the edge.
“So while the Bank is under pressure to tame inflation by raising rates to more normal levels in 2018, the rising levels of insolvency will give it pause for thought. The last thing Mark Carney [the Bank’s governor] wants for his final full year in his post is business blood on his hands.”