Official figures published by the UK’s Insolvency Service showed that 2,114 UK businesses entered insolvency in March. This figure was up from the previous month, February, when insolvencies were 1,517. What does it mean for other UK companies struggling to pay their business debt?
Why is there an increase in business insolvencies?
Accountancy firm Mazars has suggested that the rise in interest rates has meant that businesses have not been able to cope with the added interest charge on their business debts.
A surge in Creditors’ Voluntary Liquidations (CVLs) has also resulted in government pandemic support ending.
Furthermore, there has been an end to restrictions regarding creditors acting against businesses. HRMC is now recovering outstanding debts from companies that failed their Time to Pay (TTP) arrangement, which has meant that companies have been left with minimal alternative but to fold their companies.
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As well as this, let’s not forget the increase in energy bills. It is not only domestic consumers that will feel fuel poverty. Businesses that rely intensively on energy already see their energy bills increase, making it hard for them to sustain their energy costs.
Things don’t seem to be getting any better as the war in Ukraine isn’t slowing down, making the situation even worse.
Rebecca Dacre from Insolvency firm Mazars has said, “Businesses that were hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge. This is the most difficult period for businesses since the height of the pandemic.”
She added, “This time, they have to manage without Government support. UK businesses will be hit by the ‘cost of living crisis, just as consumers will be”.
Will there be government help for other struggling UK businesses?
A few days ago, the government announced that it would offer a relief package for UK businesses that are struggling with the rise in energy costs.
This will mean that the government will provide double the government assistance to energy-intensive industries whose energy bills are increasing rapidly.
The UK government has been under a lot of pressure from big businesses to provide support as the cost of gas is becoming unmanageable, so it will be interesting to hear more details about the £800 million, the 3-year package on Friday
Kwasi Kwarteng, UK business secretary, has been pushing for a solution since October 2021. The rise in energy prices had affected UK businesses before the Ukraine war in February.
The agreement will extend the existing programme called the “energy-intensive industries compensation scheme” for another three years.
The relief package will offer strategic industries part of the UK emissions trading scheme and carbon price support mechanism. This will mean that carbon-intensive companies will be allowed to buy an allowance to enable them to emit a tonne of carbon under the package.
There are still the finer details to iron out from the government, such as which industries will be eligible for the support; however, chemicals, ceramics, steel and cement could be some of the sectors which could get the government help.
Will the ETS scheme help UK businesses?
Many industries have welcomed the support from the government. UK Steel said that the additional help would provide some respite for companies facing ‘extremely challenging circumstances.’
The Chemical Industries Association has welcomed the three-year extension but is very sceptical about whether this is enough support companies need to survive.
Only time with tell; however, with the rise in energy prices hitting households and businesses, the cost of living crisis is set to deepen in the next few months; the UK government will be facing an arduous task of ensuring the support is available if it is needed.
How can we help?
If you live in Scotland and face insolvency, then visit our page on Sequestration.