Soaring energy costs have forced a record number of firms out of business, according to official figures. The Office of National Statistics (ONS) said that the number of companies filing for insolvency in England and Wales hit a 13-year high in the three months between April 1 and June 30 this year.
Withdrawal of Government Support a Contributory Factor
The number of corporate insolvencies dropped during the pandemic owing to government support measures, including increased financial support for companies. However, they started to increase in 2021 and more recently, there has been a sharp rise in part due to the withdrawal of the government measures designed to support businesses through the pandemic. The second quarter of the year saw a total of 5,629 English and Wales companies declare bankruptcy, the highest since the third quarter of 2009 when the UK was in the grip of the global financial crisis. The figures mark a 13 percent uptick from the previous quarter and an 81 per cent rise in the previous year.
Smaller Firms at the Most Risk
Survey results from the ONS show that in August more than one in ten firms said that they were at ‘moderate to severe’ risk of insolvency, with smaller firms reporting the highest risk. During the same period, 22% of businesses cited energy prices as their main concern.
Although the number of bankruptcies increased across all sectors of the economy, the sharpest increases were found in the construction, retail and hospitality industries. These businesses were heavily affected during the pandemic and many have struggled to survive without the lifeline of government support, such as the furlough scheme.
The overall increase in company insolvencies was driven by a steep rise in creditors’ voluntary liquidations, which accounted for 87 per cent of all company insolvencies. Figures also indicate a slight increase in the number of compulsory liquidations and other types of insolvencies but these numbers remained below pre-Covid levels.
Further Insolvencies Expected
Several analysts forecast further insolvencies in coming months, as rising living costs, soaring inflation, staff shortages and global supply chain issues continue to take their toll on companies.
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