Public sector cuts will spark corporate failures

Hike in number of firms going bust expected

According to a survey, nearly two thirds (64 per cent) of credit professionals anticipate that business failure rates will rise by more than 10 per cent during the coming months. 

Despite this warning from credit professionals that the knock-on effect on the wider economy is set to be painful, only one third of the companies they represent (33 per cent) are already monitoring actively their customers’ reliance on public sector contracts as a source of revenue as an established part of their own supply chain risk management process.  

Martin Williams, managing director, Graydon UK, said: “Credit managers are clearly well aware of the potential consequences of scaling back public spending at the rapid pace being advocated by the new Government." 

But despite the prospect of a commercial insolvency boulder gathering momentum as it rolls down the economic hillside, the potential dangers have not yet been recognised by other operational areas.

Meanwhile, despite the looming prospect of a surge in company failures, just under half (49 per cent) of credit managers questioned agree or strongly agree that a rise in business failures will be a price worth paying in order to restore the UK’s future economic stability. 

In addition to public spending cuts, the survey also revealed that four fifths (79 per cent) of respondents agreed that the rising number of  rejections by HMRC to businesses applying for its Time to Pay tax deferral scheme will add to predicted rise in insolvencies across the UK.

Williams added: “Although firms can take steps to assess how they will be affected by public spending cuts they cannot anticipate how they will be affected by the winding up of the Time to Pay programme as HMRC has refused to publish a list of applicants. 

“The Government’s reasoning here is justifiable as by revealing which businesses are asking for additional time,  HMRC risks inadvertently shutting off those  companies’ other credit lines. Further corporate failures would be the inevitable consequence of this, and HMRC needs to protect its position now that it has lost its preferred creditor status.”