Experts reveal shocking reason for surge in liquidations: Small business closures to blame!

Business closures increased five times in parts of the UK last year compared to the year before the pandemic, according to a BBC analysis.

Experts said places with a large number of independent businesses saw the largest proportional increases in liquidations in 2022 compared to 2019.

Retail, hospitality and construction were the most affected sectors.

The government said it had provided around £400bn of support to businesses since the pandemic.

In January, government figures It showed that around 22,000 businesses suffered insolvency last year in England and Wales, more than at any time since 2009.

To get a regional picture, the BBC analyzed creditors’ voluntary liquidation notices published on The Gazettethe official registration document for public notices.

Patrons at Dale and Rachel Wright’s popular restaurant in Louth thought the couple were sitting on a gold mine.

The restaurant, which was in excess of £200,000 a year, was a popular 27-table restaurant in the East Lincolnshire market town.

But the Wrights were forced out of business when their energy bills tripled from £750 a month to more than £2,800.

“We had a client come in and say, you make amazing food, cocktails, everyone is so friendly, it’s the best place in Louth, it must be a gold mine,” Dale said.

“And we looked at each other and laughed and said ‘not really’ because everything that comes in just goes out the back door.”

The couple received a £10,000 business support grant through their local authority in 2020, while also using the leave scheme and a recovery loan to help them through the post-pandemic period.

But the Wrights, who have more than 40 years of hospitality experience between them, said 2022 was the most difficult year they had experienced. In addition to energy costs, its stock outflows have skyrocketed.

“Anything related to flour doubled in price; oil doubled in price,” Dale said. “Two years ago you could buy a 20-litre tub of sunflower oil for £18. Now it’s £41.”

Ryan Waite opened a branch of The Geek Retreat comic book and board game cafe in Bolton in early 2022, investing savings and an initial loan into the venture.

“I’m crazy about comics,” said the 30-year-old. “I used to say that if I won the lottery I would buy a comic book store even if I lost money.”

Ryan, who previously worked as a surveyor, leased Bolton’s Market Place shopping center and regularly packed the place with customers.

But in August, the cost of some of its actions, such as playing cards and board games, increased by a third. He hit his income hard, and in October 2022, he was forced out of business, returning to his job as a surveyor in order to pay off the business loans he received.

“We had packed Saturday nights, but the main problem was the cost of everything compared to the money coming in,” he said.

“It was a slow strangle for nine months where my value was too low to pay for the stock.”

More than eight in ten local authority areas saw the number of settlements increase last year compared to the year before the pandemic.

Havering, on the outskirts of east London, went from seeing 40 voluntary liquidations in 2019 to 205 last year.

Other big increases were in Southend-on-Sea, Essex, where the number of bankrupt companies rose from 51 to 240.

Both Havering and Southend suffered from the collapse of smaller construction companies, with a third of all losses in that category.

Other areas have been affected by the changing nature of Main Street.

Derby, in the East Midlands, saw the number of liquidations more than triple from 33 to 108.

While Bolton, in Lancashire, saw the number rise from 224 to 501. Half of those losses were felt on the high street, losing 124 hospitality places in 2022 alone.

The analysis focused on creditor voluntary liquidations, the most common form of business closure. It looked at where a business was registered, which in some cases may differ from the location in which it operated.

Michael Weedon of the Federation of Small Businesses said the increase was due to a “perfect storm” in which businesses recovering from the pandemic and paying back Covid-19 recovery loans were hit by the increase in costs due to the war in Ukraine.

“We have seen large increases in insolvencies, particularly in places where there are more independent businesses,” he said.

“Big cities tend to be home to big companies, so the outskirts of big cities and smaller places, where there are more independents, are seeing the effect of these liquidations.”

Weedon said the influx of people in the city center had not returned to pre-pandemic levels. Independent traders also did not have the same reserves as the big names on the street, which would allow them to weather the jump in stock and energy costs.

He called on the government to reinstate the discounts on energy bills it was providing to businesses. before april and raise the threshold by which smaller companies have to pay business fees.

Julie Palmer, managing partner at insolvency experts Begbies Traynor, said the construction industry had been hit hard by the changing nature of urban centers.

Smaller businesses bore the brunt of those closures, Palmer said, as they would find it harder to manage rising costs.

However, Ms Palmer said that insolvencies were just one measure of an economy.

Since the 2008 financial crisis, he said the UK has had many so-called “zombie companies” backed by favorable interest rates.

“It sounds a bit counterintuitive, but sometimes an increase in insolvency can be a positive factor,” he said.

“Many of those employees will have their jobs recirculated to better-financed companies that are better managed and can make better use of working capital.”

Business Minister Kevin Hollinrake recently wrote to energy watchdog Ofgem asking it to ensure energy providers are lenient with companies struggling to pay power contracts.

A government spokeswoman said steps had been taken to protect small and medium-sized businesses by freezing the fuel tax and reversing a planned increase in National Insurance.

“We have already provided around £400bn of direct support to businesses, including business grants, coronavirus loan schemes, the Coronavirus Job Retention Scheme, plus income tax deferral,” the statement said. spokesman.

“This is in addition to a new arbitration scheme to help resolve pandemic-related rental debt.”

The spokeswoman said total business insolvencies in England and Wales were 29% higher than in 2019. In Scotland, the number of insolvencies was 3% higher in 2022 than in 2019, while in Northern Ireland it was 38% lower.

Liquidations and forced administrations were lower than in 2019, the spokesperson added.