Small firms sound alarm on company insolvencies as labour shortages bite

Figures released today by the Insolvency Service show that just shy of 1,500 companies were lost during yet another disrupted December, up 20% on the same period last year and 33% higher than in December 2019, before Covid hit.

Overall, corporate insolvencies in England and Wales were 11% higher in 2021 than in 2020. The first half of 2021 saw an average of around 930 insolvencies per month. In the second half of 2021, that jumped to over 1,400.

Responding to the figures, Federation of Small Businesses (FSB) National Vice-Chair Martin McTague said:

“Thousands of small businesses are on a knife-edge following a difficult and disappointing festive season, with surging inflation now eroding margins. The fresh support that the Government has promised to many firms is taking too long to reach the grass roots, and will not be enough to protect the futures of many when a jobs tax hike and business rates bills hit in April.  

“Today’s figures are a stark reminder that the nascent recovery from the pandemic needs to be nurtured, something that will be endangered if we lose too many of our small businesses. The wider small business community shrank in size by 400,000 in 2020. The Government should take action to address spiralling overheads, to avoid history repeating itself.    

“Small business confidence tumbled into negative territory last quarter, with a deepening of our late payment crisis eating away at optimism.

“At the same time, availability of the right staff is increasingly holding firms back, hampering their ability to reach their potential. Today’s labour market stats show record numbers of vacancies, demonstrating the problems that the small firms which employ the majority of the private sector workforce face in finding suitable staff.

“The tax rises coming in April could prove the final straw for many. The Government’s decision to increase National Insurance – a tax on jobs – looks increasingly indefensible when a record high number of small firms are already reporting cost increases across the board, driven by energy bills, rising input costs and staff costs. This tax hits businesses whether they make a profit, break even, or suffer a loss.

“The Government must seize the opportunity to make the forthcoming Spring Statement as small business-friendly as it can, rowing back on its damaging tax hikes and committing to helping smaller firms make it through continuing turbulence. It should also take action on late payment, a perennial business-killer, by making big corporations appoint directors who are directly responsible for any breaches of fair payment terms, and by ensuring companies whose payment practices fall short face real consequences.”