By our Correspondent
The number of British businesses at risk of going bust rose by more than a third at the end of last year, according to a report by consultancy Begbies Traynor. Its Red Flag Alert showed a 36% jump in the number of companies in “critical financial distress” in the final quarter of 2022, compared with a year earlier. The report said it was the sixth straight quarter in which critical distress has worsened. Companies face a toxic mix of stubborn inflation, cash-strapped consumers, rising interest rates and the need to repay debt taken on during the pandemic.
Public and private lenders are taking more action to recover debts, with some increasingly turning to courts, according to Julie Palmer, partner at Begbies Traynor. County court judgments served against companies approached 24,000 in the last three months of 2022, up by more than a half from the corresponding period a year earlier. “Strikes are just piling on the pressure as staff struggle to get to work and customers stay away,” Palmer added. “More and more companies are starting to feel the burden of their debts, making directors question whether they can go on.”
According to the Financial Times of London, hundreds of UK construction businesses are going bust every month as materials prices keeps rising and the pool of skilled workers has shrunk after Brexit. An average of 266 businesses per month collapsed in the three months to October, the largest number since before the pandemic and a 29 per cent rise on the previous period, according to the latest Insolvency Service data.
Noble Francis, economics director at the Construction Products Association, said the problems were likely to accelerate for some small specialist subcontractors that had been “hit with the full force of supply problems”. Costs were continuing to rise, delaying projects and affecting revenue streams, he said.
Only last week, PDR Construction, a Hull-based builder with 115 staff and turnover of £83m, went into administration, leaving subcontractors and suppliers facing millions of pounds of unpaid bills. Despite demand for building reaching record levels, supply chain blockages have meant contractors have been hit by rising costs for materials including timber, steel and cement, which they have not always been able to pass on to clients.
A lack of skilled workers after Brexit has also pushed up wages. House builders have predicted that costs will rise at least 5 per cent as a result of the disruption, some of which could be passed on to consumers in the form of house price inflation. Larger builders have typically been able to navigate the disruption, with their scale affording them greater bargaining power. But small and medium-sized developers have had a harder time, according to industry analysts.
Sharp rises in the price of shipping construction products from China in the past 18 months have added to contractor costs. The cost of a 40ft container from China to northern Europe was $1,500 in summer 2020 but at the start of January 2022 it was $14,200. Although the price of some goods has been falling over the past few months, the overall cost of materials in the three months to October 2021 was 21 per cent higher than the year before.
Wages have risen about 6 per cent as a result of a shortage of skilled tradespeople, including carpenters, bricklayers and plasterers in the wake of Brexit, according to figures from the Department for Business, Energy and Industrial Strategy. Rebecca Dacre, partner at consultancy Mazars, said: “Building contractors are being hit from all sides. Supply chain chaos, spiraling inflation and a vanishing pool of workers are combining to ramp up the financial pressure on them. For some the burden is too much and this is pushing them under.”
Labour shortages had delayed construction projects, giving clients room to demand compensation from builders, potentially threatening their solvency, Dacre added. The largest companies to go under last year were the privately owned Cleveland Bridge, a 144 year-old steel business, which collapsed in July as a result of problems brought on by the pandemic. In October NMCN, formerly called North Midland Construction, became the largest listed construction company to go bust since the government contractor Carillion was liquidated in January 2018. Other issues affecting businesses included overtrading, where contractors took on too much work too quickly without having the cash flow to complete, Dacre said.