The figures that show we may be heading for a tough time

November 6th, 2017

The latest insolvency statistics for Quarter 3 (July to September) 2017 are out and I have not seen much reaction to them yet from local business and civic leaders. That may be because the headline figures seem innocuous enough. But I am not so sure.

Having taken a careful and dispassionate look at the numbers – something that we do all the time in our role as insolvency practitioners – I get the impression that the nation, and the North Midlands in particular, may be heading for a tough time.

Despite more than 30 years of meeting with directors of companies that are failing, and working to help them move on with their lives, I still have a reasonably cheerful disposition. But it helps nobody to ignore the facts and right now they are telling me that darker days may be ahead for local businesses and the people who work in them. Let us look at some of those facts:

Behind the headline stats: The Insolvency Service begins its review of the latest quarter figures by saying “Total company insolvencies in Q3 2017 decreased compared with the unusually high level in the previous quarter, when a large number of connected personal service companies entered liquidation”.  But, it points out, the underlying number of company insolvencies actually rose. In England and Wales, in fact, the underlying number of companies entering insolvency in Q3 2017 rose by 15.0% compared to Q2 2017 and by 14.5% compared with the same quarter in 2016. These are big rises.

The industries with the most insolvencies: Apart from the anomaly of the connected personal services companies that went bump, the next biggest number of insolvencies in England and Wales was in construction followed by wholesale and retail trade (including vehicle repairs), accommodation, food service and manufacturing. All of these sectors are well-represented in the North Midlands and, more importantly, many of them employ young people. 

The threat of rising interest rates: In my July blog ‘Debt worries rise for UK businesses’ I reported on the survey that showed there had been a big rise in businesses who would be unable to pay their debts if interest rates rose by even a small amount. Now the Bank of England has done exactly that, raising the base rate to 0.5% – and predicting two more rate rises in the next two years.

Young and in the red: Earlier this month, the BBC reported on the growing number of people aged between 18 and 24 who were going insolvent. The report was based on 2016 data but it showed a clear and growing trend of young people unable to pay their debts. It used this graphic from the Insolvency Service of the top 10 local authority areas with the highest insolvency rate among these young people. Here it is – I draw your attention to numbers three and six on this list.

Apart from yours truly, there is one professional group that is concerned about these figures – and that is our chartered accountancy colleagues. 

According to Bob Pinder, who is the regional director at the Institute of Chartered Accountants in England and Wales, businesses should be deeply concerned about the substantial increases in personal insolvencies,

“Consumer insolvencies increasing at this rate will almost certainly trigger considerable business risk and they must be able to identify the early warning signs fast, and take immediate actions to ensure they are not the ones to become next quarter’s statistics,” he explained.

We hope for better times but we must be prepared for the possibility of more local and regional businesses facing potential insolvency.