Recession claims fewer corporate victims than last time

The number of company liquidations since the recession has remained well below 1990s levels. But the recovery may be slower this time.

by Emma Haslett
Last Updated: 01 Aug 2011
If Royal Wedding fever wasn't enough to put a smile on your face, how about this: the number of comapny liquidations fell by a sixth in the last financial year, according to accountancy group UHY Hacker Young - suggesting there are going to be far fewer corporate victims this time round than there were in the wake of the early-1990s recession. UHY reckons the last Government should get much of the credit for this. But are the current Government's growth policies enough to stimulate the kind of bounce-back we saw in the 1990s?

Apparently, 20,700 business entered liquidation last year, 16% down on the previous year's total of 24,700 - an indication that post-recession liquidations may have peaked. If so, that means we've fared much better than we did in the immediate aftermath of the last recession: in 1991, more than 27,000 companies were wound up. And that was at a time when there were only half as many companies on the register. Since many commentators were expecting things to be an awful lot worse this time round, that has to count as a pleasant surprise (not that this will be much consolation to the businesses that didn't make it).

So why the improvement? UHY points to measures taken by the previous Government – including the Time to Pay scheme, which allows companies to defer tax payments, and the temporary reduction in VAT to 15%, which, it says, ‘provided a useful cashflow boost for SMEs’.

The bad news, according to UHY, is that thanks to the knock-on effects of all the public spending cuts, that sharp drop in insolvencies is likely to level out. This morning's weedy GDP growth figure was a reminder of just how tough life is for (particularly small) firms at the moment; indeed, the Forum of Private Business reckons that in order to kick-start growth, the Government needs to take steps to help other small businesses avoid the insolvency trap. Primarily, it says, that means freeing businesses from 'costly and time-consuming red tape’, along with a ‘simpler tax system’ - so they've got more time to get on with trying to sell stuff and make money. It also thinks we need to see a ‘significant increase in business and consumer confidence’ (although that's easier said than done, obviously).

Clearly things could be worse; UHY reckons that even if insolvency levels remain 'persistently high', the problem is 'unlikely to reach catastrophic proportions'. But in the same way that the last Government stopped things getting as bad as they were in the 1990s, let's hope the current lot can do their bit by smoothing the path to recovery. Starting with that  much-vaunted red tape bonfire, perhaps.

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