Insolvencies rise as firms face tariffs and higher costs
The number of businesses becoming insolvent rose sharply last month as companies faced higher staff costs and continuing uncertainty over trading arrangements with the United States.
Business insolvencies in England and Wales rose 15 per cent to 2,238 in May compared with the same month a year ago, according to data from the Insolvency Service.
The figures showed that the number of creditors' voluntary liquidations, through which a director chooses to close down the business, rose by 13 per cent to 1,734, while the number of company administrations, which usually involve larger enterprises, was up by 12 per cent to 136.
Businesses started paying higher national insurance contributions for employees in April and also faced an increase in the national minimum wage. The corporate environment has also been hit by uncertainty over tariffs, although Britain has now signed a trade deal with the US.
Tom Russell, president of R3, the UK's insolvency and restructuring trade body, said the uncertainty over trade costs had made 'medium and long-term planning more difficult' for companies.
Mark Ford, partner in the restructuring team at S&W, the professional services firm, said: 'The impact of sluggish economic growth, high borrowing costs, low consumer confidence and high inflation in recent years has eroded cash reserves for businesses and left some in a perilous position.
'Businesses are now facing newer challenges that threaten their viability and this means we are likely to continue to see a steady stream of company insolvencies in the coming months.
'Higher costs resulting from increases to employer national insurance contributions, the minimum wage and business rates are all heaping considerable pressure on businesses, particularly those that feel they are unable to increase prices for fear of losing customers.'
Kathleen Garrett, partner at Reed Smith, the law firm, said the Bank of England's decision to hold interest rates on Thursday showed that while borrowing costs were falling, they were facing 'a much more gradual descent than many would have hoped'.
She added: 'Businesses are facing a raft of challenges which have caused insolvencies to start rising again. The headwinds from additional business costs such as the recent increases to national insurance and a fraught geopolitical environment in terms of tariffs and unrest appear to have had an effect on business.'
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