The Office of National Statistics recently published the company insolvency statistics for Q3, which show 6,208 company insolvencies. This marks a 10% increase on the number of company insolvencies in Q3 of 2022 and the first time since 2008 that company insolvencies exceeded 6,000 in a single quarter.
The increases can be seen across all types of company insolvencies. Thought there has been a particularly notable rise in Creditors Voluntary Liquidations which account for 80% of cases.
What is causing the rising number of company insolvencies?
The financial crash and resulting recession of 2008 were clear causes of the high number of company insolvencies in 2008 and did not come as a surprise. Whereas there is not one clear cause of the current increase in company insolvencies, instead there are several different contributory factors.
One factor that is thought to have played a role in the increasing in insolvencies in 2023 is the increase in energy costs. Gas and electricity prices rose at 1.7% and 6.7% respectively in 2023, which followed on from the increase 12% in 2022. This led to many businesses being unable to meet the increasing overheads. This is a particularly prominent issue in the construction industry where gas usage is on the rise.
Another contributory factor in the increase in company insolvencies is the withdrawal of the majority Government covid support schemes. During the Government put in place several support mechanisms, such as Bounce Back Loans, moratoriums on rent, Covid-19 Additional Relief Fund grants and business rates relief. These were gradually removed from March 2021, onwards with companies having to pay back loan monies in the case of the bounce back loans. As a result, some companies that were able to survive the pandemic with the help of support programmes were faced with solvency issues upon its removal.
Finally, the rising costs of raw materials as a result of the war in Ukraine is thought to have contributed to the soaring rate of insolvencies. This is a particular issue in industries such as Construction and Wholesale trade where raw materials prices are directly linked to profit margins.
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