Corporate insolvencies jumped by almost one-fifth in England and Wales in the year to February as businesses struggled with rising costs and a slowing economy, according to official figures published ahead of the Budget.
Data published by the Insolvency Service on Tuesday showed that the number of registered company insolvencies reached 1,783 last month. That is 17 per cent higher than in the same month of 2022 and one-third higher than in February 2020, before the onset of the Covid-19 pandemic.
Corporate insolvencies are formal measures taken when a business can no longer pay its debts.
There were also 158 compulsory liquidations last month, more than twice the number in February 2022 but 32 per cent lower than in February 2020.
The government agency said the rise of compulsory liquidations was partly the result of an increase in winding-up petitions presented by HM Revenue & Customs.
Companies of all sizes are also contending with fast-rising borrowing and wage costs as well as high energy prices and weakening demand.
Nicky Fisher, vice-president of R3, the insolvency and restructuring trade body, said: “After nearly three years of lockdowns, supply chain issues, rising costs and falling revenues, many business owners have simply had enough, and are shutting up shop before they are forced to.”
Chancellor Jeremy Hunt is expected to announce measures to support companies in the Budget on Wednesday, as businesses face an increase in corporation tax from April and the end of the government’s “super-deduction” scheme, which allowed companies 130 per cent tax relief on purchases of equipment over two years.
Nick O’Reilly, director of restructuring and recovery at the accounting association MHA, said the Budget provided Hunt “with a golden opportunity to introduce new business incentives to restore confidence among UK businesses”.
The figures for February also included 1,505 creditors’ voluntary liquidations, 13 per cent higher than in the same month last year and 59 per cent higher than before the pandemic.
Jeremy Whiteson, partner at the law firm Fladgate, said the failure of Silicon Valley Bank had “added to the growing list of risk factors” for companies, including higher borrowing costs, staff shortages and continuing regulatory changes on imports from and exports to Europe.
Since November last year, the Bank of England has raised interest rates from a record low of 0.1 per cent to 4 per cent, making it more expensive for governments to borrow money. Prices for materials for UK businesses rose at an annual rate of 14.1 per cent in January, more than five times the 1985-2020 average.
At the same time, the economy contracted in the third quarter and stagnated in the last three months of 2022, as the cost of living crisis hit household finances and business activity.
In a blog post last week, Jelle Barkema, the BoE’s lead data science analyst, said the sharp rise in corporate insolvencies since last year was unlikely to pose “an imminent financial stability issue” because most of the businesses going bankrupt were small and had exposures in part guaranteed by the government.
But Barkema added that stability could be hit “as macroeconomic challenges continue to accumulate, government loan payments become due, financial conditions tighten, and larger, more complex insolvencies start to crystallise”.