Small and medium-sized enterprises (SMEs) form the backbone of the UK economy. Yet, they have become the epicentre of an escalating wave of small business liquidations.
In 2022, company closures quintupled in some parts of the UK compared to pre-pandemic levels.
This analysis reveals the industries and regions most affected, deciphers the causes, and offers expert insights to navigate the road ahead.
The Extent of the Crisis
Insolvency crept across the business landscape last year, especially in areas densely populated by independent firms.
The insidious increase in small business liquidations predominantly impacted three sectors – retail, hospitality, and construction.
For instance, Havering, on London’s periphery, witnessed a surge in liquidations from 40 in 2019 to a staggering 205 in 2022.
Simultaneously, Southend-on-Sea in Essex saw company collapses escalate from 51 to 240.
The once-bustling high street of cities like Derby and Bolton has also been crippled by this trend. In 2022, Bolton alone saw the loss of 124 hospitality venues.
Dissecting the Causes of Liquidations
The reasons behind this stark rise in liquidations are multifaceted.
According to Michael Weedon from the Federation of Small Businesses, the situation represents a “perfect storm” of recovering from the pandemic, paying off Covid-19 bounce-back loans, and grappling with the surging costs triggered by the war in Ukraine.
Weedon explains that larger cities, being home to bigger businesses, have been cushioned against the worst effects of these challenging business conditions.
In contrast, the outskirts of large cities and smaller places with a higher density of independent businesses are bearing the brunt of liquidations.
The lack of footfall in town centres coupled with insufficient reserves to cope with escalating stock and energy costs are contributing factors to the small businesses’ struggle.
Government Support and Its Impact
In response, the government has claimed to have provided around £400bn of support to businesses since the pandemic’s onset.
Measures included business grants, the Coronavirus Job Retention Scheme, coronavirus loan schemes, and an income tax payment deferral.
However, despite these efforts, England and Wales recorded around 22,000 insolvencies last year – the highest since 2009.
These figures indicate that the government’s aid may not have been sufficient or adequately targeted to prevent the rising tide of liquidations.
Looking Forward
As small businesses tread the challenging landscape, the call for action strengthens.
Experts advocate for reinstating the energy bill discounts and raising the threshold for smaller firms’ business rates. These measures could help businesses get back on their feet.
The current scenario underscores the need for SMEs to reassess their strategies and brace themselves for potential headwinds.
Moreover, government and industry stakeholders must heed the insolvency trends to create more effective support mechanisms.
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