Time to Pay squeeze to hit vulnerable businesses hardest in 2011
New research which looks at the challenges facing businesses in 2011 found that almost a third (29%) of insolvency experts think that a squeeze of the Time to Pay facility would be the most harmful potential development. The impact of public sector cutbacks and a modest rise in interest rates were joint second, with 23 percent each.
R3 President, Steven Law commented:
“Our members have seen how invaluable the Time to Pay scheme has been to businesses. We believe that it is important that it remains available as a breathing space for viable businesses, but that it is not used as an alternative credit facility for ‘zombie companies’.”
The three industries that insolvency experts believe face the biggest threat from the public sector cutbacks are health and social work (12%); wholesale and retail (16%); and construction. Almost half of R3’s members (48%) believe that the construction industry will bear the brunt of the impending public sector cuts, as we see a considerable reduction in spending on education and social housing. There are fears that the expected increase in private sector contracts will not be enough to make up the shortfall leaving the industry in a vulnerable position. Given that the construction sector accounts for the greatest number of trading-related bankruptcies, there is a worry that a large number of failures in this industry will lead to an increase in related personal insolvencies.
Steven Law continued:
“Previous R3 research found that one third of small businesses are reliant on public sector contracts so our members expect the fall-out of the public sector cuts to have a significant impact on the private sector in 2011. In view of upcoming cutbacks, businesses reliant on public sector contracts should attempt to diversify their income stream towards a broader customer base.”
The research also looked at how planned policy changes would impact on businesses and found that half of insolvency practitioners believe that the impending VAT increase is the biggest challenge facing businesses during 2011.
Steven Law continued:
“The rise in VAT will make spending more expensive, serving a further blow to struggling businesses, such as retailers and restaurateurs, that rely on consumer spend. As a percentage, the hotel and restaurant industry suffered most during the recession and many vulnerable businesses will find themselves either shouldering the extra tax burden or suffering a further fall in consumer demand by passing the tax on. In fact, our members expect the retail sector will witness the greatest number of insolvencies next year.”
Methodology note: Between the 21st October and the 2nd November 2010, independent research agency ComRes conducted an online survey of R3 members in the UK. The survey was sent to 2082 IPs, of whom 318 responded. This means that approximately one in seven of those eligible to take part did so. ComRes is a member of the British Polling Council and abides by its rules (www.britishpollingcouncil.org ).
R3 Press Office