Pictured above: John Kelly
More than 50,000 companies are at risk from Government spending
cuts to be announced next week, according to the latest quarterly
Red Flag Alert, issued by Begbies Traynor, the UK's leading
business recovery specialist.
It reveals that the recovery is faltering and predicts "a
prolonged period of growth in business distress".
John Kelly, regional managing partner at the firm's Birmingham
office, warned that the West Midlands faced a major threat of job
losses given the underlying weakness of the regional economy.
Revealing that the number of companies experiencing financial
problems in the vital automotive sector had risen from 3,007 in the
second quarter to 3,352 in the third, he cautioned: "Automotive
represents the first sector to feel the impact of the unwinding of
temporary Government support measures, as shown in an 11 per cent
increase in financial distress during the period following the
withdrawal of the UK car scrappage scheme in March this year.
"As the Government has acknowledged, its key challenge is to
strike the fine balance between maintaining confidence in its
ability to reduce the UK's deficit, while ensuring that cuts to
public sector spending and the withdrawal of temporary support
measures are sufficiently staggered to maintain the recovery."
The report found that nationally 123,361 companies experienced
"significant" or "critical" financial distress in Q3 2010, with the
50,299 exposed to "critical" financial problems owing over
£57.5 billion to creditors, suppliers and service
providers.
In the West Midlands the number of companies experiencing
significant or critical financial problems has fallen year on year,
but risen compared with the previous quarter. In the third quarter
of 2010, there were 7,129 companies facing significant or critical
difficulties, compared with 7,451 in the same quarter of 2009 and
6,938 in the second quarter of this year.
Companies with "significant problems" are those with either a
court action and/or average, poor, very poor, insolvent or out of
date accounts. Companies with "critical problems" are those with
county court judgments totalling £5,000 or more and/or
wind-up petition related actions.
Construction, IT, recruitment, advertising and business services
are all said to be struggling.
Mr Kelly said: "It will not be until the Government's
Comprehensive Spending Review in a week's time that we will know
for certain the allocation of all of the anticipated £83
billion of spending cuts. However, our Red Flag Alert statistics
indicate that the sectors likely to be most impacted are already
starting to show definite signs of financial distress.
"With confidence in the construction sector falling to an 18
month low, recruitment activity at its slowest for almost a year
and a strong increase in distress in the advertising sector, there
is a growing risk that even if the wider UK avoids a double dip
recession, public-sector dependent industries could see higher
levels of financial problems."
The report says consumer facing industries are also on the front
line.
Mr Kelly added: "Retail, leisure and travel are already seeing a
slowing rate of recovery ahead of greater pressure on consumers'
disposable incomes from increased VAT rates and public spending
cuts.
"With recent evidence of house price reductions, falls in
consumer credit and lower savings ratios, it is likely that a
combination of deteriorating consumer confidence and financial
resources will result in growing numbers of business failures in
those sectors most exposed to discretionary spending.
"While the retail sector may benefit from a short term boost as
consumers purchase bigger ticket items ahead of the VAT rise in
January, we expect to see a significant rise in failures in the
sector from the first quarter of 2011."
The latest quarter has also been marked by a significant
increase in the number of HMRC winding-up petitions - up 39 per
cent between August and September - suggesting the Government may
be getting tougher on chasing taxes from both corporates and
individuals.
For more information about Begbies Traynor, please visit their
website here: www.begbies-traynorgroup.com