Looking beyond Q1 to the inevitable insolvency of…

July 23rd, 2019
23 July

…local retail.

Ah. I thought that would get your attention. The headline is, I admit, designed to make accountants sit up and take notice (particularly those with retail clients under their wing).

This is my final look at the somewhat gloomy picture painted by the Quarter One statistics released by the Insolvency Service. Q2 will be released on 30 July 2019 which may prompt a new batch of comments!  Now, I know this is unusual for a blog that is about Q1 but…. I am not going to talk about Q1 at all.

I urge readers, however, to go and check out my last blog as essential background to this piece. Because here I am looking beyond Q1 and, indeed, beyond this year to a time in the not-too-distant future when many of the close companies in the UK, particularly those involved in retail, will have gone out of business. 

Many of my accountancy colleagues in the North Midlands currently have lots of these close companies on their books so I do hope they are paying attention.

Take all those stats from Q1 and set them against the personal financial situation of millions of Britons (let’s call them shoppers).  According to the latest figures published by the Money Charity (here) to April 2019, the total value of outstanding personal debt in the UK has now reached over £1.6 trillion (yes, that’s with a “t”).

UK households owe an average of £59,713 – which means that the average UK adult resident (sorry, did I say ‘resident’? I meant ‘shopper’) currently owes £31,232 (including mortgages), which is 113% of the typical annual earnings for the UK.  According to the Office for Budget Responsibility, by the time Q1 rolls round in 2023 that amount of debt will have rocketed still further to a staggering £86,388 per household.  It’s also worth noting that every day, £139 million is being paid by shoppers not to a shop to buy goods but to a bank or finance house in interest. That’s almost £51 billion a year. 

Part of the reason for the increase in overall debt is continued growth in consumer credit lending (shades of the mid-2000’s anyone?). The typical UK household debt sits at £7,629 – which means each UK resident has an average credit debt of just over £4,000. Credit card debt reached £72.7 billion by the end of April (£2,653 per household). 

It’s also a little frightening to note that 350 people per day were declared insolvent in the period January – March 2019; that’s one person every 4 minutes and 7 seconds.

So that’s that. And then there’s this. According to the research consultancy Retail Economics, more than half of all retail sales in the UK are expected to be made on online by 2028.

They add that one of the primary causes driving the growth in online sales is the increase in Generation Z and millennial shoppers. By 2029, the generations that grew up with the internet will make up more than half of the UK population, compared to 39% now. “That’s fine!”, I hear you cry: “Most of my retail clients ARE online!”.  But, shoppers do need money to spend online…

The website Guarantor Loan Comparison has been crunching those online savvy youngsters and their budgets using data obtained by an online survey (here). Along with the predictable result that almost 40% of 25 to 34-year-olds needed financial help from mum and dad to buy a house, they also found:

  • Some two-thirds are unhappy with their financial capabilities 
  • 32 per cent have turned to the parents for help with debt
  • 28 per cent said their parents helped to pay for food shopping
  • 25 per cent have had some small bills paid for them
  • 14 per cent say they could not maintain their lifestyle without parental support

We live and work in an area which has some of the highest personal debt problems in the UK, particularly for young people. Every economic pundit is forecasting the end of the High Street. People need disposable income to buy goods.

These facts and figures, taken together with a reading of the Q1 statistics, I would suggest, should be the focus for discussion at your next partners’ meeting.  If you then need further input on how any struggling clients may need assistance, let me know.