By Brendan Clarkson, above, Director, PKF Littlejohn Advisory
This year has been a challenging one for UK businesses, with insolvency rates reaching a 15-year high. The economic landscape has been marked by geopolitical uncertainties, high operational costs, and lower demand, all of which have squeezed profit margins. Add to that high interest rates and a cost-of-living crisis, and it’s no wonder businesses are suffering.
Some sectors are, of course, more impacted than others: hospitality, construction, and retail have been particularly hard hit this year, with notable increases in insolvencies. The hospitality industry saw a 27% rise in insolvencies, with over 2,400 restaurants closing their doors. In the construction sector, companies such as BuildRight and ConstructCo faced significant financial difficulties, leading to their eventual collapse.
Retailers, too, have struggled, with well-known names like Superdry, Ted Baker and The Body Shop entering administration due to declining sales and rising costs. High street stalwarts such as Boots and B&Q have also suffered, with Boots announcing the closure of several stores across the country, and B&Q shutting down multiple locations due to high business rates and operational costs. Carpetright closed over 200 stores across the UK, resulting in the loss of more than 1,000 jobs.
Despite these difficulties, there is cautious optimism for a recovery in 2025, as businesses of all sizes adapt to the evolving economic environment. While the trends of high insolvency rates and economic challenges are likely to continue into the next year, there are also signs of potential relief. Government support measures and financial aid have been crucial in helping businesses navigate these turbulent times. As inflation eases and a reduction in interest rates take effect, the hope is that insolvency rates may start to decrease. With continued innovation, strategic planning, and collaboration, UK businesses will not only recover but emerge stronger and more resilient.
Approach of the Labour Government
As we approach 2025, the Labour Government is set to introduce a series of measures which it claims will not only enable small businesses to thrive, but also create fairer conditions for employees.
One of the key legislative changes is the Employment Rights Bill, which will bring significant reforms to employment laws. While it does not centre on insolvency work, this Bill aims to end exploitative zero-hour contracts and dishonest fire-and-rehire practices, while establishing basic employment rights from day one, such as paternity and parental leave, and protection from unfair dismissal.
The Bill also seeks to remove the ‘one establishment’ rule. As a result, any situation where 20 or more employees are dismissed within a 90-day period will require collective consultation and notification to the Secretary of State. This change will notably affect larger organisations dealing with significant redundancies, without being limited to any particular sector.
Additionally, the Government plans to modernise the insolvency regulatory framework. Firms providing insolvency services will be required to obtain authorisation and adhere to new ethical and technical standards set by the Secretary of State. A mandatory public register of authorised insolvency practitioners and firms will also be established, enhancing transparency and accountability.
These measures are designed to create a fairer and more supportive environment for businesses and SMEs, helping them navigate economic challenges and promoting long-term growth and stability. The Government’s approach reflects a commitment to balancing the needs of businesses and workers, ensuring that the UK remains a competitive and attractive place to do business.
Evaluating the worldwide political landscape and the role of the USA
The global political landscape in 2024 has been marked by significant challenges and transformations. Key events such as the ongoing Russia-Ukraine conflict, tensions in the Middle East, and major elections in countries like India, the European Union, and the United States are shaping international relations and economic policies, influencing global stability and cooperation.
With Donald Trump set to be sworn in as President of the United States in January 2025, UK businesses and trade face several potential impacts. Trump has shown a preference for protectionist trade policies, which may include imposing tariffs on imports from US trading partners. This could directly affect UK exports to the US, one of the UK’s largest trading partners. Increased tariffs could lead to higher costs for UK businesses, reducing their competitiveness and profitability.
The uncertainty surrounding Trump’s trade policies could lead to volatility in global markets, meaning that this uncertainty can affect business confidence and investment decisions – in turn potentially leading to financial instability for some UK companies. Certain sectors, such as manufacturing and construction could be more vulnerable to changes in trade policies. Tariffs and trade barriers could disrupt supply chains and increase operational costs for businesses in these industries. Increased costs and reduced market access could lead to financial strain, potentially increasing the risk of insolvencies.
Companies heavily reliant on exports to the US or those with thin profit margins might be particularly at risk. They might find it challenging to absorb the additional costs, potentially increasing the risk of insolvencies. The financial strain could also lead to reduced investment in growth and innovation, further impacting the long-term sustainability of these businesses.
While the full extent of the impact will depend on the specific policies implemented by the Trump administration, UK businesses and SMEs should prepare for potential disruptions and consider strategies to mitigate risks associated with changes in trade relations.
Forecasting the future
Looking towards 2025, the landscape of business insolvencies in the UK presents a complex and multifaceted picture. While a slight decrease in insolvency rates is anticipated, the overall numbers remain significantly higher than pre-pandemic levels, reflecting ongoing economic challenges and sector-specific pressures.
The future of insolvencies in 2025 will be shaped by a combination of economic conditions, sector-specific challenges, and broader market dynamics. By proactively addressing risks and embracing opportunities, companies can position themselves not only to survive but to thrive in the years ahead. The key to success will lie in anticipating trends, fostering a culture of continuous improvement, and maintaining agility in the face of change.
Directors of businesses and SMEs that are likely to enter insolvency will need to familiarise themselves with the options available to them. If they sense difficulties, then seeking help early, in turn, means that restructuring professionals have more options available to them to help steer the ship, and leave you to focus on business growth, rather than a fight for survival.