More than 140,000 UK firms experienced ‘significant or critical’ financial problems last quarter, according to insolvency specialist Begbies Traynor – a 6% rise on the previous three months. With the unemployment figure also expected to hit a 14-year high this week, and a think-tank suggesting that the economic gap between UK cities is getting even wider, one thing is abundantly clear: even if we do technically emerge from recession soon, we’ll be feeling its effects for a while yet...
Begbies’ ‘Red Flag Alert’ monitors companies in financial trouble – specifically those with a court action pending and/ or dodgy accounts, or (more seriously) those hit with a CCJ or winding-up petition. And the bad news is that although last quarter’s figure was actually lower than the previous year – thanks partly to a more lenient approach by creditors and an improvement in business confidence – it seems to be heading in the wrong direction again.
Although Begbies thinks Government measures have had ‘positive effects’, they’re also part of the problem. For instance, HMRC’s ‘time to pay’ scheme has apparently allowed over 240,000 firms to defer some £4.2bn in tax – but when it runs out, many more businesses could go to the wall. MT columnist Nick Hood, a partner at Begbies, reckons it may be encouraging companies to live beyond their means. Since the insolvency number is generally a lagging indicator of the economy at the best of times, we can apparently expect it to keep rising for the rest of 2010.
There’s also a concern that our insolvency regime has become too lenient, making the UK a magnet for 'bankruptcy tourists'. Wind Hellas, a Greek telecoms group that has just become the UK’s largest pre-pack administration, only re-registered in the UK two weeks previously. Hedge fund SPQR Capital, one of a group of creditors that has just lost €1.5bn as a result, plans to sue over this ‘blatant and offensive abuse’ of the law. ‘If nothing is done, London will become a bankruptcy brothel for low-life businesses,’ it raged to the Times.
Another recessionary bad news story this morning comes from the Centre for Cities, which says it will ‘take years’ for some UK cities to recover. Places like Brighton, Edinburgh and Cambridge, with an educated workforce, a strong private sector and high levels of entrepreneurship will bounce back quickly, it thinks – but the likes of Stoke, Newport and Hull will find it even tougher. So in other words, inequality will rise even further.
Throw in the likely increases this week in both inflation and unemployment (which is expected to top 2.5m or 8%, the highest since 1996), and it’s a bit hard to see how the Government is going to make a compelling case for its economic competence in the run-up to the Election...
In today's bulletin:
Britain frets as Wall Street defies Obama with $100bn pay bonanza
140,000 UK firms on the rocks as recession keeps biting
ASOS out of vogue as sales growth slows?
10% of Brits think Steve Jobs is a trade union boss
MT Expert's Ten Top Tips: Learn to roll with the punches