Almost 50,000 firms near collapse amid ‘immense strain’ from tax hike – report
Nearly 50,000 UK companies are on the brink of collapse with retailers and hospitality firms among the hardest hit as rising wage costs due to budget measures put small firms under “immense strain”, according to a report.
The latest Begbies Traynor red flag alert found that firms in critical financial distress rose by more than a fifth – 21.4% – year-on-year to 49,309 in the second quarter.
Consumer-facing industries saw some of the most “extreme” rises in critical financial distress, with a 41.7% surge among bars and restaurants, a 39% leap for travel and tourism and 17.8% jump for general retailers.
Pressures
Begbies warned that many independent pubs will not have the scale to withstand the pressures for another year without action.
Ric Traynor, executive chairman of Begbies Traynor, said: “The sharp rise in critical distress underscores just how tough the economic environment is for UK businesses and it’s abundantly clear that tens of thousands of firms are struggling to stay afloat.
“Small and medium sized businesses across the UK are being put under immense strain by the recent increases to employer’s NI as well as the increase to the national minimum wage.
“With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point.”
It is the latest sign of the toll taken on many firms by the Government’s move in last autumn’s budget to increase national insurance contributions (NICs) and hike the minimum wage, both taking effect in April.
Labour-intense companies in particular have felt the impact, such as retailers and restaurants and bars.
Troubles in the sector have been compounded by a pull back in consumer spending, according to Begbies.
‘Knock-on effect’
Julie Palmer, a partner at Begbies Traynor, said: “Households are still grappling with their finances, and this is keeping consumer confidence volatile.
“The knock-on effect of this is clear to see in the consumer-facing sectors where margins are thin, growth is hard to come by, and the impact of higher employee costs is pushing many businesses to the brink of collapse.
“So, it is of no surprise to me that while larger pub groups might be performing well, by squeezing out extra efficiencies to counteract onerous price rises, many independent players won’t have the scale to withstand the pressures of this environment for another 12 months if nothing improves.”
The British Beer and Pub Association (BBPA) recently estimated that 378 pubs will close this year across England, Wales and Scotland, which it said would amount to more than 5,600 direct job losses.
The wider economy is also showing signs of strain, with recent official figures revealing gross domestic product shrank by 0.1% in May, following a 0.3% drop in April.
“With no end in sight to the current economic malaise, I fear the financial burdens companies are enduring at present are simply too high for many not to avoid collapse,” said Ms Palmer.
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Rachel doesn’t get it – Tax should be on business profits not on numbers employed.
N.I contributions now inflated beyond reason yet the same ruling regime fails abysmally to close loopholes in personal and business tax regimes and address need for some increments to scales at the higher levels of personal income and business profits. Wrong people are “feeling the pain” so shift the burden.
NI pays for social security and this burden – health and social care, and state pension benefits – is higher than it’s ever been before because of the explosion of older people.
The ‘business profits’ doesn’t bring in as much money though – it’s about 8% of UK tax revenue. And there are ways to minimise paying it if you’re big enough, or it becomes too high. NIC, VAT and income are ‘the big three’ and bring in 2/3s of UK tax. It’s complex, but for large tax rises, you really have to focus on those three taxes. Everything else has a marginal impact. I actually think Ms Reeves is in an unwinnable situation. UK population can’t really absorb tax rises, we can’t accept major public sector cuts as everything has been… Read more »
You and Bret miss the point I’m making which is that a new government had a great opportunity to reset the tax regime. Business / Corporation tax is now mitigated because of the allowances and loopholes in existence. Block those and the tax take will increase. Jacking up N.I in one big hit – 15% of incomes between c.£5k and £9k plus additional 1.2% on incomes above £9k is a big additional burden however you choose to look at it.
Paying a living wage for employees and NI by the employers, should not result in the collapse of a company. They need to re-visit their business model.
But companies are collapsing due to budget measures: latest Begbies Traynor red flag alert found that firms in critical financial distress rose by more than a fifth – 21.4% – year-on-year to 49,309 in the second quarter”. It doth appear there is a correlation.