Soaring Insolvencies Surge to 16-Year High Amid Tax Hike Concerns
Company insolvencies have hit a 16-year peak, driven by a wave of voluntary liquidations ahead of imminent tax increases. Official figures reveal that the number of businesses folding in January was the highest since the financial crisis, with nearly 500 companies closing each week.
Surge in Liquidations
Corporate insolvencies rose 10.7% year-over-year to reach 1,971, exceeding the previous peak in January 2009. Excluding 2009, this marks the highest January insolvency count on record since data started being collected in 2000.
Factors Contributing to the Surge
Tim Cooper, president of insolvency trade body R3, attributes the increase to business owners opting for voluntary liquidations due to challenging trading conditions and anticipated tax hikes. Chancellor Rachel Reeves's October Budget includes a £25bn tax raid on businesses through National Insurance and National Living Wage increases, which will come into effect in April.
Business Costs and Economic Pressures
The insolvency spike coincides with rising inflation, energy crisis, and higher borrowing costs. The Bank of England's interest rate increases have further burdened businesses. Angela Rayner's Employment Rights Bill is also expected to add an additional £4.5bn in costs annually.
Retail Disappointment and Debt Collection
Consumer spending during the Christmas period fell short of expectations, while HM Revenue & Customs has resumed its pre-pandemic approach to debt collection.
Concerns for Economic Growth
Gavin Kramer of Collyer Bristow lawyers notes that businesses continue to struggle, with limited signs of economic growth. The Treasury has yet to comment on the insolvency surge.