Wholesale and retail traders, along with construction firms, accounted for nearly a third of all insolvencies in the 12 months leading up to April.
The Insolvency Service's recently published data indicates a worrying trend in the º£½ÇÊÓƵ economy, as company insolvencies in May increased by eight per cent month-on-month, as reported by .
Insolvencies in May reached 2,074, marking a 15 per cent increase compared to the same period last year.
The rate of insolvency at the start of this year was roughly double that of 2020, with more companies choosing creditors' voluntary liquidations, a type of insolvency where directors agree to shut down businesses with creditor approval.
According to the Insolvency Service, trends since the second half of 2022 have mirrored levels last seen during the 2008 and 2009 recession following the financial crash.
Construction, a key sector for the º£½ÇÊÓƵ government's ambitious infrastructure plans, constituted 17 per cent of all insolvencies in the year to April. Meanwhile, wholesale and retail trade, along with garages and motor vehicle repair firms, made up 15 per cent of cases.
The rate of insolvencies in the year to May now stands at one in 189 companies, highlighting the vulnerability of businesses when costs are rapidly escalating.
Tom Russell, president of R3, the º£½ÇÊÓƵ's insolvency and restructuring trade body, has warned that Chancellor Reeves' tax hikes could put dozens of companies at risk in the coming months.
"Many businesses will already have increased prices and cut expenditure to cope with the existing economic challenges and many, especially SMEs, will find it increasingly difficult to respond to further cost increases," stated Russell.
"It is unlikely that we will see the full impact this will have on businesses until later in the year, but the prospect of these changes being introduced has influenced a number of directors' decisions to seek insolvency and restructuring advice and consider the future of their businesses."
"The recent increase in unemployment indicates that the tax increases, along with the prospect of the Employment Rights Bill coming into law, has also affected hiring levels and investment as management teams wait to see how it will affect their wage bills, and we expect this to continue until the picture is clearer."
Insolvencies signal 'perilous position'
Mark Ford, S&W restructuring partner, said some firms were in a "perilous position" due to sluggish growth, low consumer confidence and high borrowing costs.
"Businesses are now facing newer challenges that threaten their viability and this means we are likely to continue to see a steady stream of company insolvencies in the coming months," Ford commented.
"Higher costs resulting from increases to employer national insurance contributions, the minimum wage and business rates are all heaping considerable pressure on businesses, particularly those that feel they are unable to increase prices for fear of losing customers."
