Every cloud has a silver lining – and this one is in Stoke

June 21st, 2019
21 June

I promised to return to the insolvency figures for the first quarter of 2019 and I’m sorry to say that they do not look at all encouraging. As my readers will know, I have been forecasting hard times ahead for more than 18 months now and my hope is that my accountancy colleagues are encouraging their clients to run lean and prepare their companies as best they can for some more economic headwinds.

On the face of it, you would think UK plc was doing OK with low unemployment and no immediate signs of recession. But many of those jobs are in the so-called gig economy and they will be among the first to go if redundancies begin to happen in front-line industries. Put it this way, pizza delivery riders are not currently being signed up in droves in Bridgend and Scunthorpe.  And you will know from previous blogs that smaller companies find it harder to survive in areas where there is a growing number of personal bankruptcies (particularly among young people) as there is inevitably less disposable income.

Why so glum? Well, total underlying company insolvencies in England and Wales increased in Q1 2019. Creditors’ voluntary liquidations (CVLs), administrations and company voluntary arrangements (CVAs) all went up and administrations increased to the highest level for five years.

There were 4,187 total underlying company insolvencies in Q1 2019 – 6.3% higher than in the previous quarter. This is the second highest underlying level of insolvencies in any quarter since Q1 2014.

This rise was driven by increases in CVLs which increased by 6.2% compared to Q4 2018 and administrations which were up 21.8%. You may remember my previous blog on 4 May 2018 in which I forecasted a rise in CVAs.  CVAs increased by 43.1%…!!

Many of these insolvencies were in industries well represented in Stoke, Staffordshire and the West Midlands.

– The repair of vehicles industry grouping saw the largest increase in underlying insolvencies, with 67 extra cases compared to the 12 months ending Q4 2018.

– Closely followed by the administrative and support services grouping (66 additional insolvencies)

– Manufacturing (58 additional insolvencies)

– Accommodation and food services grouping (57 additional insolvencies).

The highest number of new company insolvencies remains in the construction industry with 3,013 insolvencies. Yet, strangely enough, it is to this industry that I am turning for a faint glimmer of sunshine – and, indeed, that sun is shining on construction services in Stoke-on-Trent.

You may have noticed that investors dumped shares in Kier Group recently after a profit warning from the construction and services company prompted comparisons with Carillion, its former rival that collapsed last year. Brewin Dolphin investment manager John Moore’s view (here) is that Kier Group “has broken trust with investors, which does not bode well. It also smells horribly like Carillion”.

Well that smell will not be percolating through to Stoke where the council set up a new housing maintenance company instead of renewing its joint venture with Kier. The new company responsible for maintaining Stoke-on-Trent’s 18,500 council houses – Unitas – was launched earlier this year and 450 Kier staff and 30 council workers have already been transferred into it (more details here).

The hope is that this will result in more of the £17 million the council invests in its housing stock each year staying in the city, through the use of local contractors and that is excellent news. It also means that if Kier Group does go bump, those local housing sector jobs will not.  The further knock on effect is that local employment puts local money into local pockets that goes back into the local economy and keeps pizza deliveries happening in the ST-postcode area!!

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